Social groups have been loud and clear about the dangers of ending stimulus early, and today Reserve Bank Deputy Governor Guy Debelle said the same.
"There was one lesson from the [global financial] crisis I didn't talk about two years ago that is relevant to today: be careful of removing the stimulus too early," Mr Debelle said at the Australian Business Economists webinar today.
"A number of European countries learned this lesson to their cost after the global financial crisis.
"Absent the fiscal support, the Australian economy would be much weaker with the consequent economic and social damage."
Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.
Smart Booster Home Loan
- Discount variable for 1 year <=80% LVR
- No ongoing fees
- Unlimited redraw facility
Monthly repayments: $1,476
- Discount variable for 1 year
- No ongoing fees
- Unlimited redraw facility
Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.
Mr Debelle's comments come after the Reserve Bank found that unemployment numbers would have doubled without JobKeeper.
Currently, both JobKeeper and the boosted JobSeeker rate are set to end in late March 2021.
Despite the cost of stimulus to the government budget, Mr Debelle said "public debt is very manageable", with public sector debt remaining low as a share of gross domestic product (GDP).
Private debt, however, remains some of the highest in the world, with household debt at 119% of GDP, second in the world only to Switzerland.
The 119% figure was measured in March 2020, and Mr Debelle said in that time household savings have skyrocketed.
"Household incomes have been boosted by the support through the JobSeeker and JobKeeper programs," he said.
"These have all contributed to a very large increase in household savings, further bolstered by the constraints on household spending through the period."
Earlier in the year, Australian Bureau of Statistics (ABS) data revealed household savings ratios were at a 46-year high, and AMP also found household incomes were better off by $5,000, on average, during the pandemic.
Where to for older people?
Mr Debelle said lower mortgage rates have led to a 5% owner-occupier credit growth, but that had not carried over to the investment space.
"Investor lending had been declining, in part reflecting expectations of lower returns given weaker rental demand," he said.
Throughout the pandemic, many states made it illegal for landlords to evict tenants who could not pay rent.
Mr Debelle also said lower borrowing rates tend to benefit younger people.
"Those who depend on interest income are generally aged over 65," he said.
"Back when the cash rate was at 1.5%, around 5% of these older households were earning more than one-fifth of their income from interest."
Deeming rates have so far not been reduced after the Reserve Bank's cash rate cut to 0.10% earlier in November.
The rates, which the government 'deems' pensioners' assets to be earning, are still at 0.25% on the lower threshold, and 2.25% at the higher threshold.
The highest savings account rates are generally under 2% per annum, as seen in the table below.
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
- The big four banks are: ANZ, CBA, NAB and Westpac
- The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
- The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.
In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may inﬂuence the cost of the loan.
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