RBA's Lowe fears red tape will smother economic recovery

Reserve Bank governor Philip Lowe has warned that excess regulation threatens to smother the dynamism of the Australian economy as it seeks to reopen from the virus shutdown, and welcomed the Morrison government's push to encourage business and workers to co-operate on reviving productivity growth.

Dr Lowe revealed that unemployment and the economic downturn had not been as severe as anticipated and the Morrison government should keep hold of the $60 billion in savings from the JobKeeper program to perhaps finance more tailored spending in a few months.

Philip Lowe: "Right now I don't think they do need to spend more but the issue will be in three to four months' time.".

Dr Lowe pointed again to the various reports on tax, industrial relations and skills, and infrastructure that show "how various regulations promote or perhaps hinder innovation".

Dr Lowe said his meetings with business and unions indicated "they both complain about the same things".

Describing the virus crisis as a "black swan event", Dr Lowe said unemployment figures released this month had not been as bad as the central bank expected, and the recovery was already under way.

Dr Lowe said the hit to unemployment had not been as hard as he had originally thought, but he would want to see an increase in the hours worked and a recovery in the labour market before the JobKeeper scheme was adjusted.

Dr Lowe warned that as the pre-existing pipeline of works in construction and professional services ran off there could be concerns for further job losses in these areas.

While Dr Lowe has given the government room to move on JobKeeper, he insisted that strong fiscal support be maintained to help the economy to recover.

The economy may be coming back to life but businesses still need a lot of government support

Philip Lowe and Treasury boss Steven Kennedy are nudging the government to provide spending support beyond next year to aid the fragile economic recovery