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Australian Interest Rates on Hold: More Permanent Relief from Cost of Living Pressures?

By Denis Bright

The cheers of relief from staff members in the Nine Newsroom following the announcement of the pause in increases in the RBA’s cash rates were indicators of the importance of this issue for mortgagees and renters. Landlords potentially under pressure from any eleventh ongoing monthly increase in interest rates would also have responded with new compensatory rent increases. The Nine newsroom was upbeat in announcing the pause in interest rate increases just after the early afternoon news bulletin on 4 April 2023.

More economists believe the Reserve Bank of Australia (RBA) will hit pause on its record-breaking run of interest rate hikes in April before resuming once more in May amid financial industry instability.

Yesterday Australia’s unemployment rate fell to 3.5 per cent in the wake of a falling monthly inflation indicator, generally showing a stronger economy.

But news of Credit Suisse being forced to borrow billions to keep the doors open, along with the collapse of the Silicon Valley Bank and Signature Bank has some economists tipping that Australia’s central bank will hold on its course of rate hiking.

The building industry is also sensitive to interest rate hikes with more interest rate hikes. New developments, large and small become less profitable when construction costs have to be absorbed on depressed profitability levels as new costs have to be absorbed on a falling property market.

The underlying villain of inflationary pressures is being challenged by the crude mechanism of monetary policy initiatives through interest rate increases. These recessions or near misses from economic downturns caused great misery in Australia in every decade since the early 1980s. The most recent challenges included the GFC and the COVID-19 crisis. Hence the RBA’s projections for key indicators of the Australian economy are not very thrilling. Economic growth levels in from 2023-25 are insufficient to maintain unemployment levels at 2022 rates.

Reporting on this issue is still often perceived as an Australian problem when it is in fact a global dilemma that has been made worse by the impact of strategic instability with Russia and China.

Regrettably, the Labor Government is locked into the delivery of Stage 3 tax cuts from July 2024 unless some adjustments are made in the forthcoming federal budget. The Tax Office has delivered its brief on this issue on 11 October 2022. The rhetoric still contained the blunt language of that terrible Robodebt era even though the LNP had lost office 5 months earlier.

The stage 3 tax cuts are due in July 2024. They are part of the government’s income tax package, introduced and legislated in 2018 and 2019. Under the stage 3 tax cuts, the 37% tax bracket would cease while the 32.5% bracket would drop to 30%. The threshold for the top tax bracket would also rise from $180,000 to $200,000.

After July 1, 2024, the tax cuts will be effective. Some of the expected changes include:

  • The higher tax threshold will increase from $180,000 to $200,000
  • The $120,001 – $180,000 tax bracket will cease
  • Income between $45,001 and $200,000 will be taxed at 30%

Once they take effect, the stage 3 cuts are likely to cause an economic ripple effect. To bear the cost of the cuts, the government may reduce budget expenditure. That would mean that it may spend less on welfare programs. That may trickle down to the expenditure of most Australians.

As the government decreases spending on welfare, households are likely to reduce their demand since they no longer enjoy benefits from the welfare programs. Thus, instead of injecting money into the economy, the cuts may result in tighter economic measures.

My concerns would also relate to any deterioration with economic relations with China which assisted with that resources boom after the recession of the early 1990s.

Trading Economics (TE) is always a handy resource in monitoring the impact of market volatility on the value of the Australian dollar. TE predicts a conversion rate of 60.834 Australian cents to the US dollar in a year’s time compared with 67.516 cents on 4 April. There has been an overall decline in the Australian dollar by 11.02 percent over the last year. Here are the grim statistics for the dollar since June 1973:

Halving of the Value of the Aussie Dollar Since June 1973

 

Conservatives and their far-right allies on the crossbench of course blame this situation on years of wasteful government spending and a sheer lack of discipline across society. There is no truth in this interpretation. The Labor government is now in power to fix up the mess. Australians work longer and harder, employment has been increasingly casualized with less than affordable costs of home ownership or rents. Our rates of government spending and deficits are indeed very low by world standards.

