Pressure is increasing for the Australian Federal Government to re-evaluate income tax handouts for families as economists warn that the decision from the RBA to further lower the official cash rate isn’t going to encourage spending like suspected – it will only increase house prices.

A new record low of 0.75 per cent was decided at the RBA board meeting yesterday, and Governor Philip Lowe confirmed that had it been needed, they were prepared to cut further.

It was a necessary decision sparked by a current global trend to lower interest rates, as well as the RBA wanting to offer continual support for income growth and employment, and the desire to keep the Australian dollar stable.

PHOTO: Stockland

Chief Economist, Michael Blythe of CBA Economics stated that “certainly some economic commentators and business leaders question the effectiveness of rate cuts in the current environment. Our view for a while now has been that interest rate cuts are of limited use: households tend to leave their home loan repayments unchanged, so little additional spending power is unleashed; the potential boost from a lower AUD is limited by still high commodity prices and the move to a current account surplus; and the negative impact on business and consumer confidence. Income tax cuts are a better response to the pressures in the household sector and the weakness in consumer spending.”

Senior Economist for the Housing Industry Association, Geordan Murray, stated that there had been some positives for the housing market recently, but this hasn’t yet been transferred to new builds. “The recent uptick in the market for established homes should allay concerns that further falls in home prices and the housing wealth effect could continue to apply a brake on household spending.”

This comment comes as CBA Economics have predicted that the Reserve Bank could decide to make a further cut by 25 basis points in February, 2020 or sooner if our unemployment figures do not show signs of improvement.

“Any desire for monetary stimulus beyond that point would require a much worse economic outlook and probably manifest itself through unconventional policies and QE,” he said.

ENTIRETY OF ARTICLE: Realestate.com.au

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