By Peter Switzer

There were two good pieces of news yesterday. First, the consensus of economists was that the RBA would cut again and Westpac and ANZ economists said it looked imminent. Second, the PM reportedly told his Ministry team that he expects the Budget to be balanced within five years!

The only problem is that reports linked to this story said Tony Abbott was talking about spending cuts again and, of course, the Senate was mentioned as the threat to his plans to fix the Budget via spending cuts.

That said, I was surprised when a Fairfax story yesterday revealed that “the Government now argues the Parliament has passed around 80% of the first budget measures, delivering about $30 billion in savings and a net $16 billion improvement to the bottom line over four years.” And “the mid-year economic update forecasts a budget deficit of $40.3 billion in 2014-15, falling steadily to $11.4 billion in 2017-18 - effectively a balanced budget.”

If all this is true, why did the PM call the Senate “feral” yesterday?  Sure, it might be but if you’ve got 80% up, why tease or insult those people you have to win over?

Yesterday I was with a Liberal Party insider, who said that Tony has until the Budget to improve things. I asked if Malcolm Turnbull would replace him and, in a matter of fact way, he said “Bishop”.

This came on the same day that Julie Bishop was reported as wisely counseling her colleagues to sell the Budget better.

I’m hoping that the PM’s ‘balanced budget in five years’ call is linked to the idea of getting the economy to grow. Imagine a pro-growth Budget and one more rate cut. If that didn’t get us growing, then we’d have to curl up in a national fetal position and just moan until something happens!

The new Treasury boss, John Fraser, has told us that 4% growth four years in a row would turn the deficit into a surplus but most economists wouldn’t put their money on growth getting that high. We’re now at 2.5% if we add up the past four quarters, or 2%, if we take the December growth number and annualise it by multiplying it by four.

This chart shows that we have breached the 4% growth line lots of time since 1981 and, as Fraser points out, growth can beat a deficit/debt problem.

Even though John Howard and Peter Costello did cut spending to deliver surpluses and no net government debt, they were helped by the mining boom and the rise of China.

So what do we have? There’s a housing and related building recovery — tick. A lower dollar going lower — tick. Interest rates set to fall — tick. Yes, and petrol prices are lower — tick.

If we throw in a better sold 2015 Budget, which talks positively about infrastructure spending, and the Senate actually goes along for the ride, which I doubt (unfortunately), then we could see growth get into the 3% plus region in the second half.

If all this fails to get growth happening, we might need to think about tax cuts!

Yesterday I interviewed Dr Arthur Laffer, the US tax economist, who guided Ronald Reagan when he was president. Arthur featured in that great movie Ferris Bueller’s Day Off, when the boring economics teacher talked about ‘voodoo economics’.

Dr Laffer was the man who, in 1974 over lunch, proposed to two little known Republican officials — Dick Cheney and Donald Rumsfeld — that if you cut taxes, tax revenue actually goes up! It sounded like “voodoo economics” to George Bush Snr when he first heard of it but when he became Reagan’s vice president, he got on board with it.

Dr Laffer argues that setting taxes too high encourages tax dodging (legal and illegal), chases businesses away, or into closure and, as a result, a government collects less tax!

Maybe if the next Budget fails to win over the feral Senate, we might try something really outside the square, such as a tax cut! I reckon Clive Palmer’s last remaining Senator (Zhenya Wang), Jacqui Lambie, Glenn Lazarus and the other cross-benchers would buy an idea like that.