The onset of more difficult times later in 2023 has been contained by the growth in resources and food exports which improved the federal government’ revenue take by $13 billion in 2022-23. The incoming Labor government has been particularly prudent with spending outlays which have been reduced by $7.5 billion resulting in a net improvement of $20.5 billion.

The LNP failed to diversify the Australian economy more proactively by claiming that corporations could best handle macro-economic challenges on a low taxation base. Many of the major Anglo-American multinationals chip into the LNP’s chorus line with systematic and legalized tax avoidance as coverage in the updates from ABC news on the shame list of companies involved with such practices. There is a big time lag in the publication of this data. The situation in 2023-24 is unlikely to be released until late 2025 when the next federal election results will be political history.

Opening up the Future Fund of Australia and the various state/territory public investment funds to capital investment flows from the private sector is one possible mechanism for restoring national economic sovereignty in this era of contemporary globalization. These capital flows into secondary social investment funds should not be at the expense of present arrangements. Capital investment flows would need to be cleared on security grounds to fund essential private public partnerships as in the Singapore economy with Tamasek Holdings and the Government of Singapore Investment Corporation (GIC).

Back home, the Perrottet Government in NSW made the mistake of relying on the proceeds from privatization of state assets to maintain the NSW Generations Fund.

The disposal of state assets in the Westconnex Motorway Project was one of the last of key assets available for privatization for pork barrelling projects. The use of state taxation revenue loomed large on the horizons into the 2030s if the state LNP had remained in government.

A reinforcing shadow to innovative national social planning agenda, is the largely unreported Economic Diplomacy of successive US Administrations. This national aggrandisement commenced long before 2012 when Donald Trump moved into the White House in 2013.

This US focused economic diplomacy relies on high interest rates to protect the US dollar and the Wall Street Financial system with its ties to Britain and worldwide global tax havens in an aggressively Anglo-American First Global Strategy.

High US interest rates are the tip of an array of policies including unequal trading agreements, strategic commitment to facilitate global purchases of US equipment, systematic tax evasion, cultural agendas of news and entertainment networks and so the list goes on. Only intervention from federal Labor saved the Pharmaceutical Benefits Scheme (PBS) through last minute amendments to the Howard Government’s Australia US Free Trade Agreement which was an alien concept to the US Big Pharma Networks.

Joining the Conga line to buy more weapons from the British and US Industrial and Military Complexes as recommended by the Morrison Government with the support of our Admirals and Vice Admirals will not help our depressing economic indicators or social stresses in a more neoliberal society.

While federal Labor is enjoying popularity at levels achieved by Curtin, Whitlam, Hawke, Keating and Rudd in their honeymoon phases, now is the time to act on those cheers which rang out through the Nine newsroom when the pause on interest rates was announced on 4 April 2023.

This is the road to immortalization in the eyes of current and future generations of Australians who want new solutions in public policy over banal political rhetoric.

Just a cheery postscript for the current high profile of the Australian Labor Movement: Lyrics for the victory laps after every new progressive decision in Canberra straight from the from the progressive edge of the American Revolution within the Democratic Party and the wider mainstream popular culture:

 

 

Denis Bright is a financial member of the Media, Entertainment and Arts Alliance (MEAA). Denis is committed to consensus-building in these difficult times. Your feedback by using the Reply button on The AIMN site is always most appreciated. It can liven up discussion. I appreciate your little intrusions with comments and from other insiders at The AIMN. Full names are not required when making comments. However, a valid email must be submitted if you decide to hit the Reply button.

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16 comments

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  1. Andy56

    For crying out loud, its not einstein’s theory. Stop raising interest rates and tighten the lending rules. Stop people from their own stupidity from buying beyond their means. Cut the demand and watch house prices fall. Cut the capital gains and other shit that encourages speculation on buildings. Because what has caused the problem shows us the solution. Do the opposite.

  2. Monique

    Always a little tilt at vested elite corporate authority in Denis’ articles about the national economy where so many people are hurting and some sleeping under motorways as winter chills approach. Thanks for your empathy Denis.

  3. Leila

    A topical article in the Denis Bright traditions of commitment to economic sovereignty within contemporary globalization and the search for more Win Win Options

  4. Stella

    Denis, Thanks for a great article, well researched and interesting. Increasing housing supply and high density options, more government investment and diversify the economy and increase trade.

