AARON PATRICK: David Koch has a home truth for Jim Chalmers: Inflation starts in the cabinet room

Jim Chalmers was out on television on Tuesday, doing what he does best: assuring voters that up means down and his Government’s spent-a-thon is helping fight inflation.

The Treasurer’s verbal cadence is so smooth he could have been a newsreader. Today, though, his spin was called out by a real television presenter, David Koch, who explained what many Australians may suspect about inflation but do not have the data to prove.

Koch, who is also a small-business owner and Port Adelaide Football Club chairman, argued that the biggest driver of price rises is the federal government. He urged Reserve Bank Governor Michele Bullock to quantify how much, so Australians know who is primarily responsible for the extra $4212 each average mortgagee is being forced to pay a year.

“A meaningful slice of the inflation your board is trying to contain is not being generated in a shopping centre,” Koch wrote in an open letter to Ms Bullock. “It is being set in a cabinet room.”

On television this morning, Dr Chalmers deployed one of his favourite excuses for inflation, which the Reserve Bank is trying to stamp out through interest rate rises. This year’s fourth rate rise will be imposed next Tuesday, experts predict.

Dr Chalmers blames the conflict with Iran. He likes to say, and repeated this morning, that “the end of that war can’t come soon enough”.

While the war has added to inflation, Koch argues higher petrol prices are doing work that would otherwise fall on interest rates. By acting as a tax on everyone, they suck up spending “without you lifting a finger” Koch told the Reserve Bank head.

Another thing Dr Chalmers likes to remind voters of, which he did again today, is that he takes “responsibility for my part in the fight against inflation”.

“That means continuing to manage the Budget in the most responsible way that we can, and it means providing cost‑of‑living help in the most responsible way that we can, in our case cutting income taxes five times and providing all of the other assistance I’ve just run through,” he said on News24.

Running hot

Koch is accountant by training, not an economist, but he can read the Budget. He knows business investment is going backwards. Individuals are saving more. Yet the economy is still running hot.

“So who did the growing?” he wrote today. “Government, and not by a little. Commonwealth government spending has climbed to 26.8 per cent of GDP… the highest level outside the pandemic since 1986. State government spending isn’t helping either. The public sector has also.

“Public sector wages grew 3.4 per cent against 3.1 in the private sector. ABS CPI data suggests government-influenced prices have been rising much faster than market-driven prices, with categories such as childcare, education, healthcare, utilities and insurance doing much of the work. In other words, some of the stickiest price pressure isn’t coming from shoppers splurging… it’s coming from prices governments set, subsidise, regulate or index.”

Instead of taking “responsibility” for helping fight inflation, Dr Chalmers should be accepting blame, according to Koch’s argument.

Asked on Monday why he decided to intervene in the argument, potentially drawing Dr Chalmers’ wrath, Koch said it was unfair for regular Australians to be “harangued” by officials and told to cut spending when the root cause of inflation was elsewhere.

“These governments need to be held to account, both federally and the states,” he said.

Awkward encounter

Before writing his letter, Koch watched an interaction last week between Reserve Bank officials, including Ms Bullock, and a Liberal politician from Sydney, Simon Kennedy.

A former management consultant, Mr Kennedy knows that economists believe Dr Chalmers’ spending increases and small tax cuts exacerbate inflation. He wants voters to understand the trade off, and asked a series of questions at a parliamentary committee to try and draw out the Reserve Bank’s view.

“What I’m trying to crystallise in people’s minds is Australia has an inflation problem and there is a choice about how we deal with it,” he said today.

The response went, as they say, viral. Clips of him posing questions to Ms Bullock and chief economist Sarah Hunter — and their uncomfortable answers — have been watched more than 3 million times on social media, according to Mr Kennedy. He has received multiple invitations to talk about the issue on the ABC and commercial radio.

“Would demand go up in any scenario if we cut government spending by 2 per cent,” he asked during a hearing of the House of Representatives economics committee on Friday.

The question alluded to the possibility that less government spending would lower interest rates, putting more money in the bank accounts of the nine million Australians with mortgages.

“We’ve not run that scenario,” Ms Bullock said before Dr Hunter jumped in and said: “You cannot run an infinite number of scenarios. No one can. We don’t have the manpower to do that.”

The RBA has about 2000 employees, many of them economists with advanced degrees from international universities funded by their employer.

“But have you ever run a scenario where we reduce government spending?” Mr Kennedy then said. “Have you ever looked at that scenario ever?”

Dr Hunter and Ms Bullock talked over each other trying to dodge the question. “I don’t recall trying that scenario recently,” Ms Bullock said.

The Reserve Bank hates being drawn into political controversy, which is a reasonable position for an organisation that relies on its independence to function.

But given the government can’t be trusted to tell Australians the truth about the causes of inflation, maybe Koch’s suggestion the Reserve Bank calculate and publish what proportion of official interest rates are due to government spending is not such a crazy idea.