Reserve Bank chief warns rising inequality could erode political centre | Australia news

Philip Lowe has warned that the appeal of the political centre will diminish if wealth and income inequality continue to rise in Australia.

The Reserve Bank governor’s foray into the political fight over inequality also contradicts the treasurer’s claim made this week that income and wealth distribution is getting better rather than worse.

The Labor leader, Bill Shorten, has over the past week vowed to tackle inequality, insisting it is time to consider tax reforms in the “too-hard basket”, such as negative gearing. But the treasurer, Scott Morrison, swiftly accused Shorten of giving up on trying to grow the Australian economy and pursuing the politics of envy.

Lowe was asked about his views on inequality at a charity lunch in Sydney on Wednesday, saying it had grown “quite a lot” in the 80s and 90s and had risen “a little bit” recently.

“Wealth inequality has become more pronounced particularly in the last five or six years because there’s been big gains in asset prices,” the RBA governor said. “So the people who own assets, which are usually wealthy people, have seen their wealth go up.”

Lowe said income inequality had increased slightly, but wealth inequality was more pronounced because of rising asset prices. This could pose a challenge for the federal government.

“If wealth and income equality is more dispersed, then it might be harder to get policies that appeal to the middle ground, so that’s the political aspect,” Lowe said.

There were also direct economic implications, he said.

“The main one is through wages, and if people feel like their wages aren’t growing anymore, they don’t want to spend when they get paid,” he said.

READ ---  Caltech scientists make robots out of DNA that can pick stuff up and move it around

However, while Lowe acknowledged inequality was an issue, he said low wage growth and low inflation were at the top of the Reserve Bank of Australia’s challenges.

Lowe said while inflation was low, the RBA wouldn’t be trying for a more rapid pick-up in inflation through further monetary stimulus, despite high household debt and the unusually slow growth in incomes.

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

JP Morgan analyst Sally Auld said in terms of the policy outlook, Lowe implied the bank would stay be staying its hand.

“The governor did a pretty good job of suggesting a ‘low for long’ outlook for the RBA cash rate without explicitly committing to such a path,” Auld said.

Lowe also defied the suggestion of a growing uniformity some observers have noted among global central bank policymakers.

Around the world, central banks are now starting to increase or suggest increases to interest rates while others are wondering when to start withdrawing monetary stimulus.

“This has no automatic implications for monetary policy in Australia,” Lowe said. “These central banks lowered their interest rates to zero and also expanded their balance sheets greatly. We did not go down this route.”

According to Auld, Lowe’s comments are as close as the RBA is going to get to acknowledging a low-for-long rates outlook.

“Rates clearly aren’t rising until the RBA is confident that wages growth and inflation are lifting,” she said.

READ ---  Gov. Cuomo signs bill banning e-cigarettes in NY workplaces

According to Lowe, “insidious” slow wage growth is now a challenge for the central bank and means Australia will struggle to meet the bank’s inflation target.

“If wage growth is stuck at 2% we’re going to struggle hitting 2.5% inflation, he said.

The annual inflation rate dipped from 2.1% to 1.9% in June quarter figures released on Wednesday – below the RBA’s 2-3% target.