Angus Taylor says more stimulus is not the solution amid Australia’s inflation fight and slow growth

Pumping more stimulus into the economy is “the wrong answer” to Australia’s problems of slow growth and falling living standards, Shadow Treasurer Angus Taylor has declared.

Economic activity per person has been going backwards for more than a year and Mr Taylor predicted there would be calls for big spending programs to rev up the economy.

But he warned such a move would add to pressure on prices.

“We need to be clear about the implications of doubling down on stimulating demand at a time of supply side constraints and higher interest rates,” he will say at the Warren Hogan Memorial Lecture at the University of Sydney.

“We need to be vigilant about the risks of triggering further inflation.”

It signals a break in thinking from governments of both stripes since the outbreak of the COVID-19. Spending has surged and there’s an increasing array of economists linking that profligacy to the country’s inflation pressure.

The Federal Government dished out more than $680 billion in the year to June, up a whopping 42 per cent compared to pre-pandemic.

Prices have run red hot in the period since COVID-19, and underlying inflation remains above the Reserve Bank’s 3 per cent target.

Mr Taylor called out what had been a growing school of thought through the 2010s that spending could be dialled up without an inflation cost.

“The idea that inflation was largely immune to surging demand had become a feature of most economic models, including at central banks,” he said.

“But our old enemy from the 70s and 80s had not gone away.

“Inflation had just been in hiding, only to come back with a vengeance.”

Governments should focus on supply side reforms as a fix, he said — highlighting the care economy as a top target to improve productivity.

The speech comes one day before the Australian Bureau of Statistics is set to unveil the nation’s latest employment data.

More than 47,000 jobs were created in August and unemployment remained at 4.2 per cent — signs the labour market is strong despite severe interest rate tightening since 2022.

“Nearly a million jobs have been created under the Albanese Government despite a soft economy,” Treasurer Jim Chalmers said.

“More jobs have been created on our watch than any other government in a Parliamentary term.

“Wages are growing around double what they were under the former Government, real wages are growing again, the participation rate is at a record high and the gender pay gap is at a record low.”