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Bring in tax cuts, economist implores

Adam Zuchetti
Adam Zuchetti
22 February 2019 1 minute readShare
Michael Blythe

A Commonwealth Bank economist has implored both sides of federal politics to implement income tax cuts, as a means of arresting the risks of a consumer spending slowdown.

Chief economist and managing director at CBA Mortgage Innovation Michael Blythe told a CEDA event in Sydney that household spending is the major risk factor facing the Australian economy in 2019, driven by two key factors: housing and wages.

Wage growth has remained below its historic average for many years, but this is now coupled with falling house prices in many markets — particularly in Sydney and Melbourne.

Mr Blythe also said that a crackdown on interest-only loans, commonly used by property investors, had seen investors cop a “30 to 40 per cent” rise in their repayments bill when those loans shift to principal and interest.

He noted that these households don’t have more income to cover that, meaning they are shifting money away from other types of spending in order to meet these costs, heightening the risks of a broader slowdown in consumer spending.

This would help to explain why retailers, for example, have really struggled in recent, with a number of chains — including Roger David, Laura Ashley, Ed Harry and Napoleon Purdis — collapsing since late last year.

If the nation is to avoid a sharp downturn in consumer spending, a rise in wage growth would help, said Mr Blythe, but he urged the government to introduce tax cuts in its upcoming budget, and for both sides of politics to support their implementation.

Overall, though, Mr Blythe was upbeat on the outlook for the Australian economy in 2019, and said that current pessimism and concerns look “overdone”.

“The [global] economy has slowed, no doubt about that,” he said.

However, he said that the impacts of this have not been felt in Australia to any significant degree, largely because this slowdown has been more concentrated in other advanced economies and not the Asian region, which is of greater economic importance to the Australian economy.

According to Mr Blythe, other metrics also look less gloom than many suggest, with the country hovering around full employment at an unemployment rate close to 5 per cent. He also said that businesses are currently benefitting, while inflation, interest rates, labour costs and the Australian dollar all remain subdued.

Bring in tax cuts, economist implores
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Adam Zuchetti
Adam Zuchetti

Adam Zuchetti is the former editor of MyBusiness and a senior freelance media professional, specialising in the fields of business, personal finance and property. In 2020, he also embarked on his own business journey – inspired in part by the entrepreneurs and founders he had met through his journalistic work – with the launch of customised pet gifting and subscription service Paws N’ All.

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