The Reserve Bank is pushing up interest rates to take money out of our hands. The first increase in the current round will add about A$65 a month to the cost of paying off a $500,000 mortgage. The second will add a bit more. If, as the bank’s forecasts assume, there are another four such increases this year, that’s a further $275 a month, and so on. The point, in the words of the Reserve Bank Governor Philip Lowe, is to “slow the economy, to get things back onto an even keel”. In a helpful video, the Governor explains that rate rises take money out of mortgagee’s hands directly, make it harder ..read more

One of the stranger things about the Reserve Bank’s announcement of why it’s lifting interest rates by 0.25 percentage points is that it suggests inflation will come down by itself. “A further rise in inflation is expected in the near term,” the RBA says, “but as supply-side disruptions are resolved, inflation is expected to decline back towards the target range of 2-3%. So why raise rates now, for the first time in more than a decade? The bank says it is about "withdrawing some of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic”, whi ..read more

There are four economic wildcards between now and the election, and we know exactly when each will be played. The first is this Wednesday at 11.30am eastern time, when we get the official update on inflation. We’re likely to see a figure so large it will take many of us back to the 1990s, to a time before anyone under 30 was born. With the exception of a short-lived blip following the introduction of the goods and services tax in 2000, inflation has scarcely been above 5% since 1990. After a series of extremely large interest rate hikes in the early 1990s succeeded in taming inflation, it ha ..read more

This election will be won by the Coalition and Prime Minister Scott Morrison if the economic models perform as expected – and they usually do. A model refined in 2000 by then Melbourne University economists Lisa Cameron and Mark Crosby found that most federal election results in records going back to 1901 can be predicted pretty well by just two economic indicators. And they are not the indicators that might be expected. The growth in real wages in the year leading up to the election appears to have no effect on the governing party’s chance of being returned to power. (Which is just as well f ..read more

When Labor leader Anthony Albanese couldn’t say whether the unemployment rate was 5% or 4% on Monday, he might have had a point. It’s 4%. But for a decade – the entire decade leading up to COVID – it never strayed too far from five-point-something per cent. Melbourne University labour market specialist Jeff Borland points out that in March 2010, Australia’s unemployment rate was 5.4%. Ten years later, before COVID changed things in March 2020, it was 5.3%. In the years between, it briefly dipped to 4.9% (three times), climbed slowly as the mining boom wound down, edged above 6% in 2014 as the ..read more

One of the strangest, certainly one of the hardest to justify, measures in last week’s budget was called “supporting retirees”. A better title would have been “supercharging the wealth of those retirees who already have more than enough to live on”. It flies in the face of the findings of the government’s own retirement income review and legislation it introduced partly in response earlier this year. It happens not to support the living standards of retirees at all. It will enable some to spend less on themselves than they would have, while enabling those with serious wealth to accelerate the ..read more

Wes Mountain/The Conversation, CC BY-ND So good, and so unexpected, has been Australia’s economic improvement over the past three months, it has wiped one-third of the projected 2022-23 budget deficit. Or it would have, had the government not decided to give away almost half (45%) the windfall. That’s one way of looking at the difference between the projections in the December budget update and those presented three months later in Tuesday’s March budget. In December, the deficit for the coming financial year was to be A$98.9 billion. Three months later, the budget papers say it would have bee ..read more

Overwhelmingly, Australia’s top economists would rather the budget funds measures to cut carbon emissions than cuts income tax or company tax. They are also dead against rumoured cuts to petrol tax and the tax on beer. The Conversation’s pre-budget survey of a panel of 46 leading economists selected by the Economic Society of Australia finds almost half want a budget deficit smaller than the A$99.2 billion expected for 2021-22 and the $98.9 billion forecast for 2022-23 in the December budget update. Higher commodity prices and lower than expected unemployment – which is lifting tax revenue whi ..read more

The biggest question relating to the management of the economy right now has nothing to do with next week’s budget. It has everything to do with the Reserve Bank and the board meetings that will follow it. The question facing the board – the biggest there is when it comes to how the next few years are going to play out – is whether to hike interest rates just because prices are climbing. On the face of it, it seems like no question at all. It is widely believed that that’s what the Reserve Bank does, mechanically. When inflation climbs above 3% (it’s currently 3.5%) the board hikes interest ra ..read more

Cutting petrol tax to bring down the cost of living used to be the political version of a joke. Failed US presidential candidates John McCain and Hillary Clinton both tried it in 2008. Their bipartisan advocacy of a “summer gas tax holiday” was derided as dumb, a turkey and a “metaphor for the entire campaign”. When 230 economists released a letter opposing it in 2008, Clinton said: “I’ll tell you what, I’m not going to put my lot in with economists”. Her opponent for her party’s nomination, Barack Obama, labelled it a gimmick and went on to win both the nomination and the presidency. But it i ..read more