With the RBA’s decision to cut the interest rates to a historic low of 1 per cent, and theCoalition’s proposed $158 billion tax cuts on the agenda to be passed in the first week of parliament, Australian consumers may soon find themselves in a superior financial position – which should be good news to retailers.
The 25 basis point cut to the cash interest rate is the second such cut in as many months, following the RBA’s decision to lower the rate to 1.25 per cent in June.
RBA governor Philip Lowe said the decision was largely spurred by the slowing Austrlian economy, which grew at a below-trend rate of 1.8 per cent over the year to the March quarter.
“Consumption growth has been subdued, weighed down by a protracted period of low income growth and declining housing prices,” Lowe said.
“The main domestic uncertainty continues to be the outlook for consumption, although a pick-up in growth in household disposable income is expected to support spending.
According to Lowe, the decision to lower the cash rate will help reduce the unemployment rate, which has grown to 5.2 per cent. Also, despite wages in the private sector having seen some growth, overall wage growth remains low.
“A further gradual lift in wages growth is still expected and this would be a welcome development,” Lowe said.
While the RBA hopes to improve consumer spending through cutting interest rates, the Coalition government is working on passing its proposed $158 billion income tax cuts to deliver up to $1080 to Australian taxpayers that earn up to $126,000.
Should the legislation be passed this week, Australian taxpayers could begin claiming the increased tax returns as soon as next week. According to Treasurer Josh Frydenberg, the cuts would affect up to 10 million Australians.
Finance Minister Mathias Cormann told Sky News that the Coalition are “kicking in the same direction as the Reserve Bank… to ensure that we continue to build a stronger economy and can continue to create more jobs.”
However, the plan has received some pushback by the Labor Party, with Opposition leader Anthony Albanese stating the government’s rush to pass the bill ignores far-reaching consequences.
“This is a very significant change being proposed by the government; it is more than half-a-decade off into the future and they say we’ve got to vote on it this week,” Albanese said, according to AAP.
Opposition Treasury spokesperson Jim Chalmers noted the importance in getting money into workers’ hands sooner, and that the RBA’s rate cut had bolstered Labor’s desire to push further stimulus into the economy.
“The problem we have in this country is that Australians are worried about their mortgages, they’re worried about their wages, they’re worried about the slowing economy,” Chalmers said.