Inequality increasing, says Reserve Bank governor Philip Lowe

Reserve Bank Governor Philip Lowe has waded into the highly charged debate over inequality in Australia, contradicting Treasurer Scott Morrison’s insistence that the differences between the haves and have-nots are diminishing.

Opposition Leader Bill Shorten claimed recently  that inequality had reached a 75-year high prompting Mr Morrison to accuse him of pedalling a “lie”.

No rate hike: RBA

Reserve Bank governor Philip Lowe says the RBA does not need to move in lockstep with other central banks.

Dr Lowe told a charity lunch in Sydney organised by Australian Business Economists that income inequality “grew quite a lot in the 1980s and the 1990s, and it has risen a little bit just recently”.  

Inequality in wealth had “become more pronounced in the past few years because of the of the rise in assets prices – people that own those assets have seen their wealth go up,” he said.

He said the trend could present challenges for government.

“If you have rising inequality it may be harder to get policies of the middle ground, so that is a political aspect.”

Mr Shorten is preparing to unveil new tax changes at Labor’s NSW state conference this weekend – including a possible crackdown on family trusts and other forms of tax minimisation that benefit the wealthy – after declaring inequality to be the party’s defining mission going into the next election.

Labor assistant treasury spokesman Andrew Leigh said Dr Lowe had confirmed what many Australians already knew – that inequality was indeed increasing.

“Anyone trying to buy a house or scrape by in a low paying job knows how hard it can be,” he said. “Labor is looking to tackle the problem by addressing the unfair elements of our tax system and ensure that schools are correctly funded. Let’s just hope Mr Morrison finally acknowledges there is a problem.”

A spokesperson for Mr Morrision said that to the extent that Dr Lowe was referencing rising income inequality he was referring to “a longer time period going back over decades”

The Treasurer had been referring to movements after the global financial crisis . His comments on wealth inequality related to more recent rises in house prices in Sydney and Melbourne.

Mr Lowe made his comments in a Q&A session following his speech in which he attempted to hose down talk of a hike in interest rates, saying Australia wouldn’t be blindly following central banks overseas.

Just as we did not move in lockstep with other central banks when the monetary stimulus was being delivered, we don’t need to move in lockstep as some of this stimulus is removed.

Philip Lowe

“Some central banks are now starting to increase interest rates, and others are considering when to withdraw some of the monetary stimulus that has been put in place,” he told the lunch.

“This has no automatic implications for monetary policy in Australia.”

“Just as we did not move in lockstep with other central banks when the monetary stimulus was being delivered, we don’t need to move in lockstep as some of this stimulus is removed.”

However he said the Bank would be reluctant to cut rates, even if weak wage growth and weak inflation made it appear necessary.

Wage growth had slipped to a record low of 1.9 per cent, and the June quarter inflation result, released just before he spoke, had the annual rate falling from 2.1 to 1.8 per cent.

“We are intent on delivering Australians an average rate of inflation over time of between 2 and 3 per cent,” he said.

“For a central bank with a single objective of inflation, the answer is relatively straightforward. You need more monetary stimulus.”

“This approach does carry risks, though. The monetary stimulus is likely to push asset prices higher and encourage more borrowing. Household debt is high and rising faster than the unusually slow growth in incomes.”

Dr Lowe said that the most help would be an exchange rate exchange rate “a bit lower than it currently is”. 

He would welcome a gradual pickup in wage growth. The best outcome for workers and firms is for a pick-up underpinned by a lift in productivity growth.

But even the current rate of productivity growth could sustain some more wages growth. Indeed, a pick-up was incorporated into the Bank’s forecasts.


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