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RBA sets tough task with plan to take the country to ‘full employment’

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“They never learn, they honestly never learn and it’s disappointing,” Mr Morrison told Sky News. “They are basically profiteering. How else would you describe it?”

Labor leader Anthony Albanese labelled the actions of the big banks a disgrace.

“I would have thought that the banks should have got the big message over the last few years when Labor forced a reluctant government to have the royal commission,” he said.

In announcing this week’s cut in official interest rates to a new record low of 0.75 per cent, RBA governor Philip Lowe said they could be sliced even further in a bid to reduce the rate of unemployment and under-employment.

Australia’s underutilisation rate – which combines those without a job with people who want to work more hours – is at 13.8 per cent or almost 1.9 million people. It has drifted up by 0.6 percentage points so far this year.

Just ahead of the global financial crisis in 2008, the under-utilisation rate had fallen to 10 per cent.

To get back to that level, which was accompanied by wages that were growing by 4 per cent, would require a 518,000 drop in the total number of people out of work or wanting more hours.

RBC Capital Markets chief economist Su-Lin Ong said it would be a tall order in the absence of greater fiscal stimulus and stronger productivity.

“Achieving this will be difficult especially amid a challenging global backdrop,” she said.

None of the dozen economists surveyed by The Sydney Morning Herald and The Age on Wednesday believed full employment could be achieved without further government stimulus on top of interest rate cuts.

“Getting down to it will be a big ask and I doubt that rate cuts down to 0.25 per cent or so will be enough. [This] means the RBA will probably have to deploy quantitative easing and other unconventional measures,” said AMP Capital’s Shane Oliver.

“More importantly the government will have to ramp up fiscal stimulus to get there.”

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Sarah Hunter from BIS Oxford Economics said beyond infrastructure, the government could increase income tax cuts and social security benefits to stimulate consumer spending.

“The impact of doing this is very tangible, growth in the US was sustained at a strong pace through 2018 as a result of their fiscal stimulus, and part of the reason the economy there is slowing now is the end of this fiscal support,” she said.

Treasurer Josh Frydenberg rejected Labor demands the mid-year budget update be brought forward to consider further tax cuts. Amid the downside risks, Mr Frydenberg has committed to delivering the first surplus in a decade this year.

“We are going to stick to our economic plan. That is a plan that delivered 1.4 million new jobs. That is the tax cuts we took to the Australian people at the last election,” he said.

The RBA has, along with its New Zealand counterpart, delivered the biggest cuts in official interest rates of any central bank in the world this year.

After starting 2019 with rates at 1.5 per cent, and signalling the next move was up, they have now halved. They are now lower than those in New Zealand and on a par with Britain.

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