Scott Morrison to get some bad economic news

After it was revealed the PM would be unable to keep an election tax cut promise to 10 million Aussies, he is set to get some bad economic news today.

Fasten your financial seatbelts as incoming Prime Minister Scott Morrison gets the bad economic news today from the Reserve Bank at a summit in Sydney.

Your wages and taxes are at the centre of economic deliberations.

It is the long standing post-election practice that the economic family of the public service briefs the winner on the shape of the economy.

Mr Morrison, Treasurer Josh Frydenberg and Treasury Secretary Philip Gaetjens will hear the outlook from RBA governor Philip Lowe. But Dr Lowe in a speech yesterday made clear the “strong economy” we heard so much about during the election campaign was less than robust.

The size of household income would increase but not for a couple of years. And what was needed was tax cut action right now – something the new government cannot guarantee.

The central bank chief outlined a case for a necessary range of policies to stimulate the economy.

The range would include the timely delivery of the $1080 income tax rebate Mr Morrison and Mr Frydenberg insisted during the election campaign would be delivered for 2018-19 returns. That tax bonus destined for around 10 million workers now will not appear until July at the earliest, and possibly later.

The Reserve Bank also has foreshadowed a cut in official interest rates – the first since August 2016 when they were lopped to the current 1.5 per cent.

Prime Minister Scott Morrison will get an update on the economy today.

Another reduction to a record low would also be an economic stimulus, and the Government would face demands from borrowers to ensure the banks passed it on to the customers.

The RBA’s objective would be to get more money into households in the expectation it would be spent in the broader economy. But the outlook for wage growth remains dim.

The 2019 salary guide by recruitment company Hays – a survey of employers and employees – this week reported 90 per cent of employers expected to increase wages for staff.

But 65 per cent said the rises would be three per cent or less, lower than for the 2018 responses.

The survey also outlined the concerns over sluggish wage growth with 57 per cent of employees saying their salary was the most important career priority, and 72 per cent saying they might or would ask for a raise this year.

But the unemployment rate still around five per cent, and the significant underemployment rate, robs many workers of wage bargaining power.

In his speech yesterday Dr Lowe said the RBA was expecting a gradual improvement in household spending.

“We are expecting household disposable income to grow at an average rate of four per cent over the next couple of years, which is noticeably higher than the average of recent times,” he said.

“Stronger growth in income will help, but the more important factor is some tax relief.

“Over the past year, tax paid by households increased at a much faster rate than did income; almost 10 per cent, compared with 3.75 per cent – that is a big difference and it is unusual.

“We are not expecting it to continue for a couple of reasons.

“First, the tax offsets for low- and middle-income earners announced in the recent budget will boost disposable income. And second, it is likely that we will return to a more normal relationship between growth in incomes and tax paid.

“Our expectation is that the stronger growth in disposable income will flow through into household spending, although this will take some time.”