  5. rubio@central coast

    Always pleased to read comments from Andy56. Thanks for staying in the Loop of AIM Network.

    Regional NSW is almost wall to wall National Party with a sprinkling of SFFs and Independents outside the Labor seats of Lismore, Bega, Monaro.and almost Kiama and Goulburn.

    Despite the excesss of the Morrison Government, the swing was often to the National Party at the last federal election on vacuumed preferences from the far-right of politics.

    Disadvantaged communities seems to be really attracted to far-right politics.

    Hope you would support candidates who are doing their best to gain support for alternatives where the far-right and the Nationals hold sway with local opinion.

    Your right. Andy56, people vote reflexively.

    There has been a move to remote townships in federal electorates like Cowper to escape the housing prices and rents of resort towns like Coffs Harbour and Port macquarie.

    There are not many places left with hosuing prices below $400,000 in out of the way townships on back roads where rents are still $400 weekly.

    How can a casual worker afford these costs?

    How can the mindsets of trying to survive in that situation be changed where watching news and current affairs programmes seems to be a high degree of political activism?

    .

  6. paul walter

    I keep coming here for REAL news, in an info desert and this is like a bucket of cool, cool water at an oasis.

    It is actually a restrained article and and better for that.

    Thanks again, Dennis Bright.

  7. rubio@central coast

    Unlike the German Government’s Coalition which excludes the Left Party and its thirty members of the German Parliament, Left and Centrist Opinions blend harmoniously on AIM Network. The Left in Australia does not have a parliamentary base within and outaside the Labor Party these days. Andy56 can make a valuable contribution in promoting activism in the community on issues like the NOAUKUS campaigns which Federal Labor feels unable to support.

    Marxist thought is popular in MBA courses but even here teachers have to watch their backs. I know of one property economics lecturer at a leading university who did not have his contract renewed. He was left leaning on the very issues that Andy56 raised. He was a temporary teacher without employment rights as a contracted teacher who had worked in Dubai and went back to Britain.

    And as for freedom of expression here, it is qualified freedom of expression. The intel and security networks have strategic links through multinational servers.

    Activists should ask prominent radicals for their ChatGPT profiles if they write for Red Flag or the Greenleft Weekly. Anything on the internet is monitored by the multinationals.

  8. Burleigh waters

    Thanks for the article Denis!!!

    Having successfully completed my latest MBA subject on Game Theory in business marketing practices and in the wider popular culture, I can identify with Denis’ interest in the reggo music from Inner Circle. I hear about elites in Ivory Towers and I think immediately about Peter Dutton as his now reduced team discusses the Voice Referendum today:

    “As they wile away the hours in their ivory towers”

    This is a perfect metaphor for the out of touch LNP team and their surrogates at state and territory levels who want to substitute Dinky Di Australian values with the fantasies of enrichment from upwardly mobile members of the middle classes who are ready to collect their Phase 3 tax cuts and to exploit every tax avoidance tricks from canny tax advisers.

  9. Clakka

    How to get our economy back on track and make it more equitable, and at the same time repair the social fabric of Oz, is not rocket science. With a few mods, revisit Labor’s 2019 election manifesto. However, Labor lost because of a few major oversights in their manifesto, and no-one liked or trusted Shorten. And the ‘disadvantaged communities’ and swingers don’t ever read manifestos, preferring the cover of hype, lies and pork-barreling of the LNP, Morriscum and Mudrock.

    Of course, multi-national corporations and the fossil-fuel giants knew what was really going on, and were silent and content to benefit from the corruption, the demise of democracy and the largesse via the LNP, and the feckless small business (aspirant millionaires) clinging to their coat-tails and rorting as fast as their little trotters could carry them. It was all OK, as Little Johnny had told them as much.

