March 25, 2019 / 10:16 PM / 6 months ago

UPDATE 1-Australia's central bank confident on jobs data, eyes tax take

(Adds detail, background)

By Wayne Cole

SYDNEY, March 26 (Reuters) - Australia’s central bank is confident that strength seen in domestic jobs data can be trusted since it comes from a range of independent sources, dismissing concerns the health of the labour market might be overstated.

Reserve Bank of Australia (RBA) Assistant Governor Luci Ellis also pointed a finger at the tax man as one reason for subpar growth in incomes and consumption in recent years, even as employment stayed firm.

“For all of the past six years, growth in tax paid has exceeded income growth by an above-average margin, at a time when income growth itself has been slow,” said Ellis, who heads the bank’s economics department.

She cited a range of reasons for this shift, including compliance efforts and technological progress in tax collection.

“The Tax Office reports that its efforts to raise compliance around work-related deductions have boosted revenue noticeably,” said Ellis.

Taxes paid by households increased by around 8 percent in the past year, she added, more than double the rate of growth in gross household income of 3.5 percent.

The RBA has for some time been trying to reconcile the softness of household consumption with the strength of the labour market, and this rise in the tax take could be one reason for the dichotomy.

The conservative government of Scott Morrison has celebrated the flood of money into its coffers and is widely expected to use much of it to fund tax cuts and other sweeteners in its annual budget on April 2.

The government is trailing badly in opinion polls ahead of a federal election due in May.

Financial markets have been wagering that the weakness in consumption would take a toll on employment and force the RBA into cutting interest rates.

Yet Ellis emphasised there was no sign of a downturn in the data. The latest jobs report for February showed the unemployment rate hitting an eight-year low 4.9 percent.

“The labour market has unambiguously improved,” she said. “One can be reasonably confident in the steer the labour market data are giving us, because it is coming from multiple, independently collected data sets.”

“Many of our own liaison contacts also tell us that they are hiring.”

This resilience was slowly pushing wage growth higher, though Ellis conceded unemployment would likely have to fall even further to produce a marked acceleration in growth. (Reporting by Wayne Cole; Editing by Sandra Maler and Lisa Shumaker)

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