Commonwealth Bank chief executive Matt Comyn believes federal government tax cuts are having a positive effect on the economy, potentially putting the boss of Australia’s biggest bank at odds with RBA.
“There are signs that the government’s recent tax cuts for many Australian families have supported the economy at this time,” Mr Comyn told CBA’s annual general meeting in Sydney on Wednesday.
Mr Comyn did not give specifics about which part of the economy was being supported, but he was speaking the day after the Reserve Bank of Australia said it had seen no impact on consumer spending as recently as two weeks ago.
Minutes from the RBA’s October meeting, at which the central bank cut the cash rate for the third time in five months, were released on Tuesday and showed board members believed they had yet to see any spending lift attributable to the ruling coalition’s tax changes.
“Members noted that there had not yet been evidence of a pick-up in household spending following the recent reductions in the cash rate and receipt of the tax offset payments, although they acknowledged that it may be too early to expect any signs of a pick-up,” the RBA minutes read.
The RBA did acknowledge the cuts could, allied to the lower exchange rate and expansionary monetary policy, still have an impact but that it could be smaller than expected.
The latest RBA cut meant the cash rate – one of the key determinants of nationwide borrowing costs for consumers and business – has dropped from what was already a record low 1.5 per cent to just 0.75 per cent since June.
Mr Comyn told shareholders that the RBA cuts had created a headache for savers.
“Lower interest rates are a feature globally,” Mr Comyn said.
“This low rate environment creates challenges for our customers and for financial institutions.”
Although CBA has passed on about three quarters of 2019’s cash rate decline to owner-occupier mortgage holders in the form of lower variable rates, Mr Comyn said lower borrowing costs had nonetheless reignited borrowers’ appetite.
“Falling rates have contributed to a turnaround in some established housing markets,” Mr Comyn said.
“House prices are now rising in Sydney and Melbourne after having fallen for 18 months, and there are encouraging signs that the market has stabilised.”
Mr Comyn also noted that, while regulatory guidance for lenders had increased, the changes had improved lending standards and made the country’s financial system more resilient.
The prudential regulator in July also relaxed the affordability standards that lenders must impose on borrowers, boosting the flow of credit to owner-occupiers and investors.
“There remains an abundance of housing credit available,” Mr Comyn said.