Former Reserve Bank governor and Treasury secretary Bernie Fraser has launched a broadside at both sides of politics, accusing them of failing to maintain a compassionate and fair society.

In an interview with ABC1's 7.30 program, Mr Fraser savaged Treasurer Wayne Swan's insistence on delivering a budget surplus next week, and called for the RBA board to slash the cash rate by a full 50 basis points when it meets today.

Mr Fraser, who ran the Treasury, then the Reserve Bank during Labor's long reign in the 1980s and '90s, was scathing about the present Government's record, arguing its incompetence and mismanagement has paved the way for an "extreme ideology of small government" in Australia.

"The last 20 years or so we've had conservative governments and Labor governments and in terms of my benchmark - competence, fairness, and compassion - they both failed and they're both failing," he said.

"Still, the more distressing thing is I don't see a way out from either side. For a long time I've thought Australia could become something of special country, a demonstration of a country that was competitive, fair, and compassionate, and I'm afraid those hopes have been dashed.

"We've had 20 years of uninterrupted growth - solid sustained growth for 20 years - and yet we've got more homelessness, the distribution of income and wealth is more unequal now than it was 20 years ago, we've got infrastructure, social and economic, that is breaking down and creaking."

His comments come as the Federal Government ramps up its rhetoric about fairness and equity.

'Disastrous' management

Treasurer Wayne Swan speaks during his post budget address at the National Press club in Canberra on May 14, 2008. ( Alan Porritt, file photo: AAP )

Mr Swan said on Monday: "I have a vision for this country where there's broad middle class, where people who work get fairly rewarded, where there's an optimism that comes with social mobility.

"What I am proudest of as Treasurer is everything we did in the GFC to prevent this country going into recession."

But Mr Fraser says Labor's "disastrous" mismanagement of stimulus programs it put in place to counter the global downturn have given government spending a bad name.

"The education building program, the insulation building programs, unfortunately those programs were pretty disastrous and the implications of those sorts of failures have rebounded on all government spending and it's really given the Coalition some free kicks - 'Here is a Government spending money and wasting money and therefore governments shouldn't spend, they shouldn't run deficits, they shouldn't have debt'.

"But to have a fair and compassionate and competent society, governments really have to do things but they have to do them well because who's going to provide the opportunities for low-income people? Who's going to provide accommodation for homeless people, for ageing populations, who's going to provide a cleaner environment? Not the market."

He says Labor's failings could pave the way for a long era of politics dominated by an "extreme ideology" of small government with parallels in the United States.

"To listen to the Coalition spokespeople, I hear echoes of the Republicans and the more extreme Tea Party Republicans - all this folksy nonsense about governments have to live within their means, deficits are bad, debt's bad," he said.

"All this to me is nonsense really because governments are not like households, they are not like businesses, they have responsibilities that go beyond that."

'Dud policy'

Mr Fraser says Labor's insistence on delivering a budget surplus when much of the economy is weak and employment growth is negligible is "a dud policy".

"The latest ploy on both sides is to say that producing budget surpluses will make it easier to reduce interest rates," he said.

"For the Labor Government I think this is another attempt to try to rationalise what is really a pretty poor political commitment to deliver a budget surplus next year irrespective of the economic circumstances."

His comments come on the eve of the Reserve Bank's monthly meeting on interest rates, with some economists predicting a cut to the official cash rate.

He says claims by the Government and the Opposition that a surplus would make room for the Reserve Bank are "sloppy thinking".

"Everyone agrees we have weakness in the economy and that's why everyone is calling for a reduction in interest rates and I agree with that," he said.

"But the idea of producing the budget surplus in a situation where there's acknowledged economic weaknesses and calls for reducing interest rates just doesn't make sense.

Mr Fraser also called for the Reserve Bank to slash the cash rate by 50 basis points.

"Yeah, yeah. I think the economic circumstances, signs of weakening in large parts of the economy and ... the lack of worry about the inflation problems provide an opportunity to do that.

"On May 1, the Reserve Bank could well reduce interest rates by 25, maybe even 50 points. On May 8 we've got the prospect of the Treasurer introducing a policy that's going to tighten fiscal policy quite significantly."

And he said the Government had botched its mining tax.

"They had an opportunity to take a stance in the budget that would be more defensible with delivering a surplus, and that would have been to impose a reasonable super profits tax on mining companies, and unfortunately that's one of those things that wasn't achieved very well and it's a pretty poor substitute for a decent tax on the super profits of mining companies that we've got."

RBA appraisal

He is less critical of the Reserve Bank, praising his successors for their management of monetary policy.

However, he disagrees with the decision taken by the man who replaced him as governor in September 1996, Ian Macfarlane, to enter a formal agreement with then treasurer Peter Costello, setting in writing the informal 2-3 per cent inflation target.

"Ian did show me the letter, or a draft of the letter, that the treasurer had suggested that he and the treasurer sign, and I said I wouldn't sign a letter like that," he said.

"The reason I wouldn't sign it was that it was unnecessary in that the Reserve Bank Act says what the Reserve Bank has to do and it has to have regard to employment and growth as well as inflation. This letter was about giving priority to inflation.

"Now, orthodox central bankers don't need any encouragement to give priority to inflation, that's in their DNA. The problem that I foresaw was that to boost that inflation focus even more by this exchange of letters was to downplay the multiple objectives the Reserve Bank has specified in its Act."

Mr Fraser was a public servant for 35 years. Former Labor treasurer Paul Keating appointed him as Treasury secretary in 1984, then as Reserve Bank governor in 1989.

At Treasury, he oversaw reforms such as the dismantling of tariff walls and financial deregulation that opened up the Australian economy to global competition.

At the Reserve Bank, he presided over the biggest fall in inflation in the history of the bank, he introduced an informal inflation target of 2-3 per cent and used his relationship with Mr Keating to forge a large measure of independence for the central bank.

Changes he pioneered are credited with helping to underpin the longest period of continuous economic growth enjoyed by any western nation.

But he believes measures designed to boost economic competitiveness need to be balanced by government policies to promote fairness and social equity.

Now in his 70s, Bernie Fraser has despaired at the prospect of that society being achieved again.

"I can't see any likelihood of the ideal being realised in the near future but for me that's pretty disappointing because my time is running out," he said.

"[I] can't see that competent compassionate society coming around [in] my lifetime."