Former treasurer Wayne Swan says RBA ‘punching itself in the face’ over high interest rates

Economists have accused Labor of using attacks on the Reserve Bank as a shield to distract from the impact of its spending on inflation, after former treasurer Wayne Swan launched a blistering salvo saying the board was “punching itself in the face”.

Mr Swan, who served in the job between 2007 and 2013 under prime ministers Kevin Rudd and Julia Gillard, on Friday launched an attack on the central bank for “hammering” households.

His comments supported those made earlier this week by Treasurer Jim Chalmers, who accused the RBA of “smashing the economy” with 13 interest rate hikes — a suggestion later denied by governor Michele Bullock.

Mr Swan, who is now the Australian Labor Party’s national president, told Nine he was “very disappointed” in the central bank.

“I think the Reserve Bank is putting economic dogma over rational economic decision making — hammering households, hammering mums and dads with higher rates, causing a collapse in spending and driving the economy backwards,” he said.

“It doesn’t necessarily deal with the principal pushes when it comes to higher inflation. I’m very, very disappointed in what the Reserve Bank is doing at the moment.”

He pointed to falling interest rates around the world and market forecasts of drops in Australia down the track, saying that made the RBA’s actions counterproductive.

“The drivers of inflation in this country are not going to be affected and not going to come down by hammering mums and dads with higher rates,” he said.

“The Government is doing a lot to bring down inflation, but the Reserve Bank is simply punching itself in the face.”

Shadow treasurer Angus Taylor labelled Mr Swan’s comments disgraceful.

“Aside from attacking the independence of the RBA, Mr Swan has shown a total disregard for basic economics,” he said.

“The responsibility for Australians’ pain lies with Jim Chalmers and Anthony Albanese, not the RBA. The only people putting economic dogma over rational policies is the Labor government.”

Figures released earlier this week showed anaemic economic growth in the June quarter that was reminiscent of the early 1990s recession.

Australia’s economy grew just 0.2 per cent in the period, according to the Australian Bureau of Statistics, with households and businesses cutting back amid higher interest rates — adding to concerns that government spending is prolonging their agony.

Dr Chalmers insists that far from prolonging agony, government spending is the only thing keeping the country out of recession, providing a “soft landing” as inflation comes down.

But RMIT economics professor Sinclair Davidson said Australia was already in a recession and government spending was masking that fact.

Politicians lashing out at the RBA was a “huge distraction” from what was happening with inflation.

“(Wayne Swan) is simultaneously saying to the RBA, ‘Don’t do your job’, and also distracting attention from the government itself,” Professor Davidson told The Nightly.

“It is very much their job to get inflation under control, and that’s definitely what they should be doing.”

He would like to see interest rates even higher — not lower — saying the RBA was “taking a very lackadaisical approach” which would lead to inflation staying elevated for longer.

Angela Jackson, lead economist for Impact Economics, disagreed, but nor did she think it was time yet to start cutting rates.

“That doesn’t take away from the fact it is very hard and increasingly hard for households,” she said.

“High inflation is a wicked problem, it’s a really hard problem to solve and historically we’ve never solved it without having a recession.

“But we’re at this point that we’ve got inflation down as far as we have (and) we’ve managed to keep economic growth positive ... if we get out of this without having a recession, that will be an exceptionally good news story.”

KPMG’s Brendan Rynne said Wednesday’s national accounts figures showed the high interest rates were working to drive down household consumption and take demand out of the economy.

“(Jim Chalmers) is saying that interest rates are smashing the economy, and he’s absolutely right, they are — but that’s what they’re meant to do,” he said.

Ms Bullock hit back at criticism on Thursday, saying high inflation was a fight worth winning because it affected the country’s most vulnerable people.

“High inflation hurts everyone, and especially the most vulnerable,” she told an Anika Foundation lunch in Sydney.

“Younger households and lower-income households have been particularly affected by cost-of-living pressures.”

Ms Bullock warned that young, less educated and lower-income households would be hurt further if the battle against inflation took longer than expected.

Already, one in 20 households is at the point where they can’t keep up with mortgage payments.

Prime Minister Anthony Albanese walked a careful line following Mr Swan’s comments, saying the Reserve Bank’s rate-setting decisions were done independently of the government.

“We respect the work that they do — they are in charge of monetary policy, we are in charge of fiscal policy,” Mr Albanese said.

“We have been busy making sure that we put that downward pressure on inflation whilst we design our cost-of-living relief for people under pressure in a way that contributes to that downward pressure on inflation.

“Which is why we have undertaken the action that we have because we know people are under pressure.”

Mr Albanese said the Government and RBA had the same objective of lowering inflation, but noted his party also had a responsibility to electors and “people who are under cost-of-living pressure need support”.

“That is what we have been doing but doing it in a way that is consistent with the fight against inflation,” he said.

Others in the government said they didn’t necessarily agree with Mr Swan but nor could they tell him what to say.