    Nothing learned from the GFC but put on the blinkers, rort faster, and cover your arse. It was all bluster, selling off the farm, and skin-of-the-teeth, whilst in the haze of climate change, heading for the cliff. Then came the revelation of Robodebt beating up of the undeserving, covid and Morriscum & Dudton’s China, more govt largesse to corporations, more beating up of the undeserving arts community and the weirdness of Morriscum and his Eagle in the blue sky, as the world went into a tail-spin – no-one was going anywhere but down. Bricks were being shat. The USA, Britain and the EU pumped it up, but it kept going down. Putin tried to blow it up, but nyet – a puffy red face and millions on the streets. The leveraged investors from never-never land pumped it up grasping at every lever they could find, the chains were broken and soon there would be nothing. The ever-increasing disadvantaged, driven out by RE Agents in their Rollers, were now also in the streets ….

    Bring on the RBA. Will they save us? They only have one lever! But hey, we have AUKUS! Maybe we’ll be saved by Christopher Pyne and Joe (nee Ambassador) Hockey? Or will that too be subsumed? Upper house, Lower House, any house, we just have to control the levers of the multi-national corporations, the miners, the investors from never-never land and the RE Agents in their Rollers.

  10. rubio@central coast

    Clakka: Check out the extent of political junket tours for our MPs and Senators to places like Taiwan, Israel and the USA. All expenses are paid for encounters with skilled political lobbyists and military personnel who want Australia to be a more dependent country that bows to the wishes of the global military industrial complexes: https://openpolitics.au/analysis/foreign-junkets (25 January 2022)

    Many Labor insiders too have taken up offers which compromise their policy balance to the cheers of those Admirals and Vice Admirals here who are pushing for the AUKUS military hardware and more transits by US ships carry nuclear weapons to bases in the Indian Ocean and Guam on the old Don’t Ask Won’t Tell protocols which have been in place since the Hawke years.

    Australia has defence relationships with Israel despite its Weapons of Mass Destruction and human rights abuses against Palestinians. Straight from DFAT:

    “Since 2017, Australia and Israel have expanded cooperation on national security, defence and cyber security. Defence officials began annual strategic talks in 2018 and in early 2019, Australia appointed a resident Defence Attaché to the Embassy in Tel Aviv.”

    Time for Penny Wong to cancel all these post-1996 arrangements by raising this issue in Cabinet with the support of her own department. The Department of Defence seems to be running foreign policy with once media shy vice-admirals making guest appearances on the 7.30 Report and needing prompting notes for their answers from skilled journalists.

    There are structural barriers to Australian sovereignty which Labor in government can and should confront. No wonder the AUKUS deal has faced little opposition even from Left-leaning trade unions like the MUA, CFMEU and ETU.

    Let’s have more opposition from the Left to this nonsense which will cripple Australia financially and leave us with high grade nuclear wastes as our proposed nuclear ships are pensioned off in the 2070s if they ever arrive.

  11. Burleigh Waters

    Thanks to Clakka and Rubio. If Australians don’t speak out, this country will become an emergent Israel of the Pacific to keep the Pacific, NZ and nearby Asian countries in line for the US Global Alliance.

  12. rubio@central coast

    Good to see a comment from a fellow MBA student in Burleigh Waters. There is a big link between support for corporate neoliberalism and US militarism. Our admirals and vice-admirals are trained largely in conventional strategic polcy from their military academies in Britain, the US, Australia and junket trips to Israeli defence units.

    Strategic policies are embedded in acceptance of the post-1989 world order which expands the domestic social divide and sends troops off to troule spots lagely in the developing world.

    Pop culture also eulogises capitalism despite lovely lyrics about Walking in Memphis or nostalgia for Wheeling West Virginia. Those places do not live up to their reputation.

    In Phoenix Arizona or Miami, even taxi drivers are careful about venturing into the slums and disadvantaged barrios of their cities.

    I was shot at one driver told me in Miami, the last time I took a fare through the drug infested precincts.

    The admirals and vice-admirals with their support for AUKUS are taking everyone on a fool’s errand and need new scripts for their 7.30 interviews.

    Andy56 is quiet these days. Are you at the Easter Marxist conference of Socialist Alternative?

