RBA cuts undermined by a bickering Government

The RBA’s recent rate cuts, leading to a record low cash rate of 1.25%, are being undermined by uncooperative and ideologically-driven Government parties.

Philip Lowe and the RBA’s recent decision to reduce the target cash rate to a precariously low 1.25% comes against the background noise of a Federal Government which remains at loggerheads with each other. The Liberal Party’s three-stage promise of significant income tax cuts is being impeded by a lack of support from the Labor Party.

Whilst we have become accustomed in Australia to decisions being subject to the ideological bickering of ‘red vs blue’ and all the ensuing trivialities, it is particularly irksome to see political pride take precedence over the economic welfare of Australia and its people.

The existent disharmony between our relatively high tax brackets and a low, expansionary cash rate is enough to cause concern. This continued inability to reconcile monetary and fiscal policy only exacerbates the issue. According to The Australian (2019), Scott Morrison and the Liberal Party’s plan would leave more than 94% of Australian taxpayers forking out no more than a marginal rate of 30% within five years. It is the kind of policy which directly aligns with the objectives set forth by the RBA with their rate cuts and would hopefully help shoulder the burden of stimulating the economy.

With only some of the big banks passing on the recent rate cuts to Australian households, the importance of appropriate fiscal policy is more important than ever. Monetary policy alone will not arrest the slow but evident economic downturn we are witnessing. Irrespective of their varying ideological approaches proposed by the two major parties in Australia, it would be wise for both to reconcile their differences very quickly to carve a clear path to the nation’s imminent fiscal policy.

Mr Albanese of the Labor Party has already openly backed the first two stages of the three-stage plan but is reluctant to approve the third stage, which would come into effect beyond the time frame of the current Government’s term. He claims this is irresponsible. It is a fair concern to hold but presents an untimely hurdle in negotiations which would be better suited to speeding up rather than slowing down.

Instead of continuing to pass around the hot potato of blame for a sluggish economy and firing factually inaccurate jibes at each other from the safety of their respective offices, Australia’s two major parties should instead reach a healthy compromise which splits Stage 3 from the tax cut bill. If the Liberal Party truly is as supremely confident in their tax reformations as they claim to be, they should have no qualms in waiting until 2024 to implement Stage 3.

It would be successful, the economy would expand, consumption would increase, and living standards would rise accordingly. Surely, then, the Australian populace would vote in the Liberal Party once more in fervent anticipation of the coveted Stage Three. Democracy is a logical, fact-driven, evidence-based process, after all.


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