"Many difficult choices will need to be made," RBA governor Glenn Stevens warned in his farewell speech. Credit:Christopher Pearce "Let me be clear that I am not advocating an increase in deficit financing of day-to-day government spending," he said. "The case for governments being prepared to borrow for the right investment assets – long-lived assets that yield an economic return – does not extend to borrowing to pay pensions, welfare and routine government expenses, other than under the most exceptional circumstances. "The point I am trying to inject here is simply that popular debate in Australia about government debt and how we limit or reduce it seems so often to be conducted while largely ignoring the size of private debt. Foreign visitors to the Bank over the years have tended to raise questions about household debt much more frequently than they have raised questions about government debt." The government's day-to-day spending should be wound back in line with revenue. "At present, general public debate starts with commitment to the need for reform and for putting public finances on a sustainable medium-term track. But when specific ideas are proposed that will actually make a difference over the medium to long term, the conversation quickly shifts to rather narrow notions of 'fairness', people look to their own positions," he said.

"If we think this rather other-worldly discussion will not have to give way to a more hard-nosed conversation, we are kidding ourselves. That will occur should there be a moment of crisis, but it would be better if it occurred before then." Mr Stevens defended his board's decision to cut the cash rate to an all-time low of 1.5 per cent last Tuesday saying that while the move carried risks, every decision carried risks, including doing nothing. Asked whether his successor should cut the Reserve Bank's 2 to 3 per cent inflation target so that he didn't have to cut rates so often Mr Stevens said the risk was it would then be moved up one day. "Do we want that?" he said. "I would counsel caution in fiddling too easily with something that's worked very well so far." Asked about "helicopter money" – the Reserve Bank itself lending to the government so it can spend instead of the RBA cutting rates – he said that once it began the problem would be "to know where to stop".

"The reason we have a taboo on central banks funding government spending is you need to know where to stop," he said. Asked whether Australian interest rates might run negative, he said he thought the likelihood was low. "I certainly would hope so, but that's a decision for others now, not for me," he said. Mr Stevens retires after 10 years in the job on September 17. He will be replaced by his deputy Philip Lowe. Asked whether he had ever suffered attempts at political interference, particularly in 2007 and 2016 when he moved during election campaigns, he said he had never had a phone call. "There's a phone behind my desk to other secure parts of government. I think the last time it rang was 2006," he said.

Loading Peter Martin is economics editor of The Age. Follow Peter Martin on Facebook