Rather than cutting public spending to restore the budget balance and reduce inflationary pressures, it would be better to increase taxation.

Last Tuesday the Reserve Bank (RBA) increased its cash rate by 0.25 percentage points from 3.6 per cent to 3.85 per cent. The RBA’s justification for this interest rate increase was that “inflation picked up in the second half of 2025 to be materially higher than earlier anticipated”. The RBA considers that this acceleration in inflation was in response to aggregate demand increasing faster than expected.

This interest rate increase will increase mortgage repayments for someone with a $600,000 mortgage by around $100 per month – quite an impact on their cost of living. Furthermore, the financial markets are confidently factoring in at least one more interest rate increase in the year ahead.

Not surprisingly the opposition paused their infighting for a short time to blame the government. According to Sussan Ley: “This rate rise … is the direct consequence of Labor’s addiction to spending, which has kept inflation higher for longer and left the RBA with no choice but to keep tightening”.

In fact, as the Treasurer, Jim Chalmers has pointed out, while aggregate demand is increasing too rapidly, this is mainly due to the increase in private demand, not public demand. According to the most recent budget update, the growth rate of real government spending over the seven years to 2028-29, under Labor, averages 1.7 per cent, and 2.1 per cent over the four years to 2028-29. This is significantly less than the annual average growth rate of 3.3 per cent over the past 30 years.

It is true that Australian government expenditure as a share of GDP is higher this year at 26.9 per cent than it has been, but this share is projected to fall back to 26.5 per cent by 2028-29. Furthermore, even if we........

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