An historic interest rate cut and lower income tax could benefit two-income families to the tune of $3000 a year, Treasurer Josh Frydenberg says.
However, Labor and unions say the decision by the Reserve Bank to lower the cash rate by 0.25 percentage points to a record low 1.25 per cent is a sign the re-elected Morrison government has taken its hands off the economic wheel.
The Commonwealth Bank and NAB said they would pass the entire 25 basis point reduction.
However, ANZ said it would only reduce its variable mortgage rates by 18 basis points, while Westpac plans to reduce most variable home loan rates by 20 basis points, with its interest-only investors to get a reduction of 35 basis points.
Mr Frydenberg told reporters it was a "legitimate expectation" that the banks - which had been taken to task by a royal commission for putting profits before people - pass on all of the rate cut.
"The combination of the tax cuts and today's RBA decision could see a two-income family, for example a teacher and a tradie, each earning $60,000 a year, with a $400,000 mortgage almost $3000 a year better off as a household," Mr Frydenberg said.
Reserve Bank governor Philip Lowe said the board had taken its decision to "support employment growth and provide greater confidence that inflation will be consistent with the medium-term target".
The rate, which reflects what the central bank charges commercial banks on overnight loans and influences other interest rates, has sat at a record low of 1.5 per cent since August 2016.
Shadow treasurer Jim Chalmers said the "wages crisis" was a key reason for the cut.
He quoted the RBA as saying: "The main domestic uncertainty continues to be the outlook for household consumption, which is being affected by a protracted period of low income growth and declining housing prices. Some pick-up in growth in household disposable income is expected, and this should support consumption."
Mr Chalmers said the government had no plans to turn around the economy.
"If only this government spent less time bagging Labor or pointing the finger at others and more time focused on the substantial weaknesses in the economy it wouldn't be floundering as badly as it is today," he told reporters in Brisbane.
"The Reserve Bank had to do its bit today because the government has vacated the field on economic growth."
Mr Frydenberg said the Australian economy was facing significant challenges both internationally and domestically.
"Escalating trade tensions are contributing to growing uncertainty in the global economic outlook and the impact of flood and drought and fires and a softening housing market have weighed on the economic outlook here at home," he said.
But that was why the parliament, when it heads back to work in July, should pass the government's tax cut plan in full and support the work under way on infrastructure and skills.
ACTU assistant secretary Liam O'Brien said the cut was necessary because of weak wage growth, stagnant household incomes, low inflation growth and slowing economic growth.
"They are asleep at the wheel, ignoring the impact that their policies are having," Mr O'Brien said of the Morrison government.
Rural Finance Minister David Littleproud said banks should pass on the cut in full to farmers.
"The farmers who grow our food are struggling with drought and deserve the full rate cut to be passed through," Mr Littleproud said.
Australian Associated Press