THE SQUIZ

Official interest rates have increased to 2.6% following the Reserve Bank board’s meeting yesterday. That’s an increase of 0.25%, and it takes them to the highest level since July 2013 after they started the march upwards in April to deal with rising inflation. Analysts were expecting a 0.5% hike, but Governor Philip Lowe said the central bank took the foot off the pedal a little as they assess what’s happening with the global economy, household spending, wages and inflation. On a $750,000 mortgage, the increase will raise monthly repayments by $110 – which means that since May, repayments have increased by $1,030. In response, Treasurer Jim Chalmers said the current outlook has given the Albanese Government pause for thought as it puts together its first budget to be delivered on 25 October.

WHAT’S THERE TO THINK ABOUT?

As you know, our economy has been smashed recently, and we’re not on our lonesome… Last week, the OECD – an authority on the global economy – issued a pessimistic report on the coming year that strongly featured the R-word (and sadly, they’re not talking about ravioli…). So Chalmers and the government has a bit of new information coming at them – and it’s pretty gloomy. That’s why one question that keeps coming up is whether they’re committed to ‘stage 3 tax cuts’. It’s the 3rd in a series of tax cuts introduced by the former Coalition Government – and supported by Labor – that are set to kick in from July 2024. Long story short, it will see everyone earning between $45,000 to $200,000 paying income tax of no more than 30c on every dollar they earn.

WHAT’S THE PROBLEM?

It’s expensive… It would deprive the federal coffers of $20 billion a year, and critics say it’s a move that’s not affordable given the current economic climate. They also point to what’s just happened in the UK with new PM Liz Truss abandoning plans to cut her country’s top rate of income tax in a U-turn that was harder to execute than turning around a semi-trailer without power steering… Yesterday, Chalmers didn’t rule out changes to the upcoming Aussie tax cuts, saying the UK experience was “a cautionary tale about what can happen if you get your policy settings out of whack in a way that doesn’t suit the economic conditions”. As for Coalition Treasury spokesman Angus Taylor, he says it is “absolutely not” the time to scrap the cuts because more money in peoples’ hands will be good for the economy. Watch this space…