The RBA has lifted rates to 4.6 per cent, concentrating much of the pain of fighting inflation on younger households with mortgages. A tighter budget could spread the burden more fairly, but serious spending cuts would mean poorer services. 

To get inflation back in its target range of 2–3 per cent, the Reserve Bank has lifted its cash rate to 4.6 per cent. It’s the highest rate for 15 years.

The Opposition says it is all the fault of the Labor government, which is spending too much. The shadow treasurer, Tim Wilson, says that Chalmers cannot “kick his spending addiction”, which “keeps fuelling inflation and higher interest rates”.

The government’s response is to insist on the impact of overseas pressures, most notably the increase in oil prices. According to the treasurer, Jim Chalmers, “We have an inflation challenge in our economy not because unemployment is too low but because the price of petrol is too high.” Although Chalmers did concede that “we’ve got other inflationary pressures”.

So who is right? The Government or the Opposition? And more specifically, should fiscal policy have been tighter with less spending and a lower or no budget deficit, and how would that be achieved?

In a joint statement accompanying the release of the Final Budget Outcome for 2024–26 this week, the treasurer and the minister for finance claim that the 2025–26 budget deficit at 0.8 per cent of GDP was only half the deficit projected for that year by the Treasury just before the 2022 election, assuming a continuation of the then Coalition government’s policies.

As the Final Budget Outcome also says, “The Government has … limited real growth in payments to an average of 2.0 per cent a year over the last four years, well below the 30-year average of 3.4 per cent.”

Arguably, however, these “facts” flatter the Government. In the first of the four years cited in the previous........

© Pearls and Irritations