Stopping the boats, flicking the mining tax and replacing a low-priced emissions trading scheme with another carbon tax – how else is "direct action" paid for? – hasn't turned the economy around. There is a certain irony in the federal Treasurer continuing to talk the economy down until the last month or so, when the economy showed signs of turning down. Now business isn't listening. Business also hasn't been fooled by the "infrastructure Prime Minister" slogan – it knows the Commonwealth is spending less on infrastructure this financial year than it did under the last Labor budget. All that talk of "budget emergency" and the need to cut and slice while the economy was heading for below-trend growth probably hasn't helped, never mind the inconsistencies of an unnecessary $8.8 billion for the Reserve Bank and the recently deceased, gold-plated parental leave scheme. Nevertheless, business confidence had been holding out against sub-par consumer sentiment, but it's catching up fast.



Source: NAB And then there are the mixed messages that come from the RBA on whether the next interest rate move might be down, rather than up. Tuesday's NAB business confidence survey was enough to have the NAB's economics team join the rush to start predicting rate cuts next year. In the NAB's case, it's a specific prediction of 25 points off the cash rate in March, another 25 in August and then rates on hold until late 2016. In forecasting land, two years out effectively means as far as the eye can hope to see. Lower rates should increase the desire to spend and invest. Consumers will have more money left in their pockets after paying the mortgage and businesses will have lower borrowing costs. But the wise know better than to hope for even cheaper money, because an interest rate cut confirms that the economy's outlook is weaker and requires greater stimulus.

The RBA hasn't been getting any message that the cost of money has been holding back investment decisions – interest rates being where they are aren't a problem. Signalling that a cut in the cash rate is in the offing also signals that the existing RBA outlook with steady rates – growth of about 2.5 per cent this financial year – has deteriorated. But it's wrong to get too gloomy about this. It's the RBA's job to try to get ahead of such changes and provide some amelioration, to keep us on a path back to trend growth next financial year. And 2.5 per cent GDP growth is still what most of the developed world can only dream of achieving. Yet, as various RBA heavies have been trying to remind people this year, there is only so much that monetary policy can achieve. It is really only good for a bit of smoothing of the economy, not driving it. The limits were spelt out clearly by the governor and deputy-governor before the House of Representatives economics committee in August, along with some advice about what the government might think about doing to improve the nation's future. There has been little sign of that advice being taken. It's a small mercy that the Treasurer understands that this certainly isn't the time to be looking to cut spending further to make up for various revenue shortfalls, whether caused by commodity prices or the Cirque de Senate. But when he ruled that out, he had actually been asked the wrong question. The question should have been whether he had any plans for fiscal stimulation.

As it turns out, there is some extra stimulus coming from the falling oil price. Cheaper petrol is a bit like a little tax cut, though the double-edged nature of cheaper commodities for the bigger picture should be understood by an energy exporting country. And the Australian dollar is weakening. The talk of rate cuts – a rapidly growing chorus of jawbones now – is doing its part. The Aussie's further movement is much more complicated than a matter of just cutting rates again, however much that tends to be parroted. And a government's ability to maintain confidence of consumers and businesses also goes beyond sloganeering. Today the December Westpac-Melbourne Institute consumer sentiment index will be released. The November trend score was 95.7, with 100 being the neutral point between pessimism and optimism. November last year the score was 107.9. Basically, the index has been bouncing along for the past half year around its 2011 fall. It's not what business, or a government falling in the polls, wants to see.