  13. andy56

    rubio, no such thing. I detest ideology for ideology’s sake. I question every assumption. Everything we do is based on assumptions of human behaviour. And how many times do we fuck up? I question everything from economics voodoo to why i wear the same coloured socks, lol. There is no socialist alternative. There is no communist alternative. Same as there is no capitalist alternative because what we have isnt any of them. We need to find the hybrid that works for humans and not so much to enslave us. I understand the tools of capitalism, specifically the economics of scale. For basic needs, only governments can address them at scale. For freeing the spirit animals, a bit of supply and demand doesnt hurt anyone. I would like to think us humans are capable of thinking beyond stupidity. Its never going to be a perfect ride, history does tell us that much.

  14. rubio@central coast

    Showery day on the Central Coast with better weather later in the weekend. Here is some naval news for a showery day.

    Just happened to see this You Tube video on what is claimed to be the world’s largest aircraft carrier, the USS Gerald Ford . This video shows the ship carrying the Ukrainian flag as a goodwill gesture. https://www.youtube.com/watch?v=YwhnXCzaN2A

    Ask the right questions and ChatGPT will offer some details of the nuclear powered fleets in allied navies and the possibilities that vessels and supporting planes are equipped with nuclear weapons.

    How would we all feel if flotillas from 32 potentially hostile countries assembled in the Tasman Sea or Bass Strait like this exercise prior to the war in Ukraine in 2021:

    ChatGPT research from media monitoring through AI technology:

    “The Sea Breeze Exercise is an annual multinational maritime exercise that takes place in the Black Sea region, and in 2021 it involved participation from 32 countries, including the United States. The exercise was held from June 28 to July 10, 2021.

    The U.S. Navy deployed several vessels to participate in the exercise, including the USS Ross (DDG 71), the USS Laboon (DDG 58), the USNS Laramie (T-AO 203), and the USS Thomas Hudner (DDG 116). These vessels were part of the U.S. Sixth Fleet and were joined by ships from other participating countries.

    In addition to the United States, other countries that participated in the 2021 Sea Breeze Exercise included Ukraine, Romania, Bulgaria, Georgia, Turkey, and others. The exercise involved a wide range of training scenarios, including maritime interdiction, air defense, anti-submarine warfare, and amphibious warfare. The overall goal of the exercise was to enhance regional maritime security and promote cooperation and interoperability among the participating nations.”

    ChatGPT is available on trial free of change at present. It is based in San Francisco but can deliver assessments in seconds like the Economic and Demographic Profiles from the Queensland Statisticians Office. ChatGPT is of course less accurate as its research material is available from media monitoring. Always ask ChatGPT for references and they are sometimes provided,

    ChatGPT does miss major news items like the accident involving the French nuclear submarine Emeraude in 1994 off the Naval Port of Toulon which was written up in major newspapers e.g. Britain’s Independent Newspaper: Was this an AI Aiicent or a deliberate omission?

    https://www.independent.co.uk/news/world/europe/10-die-in-mishap-on-french-nuclear-sub-1432831.html

  15. Louise

    A very topical article, thanks Denis!

  16. Burleigh waters

    Economic diplomacy is covered in my MBA course. As the world has become more globalized, national interest rate settings have become crude instruments for sustainable policy management.

    High Anglo-American interest rates empower multinationals in investment breaks for their take-over bids of struggling national companies. Even Ireland is in the loop with its low company tax rates.

    I am pleased that Denis’ articles look at alternative investment frameworks to benefit Australians by opening up the Future Fund and state owner investment funds to overseas capital investment.

    If this does not happen, Australians will always be under the investment shadows of Britain and the USA.

    The Chinese renminbi should be a major international currency like the Euro, the Pound and the Greenback. Capital flows from Asian countries should have a bigger profile in Australian investment.

    Progressive corporations can live well with relationships to China. Drew shoes in Ohio hasie not made shoes for the last forty years and relies on Chinese manufacturers for some of its overseas supply lines.

    Even our public hospitals measure health shoes here and have them made in Guangzhou at great profit for Australian distributors who charge a price that is many times the supply costs from China.

    It is sensational mainstream news reporting against China which is eroding the goodwill generated by these incredible relationships.

    Capital investment from China should be welcome to diversify our investment base and to strengthen our social fabric by addressing crucial shortages in sustainable infrastructure and community developmeny.

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