opinion

Neale Prior: What crisis? Big-spending politicians must take the blame for RBA’s threat of another rate hike

Neale Prior
The Nightly
The Federal and State Budgets are the only factors mentioned by Ms Bullock that can be carefully tweaked according to the prevailing economic conditions.
The Federal and State Budgets are the only factors mentioned by Ms Bullock that can be carefully tweaked according to the prevailing economic conditions. Credit: BraunS/Getty Images/iStockphoto

Politicians across Australia should be hanging their heads in shame for undermining the interest rate cut hopes of battling homeowners.

Rather than a near-certain cut in the Reserve Bank’s official cash rate later this year, economic tea leaf-readers are suddenly talking about a hike if inflation is not brought under control.

Outside of a full-blown crisis, the RBA can only really wield the blunt stick of official interest rates.

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Despite governments having the capacity to carefully manage spending and taxes, we have a generation of politicians who imagine it is OK to keep borrowing and spending big through economic booms and through dangerous inflationary signals.

Federal and State politicians, including WA Treasurer Rita Saffioti, have continued to borrow and spend big despite evidence that Australia is developing chronic inflation.

The NSW Government last week became the latest to increase its borrowings, spend tens of billions of dollars on new transport infrastructure and offer more subsidies to cover household electricity bills.

The NSW Budget was being absorbed at the same time money markets players were interpreting veiled warnings from RBA governor Michele Bullock.

It was all enough to make these players suddenly price in a 20 per cent chance that the RBA would lift rates at its next meeting on August 6.

When asked whether the RBA board was concerned about recent Federal and State Budgets being expansionary, the diplomatic Ms Bullock said the conversation at its June meeting “wasn’t specifically on the Budgets but on the total context”.

Pointing to what would be pondered at the board’s August meeting, she said they were in a “challenging time” and “balancing risks on both sides”.

“We’re going to have to take into account a lot of the new information from the national accounts, the Budgets, the labour market and new inflation information,” she said.

The Federal and State Budgets are the only factors mentioned by Ms Bullock that can be carefully tweaked according to the prevailing economic conditions.

It is economically irresponsible to throw billions of borrowed dollars into the Australian economy over the next year by giving electricity subsidies to potentially millions of people who do not need help.

And politicians’ beloved capital works programs, such as WA Labor’s Metronet, create debt-funded demand for contractors, workers and materials in markets where there are critical supply shortfalls.

All this helps to make land and housing development more difficult, which in turn helps further inflate rents and sale prices in a supply-started market.

Perth prices have risen more than 20 per cent over the past year and 40 per cent this decade, further expanding the inter-generational wealth divide.

Something has to change.

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The front page of The Nightly for 12-07-2024

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