Between a rock and a hard place — it's an expression that increasingly applies to Australia's economy and the policymakers in charge of it.

Prime Minister Scott Morrison hijacked Star Wars to campaign on the slogan that "the economy is strong with this one".

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The only problem is that it isn't — annual economic growth of 1.4 per cent is as bad as the low point during the global financial crisis a decade ago.

The Reserve Bank's latest interest rate cut is emblematic of the dilemma, even as the Treasurer and RBA governor tried to downplay it a few months ago.

"I agree 100 per cent with you that the Australian economy is growing and the fundamentals are strong," Dr Lowe told the Treasurer at a very staged photo opp in July.

"The outlook is being supported by our lower interest rates, by your tax cuts, by higher levels of investment in infrastructure, by a pickup in the resources sector and the stabilisation of the housing market in Sydney and Melbourne."

Putting aside the one-off photo opp with Josh Frydenberg, for months Philip Lowe has been close to begging for assistance. ( AAP: David Geraghty/ The Australian Pool )

If the economic fundamentals were that strong, then it seems improbable the Reserve Bank would need to drop rates to another record low.

While there's no doubt a desire to keep the Australian dollar lower and industry more competitive is a major factor behind the cut, it's also indisputable that the RBA wouldn't have moved if economic growth was robust and unemployment was falling.

We're near the top of the debt tree

You see, the RBA is a reluctant cutter, itself stuck between the contradictory needs to stimulate a flagging economy and keep household borrowing in check.

Australians are right near the top of the tree when it comes to household debt — comfortably in the top three globally on almost all measures, mainly due to mortgages.

Being so indebted is a major reason why Australians are not spending so much in the stores, which in turn is a key driver of sluggish economic growth and inflation.

That, in turn, has pushed the Reserve Bank into its latest move, taking the official cash rate down to a fresh low of just 0.75 per cent.

Those reductions in the cash rate are showing every sign of rekindling the smouldering embers of the Melbourne and Sydney housing markets, which had flamed out with 10-15 per cent peak-to-trough price falls after a spectacular five-year boom.

But are rate cuts counterproductive?

While a return to growth may make existing owners a little more optimistic, causing them to spend a bit more, the Reserve Bank's own research department has concluded that high mortgage debts ultimately weigh on household spending, even when home values are rising.

So, at best, this avenue to economic growth will be relatively modest and short-lived.

At worst, it may prove counterproductive in the longer term if causes household debt to rise even further.

It's no wonder then that the RBA has been unusually forthright in its advice — or pleas — to its political masters in the Federal Government.

Putting aside the one-off photo opp with Frydenberg, for months Reserve Bank Governor Philip Lowe has come as close to begging for assistance as such a senior official can do with dignity.

Philip Lowe has been a major advocate for increased infrastructure spending. ( AAP: Dan Himbrechts )

Speaking straight after the Reserve Bank board cut interest rates in July, Dr Lowe said Australia "should not rely on monetary policy alone".

"We will achieve better outcomes for society as a whole if the various arms of public policy are all pointing in the same direction."

A not-too-subtle hint that the Reserve Bank felt — and no doubt still feels, given this week's rate cut — that the other arm of public policy, government spending, is not lifting its weight.

Or, worse still, that it's pulling the metaphorical economic string back in the same direction that the Reserve is pushing from, by insisting on a budget surplus, which inherently means the Government is taking more money from the economy in taxes than it's putting back in spending.

Canberra has the money — but it's politically pinned

There are non-monetary ways the Government can boost the economy — through law reforms that enhance competition and tax reforms that improve efficiency — but these take years to make a significant impact.

It's in that context that Philip Lowe has been a major advocate for increased infrastructure spending.

The Federal Government has repeatedly touted the $100 billion it has earmarked for infrastructure — the chief problem being that it's spread over a decade, when the economy needs the cash splash now.

State governments are spending hundreds of billions combined — but, again, much of it won't get spent until well into the next decade and most of the state budgets won't allow them to ramp up that spending a great deal more.

So, if more money is to come, it will probably need to come from Canberra.

Governments, states as well as the Commonwealth, have rightly pointed out that there are constraints to getting more big projects underway quickly — everything from a shortage of civil engineers to a shortage of sand and rocks for concrete.

But Dr Lowe says that's no excuse.

"Right at the moment there is limited capacity to do more mega projects in Sydney and Melbourne but there is capacity elsewhere in the country to do significant projects, and also capacity to do a series of smaller projects," Dr Lowe recently told Nine's Good Weekend magazine.

"Part of infrastructure investment is actually maintaining road, rail, bridges right across the country.

"It has the other advantage of making sure infrastructure spending is spread across the country and not just centralised in Sydney and Melbourne. There is capacity in some areas."

There's also capacity in the Federal budget.

The latest OECD data on general government debt has Australia at 66 per cent of GDP.

It sounds like a lot, but it's nothing compared to Japan's 234 per cent, Greece's 192, 148 in Italy, 137 in the US, 113 in the UK or 108 per cent in Canada.

Not only that, but much of this debt sits with the states and, when you consider the Federal Government's assets, net Commonwealth debt is quite stable comfortably below 20 per cent of GDP.

So Canberra has the money, the hard place it finds itself pinned against is purely political.

Surplus fetishism has one major problem

After years of lambasting former treasurer Wayne Swan over his inability to deliver a budget surplus after repeated promises to do so, and the Coalition's failure to deliver one so far after two full terms in Government, Scott Morrison and Josh Frydenberg have doubled down on producing one this financial year.

When the Treasurer delivered the 2018-19 Final Budget Outcome a few weeks ago, he could show off what was, for all intents and purposes a balanced budget — a deficit of $690 million, or 0.0 per cent of GDP when rounded to one decimal place.

But he recommitted to a surplus this financial year.

"These outcomes demonstrate the Government's economic plan is working and confirming the budget is on track and will be back in the black for the 2019-20 year," he said.

It should be emphasised that this budget surplus fetish has largely become bipartisan, with Labor having gone to the election promising even bigger surpluses than the Coalition, even as it now calls for increased infrastructure spending.

The problem with this surplus fetishism is that locks the Government into continuing to take more money out of the economy than it's putting in, which conventional economic theory holds is not a good idea when your economy is struggling.

The Government has dragged the Reserve Bank into it's hard place as the rock of a slowing global and domestic economy presses in on them both.

That's left the RBA little choice but to cut interest rates and encourage more private sector borrowing, even though it's Australia's private sector that has the debt problem — with the household debt to GDP ratio around twice that of the total public sector.

So, unless the rock of a global economic slowdown gets rolled away, which looks unlikely, the Government and RBA will remain trapped against the hard place of a relatively meaningless number in the federal budget.

John Hewson said the only way to crack that hard place open was a major financial or economic flash point. ( ABC RN: Natasha Mitchell )

Economist and former Liberal leader John Hewson recently told the ABC that the only way to crack that hard place open was probably a major financial or economic flash point.

"At some point they will have to change their rhetoric, but it's more likely they'll wait until something of a crisis hits us, from offshore in particular, which they can then say, 'ah well that's the reason we have to change', rather than initiating it themselves."

But, if and when there is such a shock, it may be too late for government stimulus to have much effect, even as a budget deficit re-emerges automatically as the economy turns further down.