Cutting government spending may slow prices, but it could bring on something worse

November 6, 2026 — 5:00am

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It’s easy to take our anger out on people we’re closest to. Bad day at work? Testing times at school? Your favourite team losing a game?

Often, those in our immediate vicinity cop the brunt of our frustration – even if our dissatisfaction has little, or nothing, to do with them.

The Reserve Bank and the government, similarly, cop a lot of criticism for what people see as their roles in our economic demise. Neither of them are perfect, but the problems they are tackling are not of their making. Nor is the solution as easy as calling for the government to cut spending or the bank to cut interest rates.

The bank has come under fire for raising interest rates (most recently to the highest level since the global financial crisis): hammering mortgage holders, slowing the economy down to a crawl and undoing some of the gains we’ve had in the jobs market.

The bank’s aim, of course, is to dampen the rate of price growth across the economy – and not raising interest rates would have probably put it in the firing line for doing too little about inflation.

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Stephen BartholomeuszSenior business columnist

Senior business columnist

The government, similarly, is grappling with competing demands. On the one hand, it is getting blasted for spending “too much” (and therefore making the Reserve Bank’s job of tackling inflation harder).

On the other hand, as Reserve Bank governor Michele Bullock points out, the government has an obligation to provide many goods and services, from Medicare to income support payments (without which many of us would probably be quite unhappy – and unhealthy).

And as Australia Institute economists Matt Grudnoff and Greg Jericho note, government spending has already been playing a diminishing role in our economic growth recently........

© The Sydney Morning Herald