Labor rejects job losses are needed for interest rate cuts

Workplace Relations Minister Murray Watt says unemployment does not need to rise for inflation to come down.

Workplace Relations Minister Murray Watt, Picture: NewsWire/Martin Ollman

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Workplace Relations Minister Murray Watt says the government is “having to reconsider some of the economic orthodoxy” as it battles cost-of-living pressures, arguing unemployment does not need to rise for inflation to come down.

With many economists arguing the unemployment rate of 4.1 per cent was too low for the Reserve Bank to consider cutting interest rates, Senator Watt said it was fair to describe the labour market as “tight”.

But while he expected unemployment to rise further, he denied job losses were necessary to see underlying inflation fall from 3.4 per cent to the RBA’s target band of 2-3 per cent.

“Under our government we have been able to more than halve inflation from the rate that we inherited when we came to office, while also delivering record numbers of jobs,” he told the ABC’s Insiders program.

“So, I think that we’re having to reconsider some of the economic orthodoxy, which has traditionally been that you have to choose between lower inflation or unemployment rates.

“We’ve been able to do both at the same time.

“I’m not going to suggest that unemployment won’t rise ... the economy is quite weak in terms of economic growth. But it’s a real tribute to Australian employers and workers that we continue creating these numbers of jobs despite all of the barriers.”

Some economists warned a rate cut would not come until the second half of next year after official figures released last week showed 64,100 jobs were created in September – more than 2.5 times above market expectations.

Independent economist Saul Eslake predicted the strong jobs growth would ensure an interest-rate cut this year was very unlikely. Mr Eslake said the government should have moved earlier to say inflation could come down without affecting employment, rather than Jim Chalmers accusing the RBA of “smashing the economy”.

“I was surprised Chalmers was saying that, first of all because it is not true, the economy has not been smashed,” Mr Eslake said. “Secondly because, I would have thought, a good argument for him to make is the Reserve Bank has consciously chosen to tolerate inflation being above its target for longer ... in order to preserve (employment) as much as possible.”

Mr Eslake said interest rates had begun dropping in the US, where unemployment is at the same level as Australia.

“In Australia, and in the US, it seems to have been possible to bring inflation down without sacrificing jobs,” he said.

AMP Capital chief economist Shane Oliver said unemployment had to increase a “little bit” but not dramatically to help bring inflation down. “We don’t need to have a recession, all we need is some of the heat to come out of the jobs market,” he said.

Opposition finance spokeswoman Jane Hume said public sector growth outstripping private sector growth was “unsustainable”. “When you dig a little deeper you see that the public sector growth is much faster than private sector growth and that’s an unsustainable phenomenon,” she told Sky News.

“We want to see growth in jobs in the private sector and the only way we’re going to be able to do that is to create a sense of opportunity and productivity in the private sector.”