Big four banks tipping rate hike when RBA meets today
Economist Emily Millane says a rate rise will place extra financial stress on families in the lead up to Christmas.
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00:00 It's widely expected amongst economists that the bank will lift rates today to 4.35%.
00:09 It is entirely possible that another rate rise could occur in the next month as well,
00:16 which is obviously just before Christmas time for households and a real pressure on them.
00:22 The RBA controls monetary policy with raising interest rates its main, some say, blunt tool
00:27 for controlling inflation.
00:29 Banks have been on pause since June.
00:31 Was that an error when we've known for months that inflation would remain sticky?
00:36 Yes, so what we have, as you said, Karina, we've seen that spending has remained sticky.
00:43 I'm not sure that we would call it an error, but we would note that, as you say, that the
00:50 rate, the cash rate is a blunt tool for the economy.
00:56 And so there are other levers that the government can look at.
00:59 The RBA obviously makes its decisions as an independent reserve bank, but other measures
01:05 that the government can take, including fiscal policy, so the rate of taxation.
01:11 I want to come to that in a moment, but let's talk about some of those levers other than
01:17 tax.
01:18 The IMF has pointed to infrastructure spending by governments as being stimulatory for the
01:22 economy.
01:23 Should some of that funding have been wound back sooner?
01:26 There is a federal government review that began in May.
01:30 Yeah, as you say, the rate of infrastructure spending is an area which we think could be
01:36 pulled back.
01:38 Also in the area of migration, it's something that we need to look at at the moment, given
01:43 the consistent low rate of unemployment at the same time as the inflation rate is remaining
01:49 quite high.
01:51 So a bunch of areas need to be considered, given their stimulatory impact and inflation
01:57 remaining so high at 5.4 per cent annually.
02:00 So you're saying look at the review of the migration levels or pause for a period of
02:07 time?
02:08 Yeah, so probably more the latter.
02:11 So it needs to be taken into consideration, as well as a bunch of other areas, such as
02:18 the spending on that area.
02:23 The government has committed to next year's stage three tax cuts, which have already been
02:29 legislated.
02:31 Can Australia afford them?
02:32 Yeah, so as you say, these stage three tax cuts, which were originally introduced by
02:39 the Morrison government and are now being continued by the Ibanezi government, $254
02:46 million in July next year.
02:50 That's what they're costing the economy.
02:52 What that does is to introduce a level of tax cuts for higher middle and higher income
03:00 earners.
03:02 And so that will have the effect of putting money back into the pockets of households,
03:06 which actually least need them at the time when so many households are doing it tough.
03:11 And why do you say that this in particular disadvantages women?
03:15 Yeah, so by their nature, because the tax cuts affect the middle and higher income tax
03:22 brackets, by default, they are tax cuts that benefit men more than women.
03:30 And so we do see the government at the same time doing what it can to put money back into
03:36 households that do need it.
03:39 So we look at lower income households, things like childcare rebates and electricity rebates.
03:45 But we do see that because these income tax cuts are affecting middle and higher incomes,
03:51 by default, they are income tax cuts that benefit men more than women.
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