Australia’s monetary and fiscal policies are set in a medium-term framework. The objective of the Reserve Bank (RBA) is to maintain the inflation rate on average at around 2 to 3 per cent over the course of the business cycle while keeping monetary conditions conducive to sustainable growth in output and employment. At the Commonwealth level of government, fiscal policy aims at a balanced budget, also on average over the economic cycle. The medium-term orientation of economic policies has helped to achieve a degree of macroeconomic stability which is reflected in lower inflation and lower variability of inflation and output growth since the early 1990s (Figure 12). Together with the structural reforms discussed in the next chapter, this has provided a supportive framework for sustained growth....