RBA call for quick move on tax cuts
SCOTT Morrison’s Government could improve household incomes more significantly if it passes promised tax cuts in the coming months, Reserve Bank Governor Philip Lowe says.
The central bank has factored the Coalition enacting its promised doubling of a tax offset for low and middle income earners before tax time this year into its household income growth forecasts.
Not passing the measure – which has bipartisan support – would mean growth in what households are raking in would be 0.3 per cent lower than what the RBA had expected, Dr Lowe says.
“If that does not occur and there is no way to get the money to households, the household income growth will be 0.3 per cent lower over the course of this calendar year than I showed you in that graph,” he told an event in Brisbane yesterday.
“It would be good if there were a way for the households to get those tax offsets but the timing may mean that that’s very difficult and it may have to wait until next year.”
The extra tax relief would mean people earning up to $90,000 would get a rebate of up to $1080.
Key Morrison Government adviser Arthur Sinodinos believes the economy will rebound with the Coalition in power, pointing to tax cuts and a jump on the stock market. Unemployment rose just before the election to 5.2 per cent, while the Reserve Bank is considering cutting interest rates as there was zero inflation growth in the March quarter.
But Senator Sinodinos says Monday’s stock market lift shows businesses are happy with the Coalition victory.
“The fact the Government has been returned has reflected in the stock market already, which I think gained about $33 billion in market capitalisation yesterday,” Senr Sinodinos said yesterday.
IT WOULD BE GOOD IF THERE WERE A WAY TO GET THOSE TAX OFFSETS BUT IT MAY HAVE TO WAIT UNTIL NEXT YEAR PHILIP LOWE
The NSW Liberal senator said he expected the economy would get some stimulus when income tax cuts flowed through, hopefully pushing up the weakening consumption growth predictions.
Internationally, he said Australia had to encourage other countries to stick to the international trade system.
“(We should) encourage the US in particular to more fully embrace the rules-based order, because that’s the best guarantee we’ve got of heading off global headwinds,” he said.
THE Reserve Bank of Australia looks increasingly likely to cut the cash rate as early as June after Governor Philip Lowe said board members would discuss the move at their next monthly meeting.
Dr Lowe laid out the agenda in a speech yesterday, hours after the release of minutes from the RBA’s May board meeting showed board members explicitly acknowledged the likelihood of a cut if unemployment did not fall.
“Members discussed the scenario where inflation did not move any higher and unemployment trended up, recognising that in those circumstances a decrease in the cash rate would likely be appropriate,” according to the minutes.
With the RBA having held the cash rate at its record low 1.5 per cent for a 33rd straight month, official data subsequently showed unemployment had instead risen to a worse-than-expected 5.2 per cent in April.
The Australian dollar ticked as much as 0.2 per cent lower against its US counterpart on the release of the minutes, but Dr Lowe’s more pointed comments pushed it lower by another 0.4 per cent to 68.87 US cents yesterday afternoon.
“A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target,” Dr Lowe said in a speech to the Economic Society of Australia in Brisbane.
“Given this assessment, at our meeting in two weeks’ time, we will consider the case for lower interest rates.”
The RBA said, for a second month in a row, board members noted any stimulating effect on the economy of a cut would likely be less than in the past given households have historically high levels of debt and against the backdrop of a faltering housing market.