It is the RBA’s job to fight inflation, but governments must do more to help
The RBA and Australian governments are pulling in opposite directions. No wonder inflation pressures persist.
The nagging persistence of price pressures in the economy has drawn attention to the role government spending is playing in Australia’s inflation problem.
The federal budget registered a budget deficit of $22.5 billion last financial year, and deficits of more than $30 billion are predicted for this financial year and the next.
It is increasingly clear those deficits cannot not be justified given the magnitude of the inflation challenge, especially when economy continues to grow and unemployment is fairly low by historical standards.
In effect, the RBA and the federal government are pulling in opposite directions – as the bank tries to curb excess demand with higher interest rates the Commonwealth is adding to demand by spending borrowed money.
State governments should also be more disciplined. Take NSW for example – treasurer Daniel Mookhey has styled himself as a fiscal conservative, but this state has been in the red for the past seven years and another deficit is forecast this financial year.