Treasurer Josh Frydenberg and shadow treasurer Chris Bowen have warned the big banks to pass on interest rate cuts to workers to stimulate a slowing economy, as the Reserve Bank prepares for its most politically charged meeting in years a week out from the federal election.
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Terrible new car sale figures and sober housing approval numbers have increased the odds of a rate cut for the first time in three years when the central bank meets on Tuesday.
Analysts are tipping a fall to a new record low after the longest period of interest rate stability in Australian history.
New car sales fell 9 per cent over the past year to 75,550 in April, the worst result since 2011 when 2.5 million fewer people were living in Australia, while new house approval figures dropped 15 per cent in March adding to fears that a slowing housing market is flowing into the rest of the economy.
In comments that outline a stark divide in their economic vision for the country, Mr Bowen told The Sydney Morning Herald and The Age that this election Labor would present voters with taxes funding more services, while Mr Frydenberg said the Coalition offers lower taxes to spur economic growth.
But the two are united on demanding the major commercial banks pass on an interest rate cut if the Reserve Bank slices the official cash rate to 1.25 per cent next week.
"I expect all banks to pass on the benefits of any sustained reduction in funding costs," Mr Frydenberg said.
His views were echoed by Mr Bowen who said the banks would have to answer to their customers if they failed to act.
"Banks must do the right thing and should pass on in full any cuts to interest rates," he said.
Banking regulators are concerned about the actions of major lenders which lifted their mortgage rates last year due to an increase in global borrowing costs.
But over the past three months, borrowing costs have fallen but the same banks have not sliced their mortgage rates apart from limited fixed-rate products.
Markets on Friday ramped up expectations the Reserve Bank will cut rates because of further evidence the economy is struggling.
Capital Economics is predicting as many as three rate cuts this year from the current low of 1.5 per cent to 0.75 per cent by December.
The "other dwellings" category, which includes apartment blocks and townhouses, plunged 30.6 per cent.
Australian Bureau of Statistics figures showed new housing approvals dropped 3.2 per cent in March, the worst monthly performance since 2013.
Mr Bowen said recent low inflation figures and relatively high under-employment pointed to the ongoing problems facing the economy under the Coalition.
"The economy isn't working for ordinary Australians," he said.
"Growth has slowed, wages growth is hovering around record lows, there is high under-employment and the cost of essentials has skyrocketed under the Liberals.
The economy isn't working for ordinary Australians
- Chris Bowen
"We have a plan to ease cost of living pressures by supporting low and middle income earners with tax cuts and childcare support, and pensioners through our $2.4 billion dental plan," he said.
But Mr Frydenberg said the economy was doing better than almost all of its peers.
"But, there is more to be done and that's why our pro-growth policies are focused on lowering taxes, investing in infrastructure and equipping workers with better skills to create more and better paying jobs."
Mr Frydenberg and Mr Bowen said they would guard the independence of the Reserve Bank, after it faced calls to lower its inflation target range to 1-2 per cent following the economy's failure to break into the 2-3 per cent annual range in 15 of the last 17 quarters.
- SMH/The Age
