Low interest rates a warning of dire straits

Australia’s unprecedentedly low interest rate isn’t a time for celebration. It’s a wake-up call — and our politicians, banks and businesses must act now.

The rate cut is a huge wake-up call — for the Prime Minister, Opposition Leader, business in general and banks in particular.

For all of them to step up; to get real, to deliver, and to do so immediately.

At its most basic, the Reserve Bank cutting its official interest rate for the second time in a month – and to just 1 per cent – is announcing that the economy is in trouble.

Everyone should and can understand that a 1 per cent official RBA rate is not normal. In fact, it’s downright and disturbingly weird.

It is also telling all us, very bluntly, that the RBA is running out of ammunition to boost spending, to help create jobs and to spur higher wages. It’s got four rate cuts left and then it’s at zero.

RBA governor Philip Lowe has been saying it all year - his rate cuts can’t do it all.

Canberra has to do its bit by delivering the promised tax cuts and delivering them now.

The Reserve Bank of Australia today cut interest rates to a record low. Dr Philip Lowe, governor of the RBA. Picture: AAP Image/Bianca De Marchi

The federal and state governments have to kick up spending on much-needed infrastructure.

They also need to help business become more productive. And crucially, they need to deliver lower prices for energy – for electricity and gas – to both consumers and business.

Our governments also need to guarantee the supply of that energy: there’s no point in having cheaper prices for something you can’t get.

The one thing this means is that the politicians in Canberra have to get together in not just the broad national interest but the very real interests of every single one of the 25 million of us.

We just had an election barely a month ago. The government won, the opposition lost. Yet new opposition leader Anthony Albanese and his new shadow treasurer Jim Chalmers are continuing to claim the right to run the country.

That’s just not on. But what might at another time have been silly Canberra politicking has become unacceptable irresponsibility in the face what could develop into a real economic crisis.

Opposition leader Anthony Albanese looks on as Shadow Treasurer Jim Chalmers speaks. Picture: AAP Image/Daniel Pockett

It is important to add we are still a long way short of that. But rate cuts are not just only one-hand clapping in helping the economy – we need those tax cuts now, to put money in the hands of especially lower and middle-income earners who will spend them.

Rate cuts down to these levels also impact both unfairly and negatively.

Yes, they will provide some more help to borrowers and especially to first-home buyers. That will both help more buyers get into the, market and also help stabilise property prices. Just maybe, good for both buyers and property owners.

But only, obviously, provided the banks pass the cut on and pass it on in full. In contrast to last month, the ANZ stepped up and did so first. The other banks must follow – even if it means they take a hit on profits.

We know they will cut deposit rates. Obviously, again, if they can - with many deposit rates already near or at zero.

Arguably the banks should limit their deposit rate cuts.

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Cuts hurt savers who have already taken big hits on their incomes as rates have plunged.

They also hurt the economy, as many of those savers are pensioners and retirees who spend the income out of their savings.

That’s the other big government must-do. It must cut the deeming rate for pensioners, currently set at a ridiculously high 3.25 per cent.

Everyone needs to step up to the plate and to play their part. The government must lead, the opposition must support and the banks must deliver.