No pay rise and no relief on the mortgage. It hasn’t been a banner day for Kevin Rudd’s working families. But that’s the price of prudence.

The Reserve Bank’s decision to leave interest rates unchanged at 3 per cent was no real surprise. Not much has changed since the nine board members’ last met in June, certainly nothing to convince them that the time was right for a little extra economic stimulation.
The Fair Pay Commission’s decision to deny Australia’s 1.3 million battlers a pay rise was a little more unexpected. The ACTU argued strongly for another $21-a-week hike to the minimum wage.
Employers, as you can imagine, thought something closer to zero was more appropriate in these straightened times. The FPC has sided with the employers - and many economists.
“This is not the time to risk the jobs of low-paid Australians by increasing minimum wages,’’ FPC chairman Ian Harper said, accepting the argument that strapped companies could be forced to lay off workers if they had to pay them more. It’s far better for the economy to keep people working, even if they’re pay packets appear a little lean.
Like the Reserve Bank, which still has plenty of ammunition to combat future economic strife in the form of the highest interest rates in the western world, the FPC opted for caution.
In a recession - technical or otherwise - you take what you can get. And no movement in interest rates will have to do for now.
Both the Reserve Bank and the FPC have cited the effect of the government’s stimulus packages in making their decisions today.
Most households, including the low-paid ones, have done nicely from the government’s recent packages, says Harper. On top of that, households with an average $250,000 home loan are paying $7000 a year less in interest payments than they were at the start of September thanks to the 425 points cut in rates - partly passed on by the munificent banks.
That’s better, and less temporary, than the hit from any $900 cheque from W. Swan.
The Reserve Bank’s decision to keep rates at their lowest level for 50 years is actually pretty encouraging. It means the good folk at the central bank believe there’s no imminent threat to the economy.
“The global economy is stabilising, after a sharp contraction in demand during the December and March quarters,’’ the bank said in its statement today. “Downside risks to the outlook have diminished.’‘
That said, the bank is keeping its finger on the rates trigger, signalling its willingness to move quickly if conditions deteriorate, as many expect. And with rates at 3 per cent, the bank has significantly more room to move than the US (with rates at zero to 0.25 per cent), Britain (0.5 per cent) and Europe (1 per cent).
The Reserve Bank board would have been confronted with a flood of contradictory economic stats.
It’s well documented that gross domestic product rose 0.4 per cent in the March quarter - ranking Australia among a handful of countries to have, so far, avoided a technical recession. Retail sales, boosted by the government’s stimulus cheques, also rose twice as fas than economists expected in May. And car sales leapt 10 per cent in the last month of the financial year, again helped by a government tax break.
“Vehicle sales are a key cyclical bellwether for consumer demand that led the downturn in 2008 and will likely lead the recovery,’’ Westpac said yesterday.
The trouble is, all these positive figures are ephemeral. GDP will shrink at some point in the June or September quarters - and March may even be revised backwards to a fall in coming months. Retail and car sales are likely to drop off when the short-term hit from the stimulus cheques and tax break wears off.
And there are plenty of negative figures for the bears to embrace. Last week came evidence that home-building approvals crashed 12.5 per cent in May, the largest drop since November 2002. Today there’s news the building industry has contracted for the 16th month in a row.
Yesterday we learned that job ads fell for a 14th consecutive month. That bodes badly for the official job numbers out on Thursday, which are expected to show a rise in the unemployment rate from 5.7 per cent in May to 5.9 per cent in June - the highest in six years. Unemployment, forecast to pass 8 per cent by mid next year, remains the biggest threat to the economy.
As the Reserve Bank and the FPC are well aware, it doesn’t matter how much you’re saving on your home loan if you don’t have a job to pay it off. Jobless people - even those who fear for their jobs - don’t buy homes, cars and designer jeans.
In short, they don’t stimulate. And nobody wants that.
Facebook Recommendations
Read all about it
Punch live
Up to the minute Twitter chatter
Greece makes the final and Ireland gets in on a golden ticket. How awkward and embarrassing. Love it. #sbseurovision
The weird thing about #eurovision is you've got this massive collection of dorks in a room and no one is wearing Spock ears #sbseurovision
Europe has the large hadron collider which is light years ahead of its time and #eurovision, where the eighties never die
Recent posts
The latest and greatest
Mining money talks the loudest in Australian politics
When North Queensland Liberal MP George Christensen got the idea of launching a new political organisation…
Please enter your password
Help! I’ve succumbed to a crippling modern illness that can strike at any moment. Symptoms include:…
This concern for Thomson won’t change the script
Under pressure himself over his crusade against Craig Thomson, Tony Abbott has moved to present a softer…
Nosebleed Section
choice ringside rantings
From: They must pay for one’s bitter disappointments
Michael S says:
"A teacher at Geelong Grammar had criticised her for using words that were too long, which had left her confused and had made her doubt her ability to write essays. She became ''quite distressed'' when her English marks began to fall." I can sympathise. My scholastic mentors conveyed to me a causal relationship… [read more]From: Welfare for breeders is a bonus for everyone
Change Up! says:
I have no problem paying my taxes. As a single, childless person on a very decent income, I can afford it and not have my life severely altered. Plus I understand that my taxes paying for things like schools, childcare and infrastructure is ultimately a good thing. A better community is better for me… [read more]Gentle jabs to the ribs
They must pay for one’s bitter disappointments
A private school girl’s family is sueing her elite, extremely expensive private school for not… Read more
Most commented