Newstart should be increased despite economic recovery says RBA chief Philip Lowe

RBA chief says the economy is improving and unemployment could fall to 5 per cent next year, but he wants to see Newstart increased.

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Reserve Bank of Australia chief Philip Lowe has endorsed lifting the unemployment payment even as the economy improves faster than expected, with the central bank saying the Australian unemployment rate could fall below five per cent by next year.

Speaking at the National Press Club in Canberra on Wednesday, Dr Lowe said that although the RBA hasn’t modelled the economic impact of the government ending its COVID-19 JobSeeker subsidy for unemployment payments in March, his position is that the base rate should be boosted anyway.

“We haven‘t modelled the kind of the consequences of going back to the previous Newstart levels, but there’s a wide consensus in the community that the previous level should be increased permanently, Dr Lowe said.

“Whether the government decides to do that, it is entirely up to them, it is a government fiscal policy issue, but I can see the arguments for a permanent increase.”

Dr Lowe said for him, increasing the $565.70 a fortnight base unemployment payment was an issue of fairness.

“For me, it’s not really a kind of macro economic management issue, it’s kind of a fairness issue and ‘what is the appropriate level of support we should provide to people who are unemployed?’” he said.

Reserve Bank Governor Philip Lowe cautions there is “quite a way to go” before the economy could be considered fully rehabilitated. Picture: Nikki Short

However, Dr Lowe did not express similar concerns over the completion of the JobKeeper wage subsidy program in March.

“I think when JobKeeper ends there will be some job shedding … but that‘s going to take place in the context of an economy that’s otherwise recovering.”

The comments come just a day after the RBA kept interest rates at an all time low of 0.10 per cent to assist the economic recovery.

In his economic update Dr Lowe said the central bank had initially predicted unemployment would be “close to 10 per cent” at the end of 2020 and “above 7 per cent at the end of 2021.”

Australia ended last year with an unemployment rate of just 6.6 per cent, with Dr Lowe predicting it could fall to 5.5 per cent at the end of 2022, although an “upside scenario” could see it fall “a bit below five per cent” halfway through next year.

Dr Lowe also said the outlook for GDP had improved, with the RB expecting the level of GDP to return to its end-2019 level by the middle of this year, “which is six to 12 months earlier than we previously expected.”

Despite the positive forecasts, Dr Lowe also cautioned there was “quite a way to go” before the economy could be considered fully rehabilitated.

Inflation is also forecast to stay low meaning it is unlikely the RBA will lift interest rates for years.

But Dr Lowe dismissed concerns a low rate environment would lead to an overheating of the property or share market.

“The national house price index today is where it was four years ago,“ he said.

“The capital city price index is lower than it was four years ago … And the equity market, we aren't even back to where we are at the beginning of last year.”

Dr Lowe did say the RBA would be watching the banks to ensure lending standards do not drop.

“We would be concerned if there were to be a deterioration in these standards, but there are few signs of this at the moment.”

Interest rates are unlikely to go up any time soon.