RBA says economy ready to cope with global shocks

Tuesday’s Reserve Bank decision, which left the official cash rate on hold at 4.1 per cent, highlighted some of the challenges Anthony Albanese and Peter Dutton need to address in their election policies. In a statement after its first meeting, the central bank’s new specialist rate-setting board noted “weak productivity outcomes, while conditions in the labour market remain tight”. The board also referred to the uncertainty created by US announcements on tariffs, potential retaliatory measures by other countries, and geopolitical uncertainties. Aside from effective trade negotiations across diverse markets, the government’s ability to influence fallout from international factors is limited. But it needs to take a hands-on role in improving productivity.

Mr Albanese’s decision to back above-inflation pay rises for 2.9 million minimum-wage and award-reliant workers is an election pitch to workers to ease cost-of-living pressures. But he is unlikely to tie extra pay to productivity gains, a link frequently advocated by the RBA. Doing so would appeal to Australia’s 2.6 million small-business owners, who have launched a blitz of marginal seats to pressure Mr Albanese and the Opposition Leader to boost small-business viability via measures such as cutting company taxes and red tape, and less regulated industrial relations. It remains to be seen what impact above-inflation pay hikes would have on inflation and future interest rates. RBA governor Michele Bullock has cautioned the tight labour market could put wages and inflation under “upward pressure”, Ewin Hannan writes.

Many homebuyers and the Albanese government will be disappointed the RBA left rates on hold. But the board had some positive news. After noting that Donald Trump’s tariffs could be disinflationary for Australia, the board said current interest rate settings meant it was “well placed” to respond. In her press conference, Ms Bullock said the economy was in a good position heading into a time of uncertainty, with low unemployment and inflation tracking down: “We are well positioned for any shocks that might come our way.”

The election campaign, unfortunately, has been short on policy proposals to tackle major national problems. What are not needed are more big-spending promises, from either side, or further proposals to increase the size of the government footprint, which has been Labor’s go-to option for three years.

Mr Dutton and opposition housing spokesman Michael Sukkar are on the reform track with their promise to ease onerous home lending rules that are ­ locking ­Australians out of the market. The policy should appeal to young buyers who don’t have access to the “bank of mum and dad”. A Coalition government would direct the Australian Prudential Regulation Authority to lower the current 3 per cent serviceability buffer that requires lenders to ­assess a home loan applicant’s ability to repay a loan. It was raised to 3 per cent in 2021 when the cash rate had dropped to just 0.1 per cent during the Covid pandemic. It was just 2 per cent in 2014. The Housing Industry Association said the current serviceability buffer was “unnecessarily restrictive”. Access to finance was “one of the most significant barriers holding back more Australians into housing”, HIA managing director Jocelyn Martin said. With home ownership rates at record low levels, all levels of government and all parties needed to look at options to reverse the trend. Master Builders Australia CEO Denita Wawn said current regulations had made it increasingly difficult for prospective homeowners to enter the market, despite their ability to afford repayments. The policy would also complement Coalition policy to allow Australians to access up to $50,000 from superannuation to buy their first home, to be returned to super when the home is sold.

Whatever pay rise Mr Dutton backs for low-paid workers, he should make it a springboard for IR policy reform that would generate more widespread, sustainable pay rises through productivity gains.