Jim Chalmers can’t mislead Australians about his responsibility for higher interest rates forever
AARON PATRICK: The Treasurer’s argument that rising interest rates are beyond his control may be the greatest misrepresentation of his ministerial career.
Jim Chalmers didn’t expend much emotional energy on the plight of debtors today.
The Treasurer was more focused on distancing himself from the fifth interest rate rise this year by the Reserve Bank of Australia, a decision that takes the financial hit for the average home mortgagee to about $6500 a year.
“It will be difficult news for many Australians who are already paying a hefty price for circumstances outside their control,” he told reporters in Canberra.
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By continuing you agree to our Terms and Privacy Policy.Dr Chalmers desperately hopes those Australians will buy his argument that rates are also beyond his control — an assertion that may be the greatest misrepresentation of his ministerial career.
Inflation is driving rates up. Many, perhaps most, of Australia’s top economists say government spending (at all levels) is contributing to inflation. They include independent analyst Chris Richardson, HSBC’s Paul Bloxham, Westpac’s Luci Ellis, former NAB chief economist Alan Oster and University of NSW professor Richard Holden.
The Federal Government spends more than the States, and is responsible for macro-economic management. It should be helping lower inflation by spending less than it raises. But running a Budget surplus would require tax increases or spending cuts, or both, which is not how the modern Labor Party wins elections.
Big spenders
The who-is-to-blame debate reached a milestone last week when the Sydney Morning Herald’s economics editor, Ross Gittins, wrote that the “Federal Government is supposed to be using its budget to help smooth the ups and downs in the economy, keeping both inflation and unemployment low and interest rates also on the low side”.
He added: “Because the Reserve acts independently of the elected government, if the government allows a growing budget deficit to add to inflation pressure, the Reserve will step in with higher interest rates to counter the effect.”
He’s not an economist, but Gittins is an influential centre-left commentator.
When writers like Gittins hold the Government responsible for inflation, it gets tougher for Dr Chalmers to convince Labor voters and his parliamentary colleagues, as he tried to do Tuesday, that “we take responsibility for our part of the fight against inflation”.
Dr Chalmers and Anthony Albanese run a big-spending Government. They pretend otherwise.
On Tuesday Dr Chalmers claimed the Government had implemented $180 billion of “savings”, which is government-speak for spending cuts and tax increases.
Mr Richardson, the economist, has repeatedly pointed out the Albanese Government has increased spending by $14b and raised taxes by $39b.
“Or, to put that gently, the official figures say the exact opposite of what the Government claims — its decisions have made the budget worse, not better,” he recently wrote.
Seeking leadership
On Tuesday, while pushing his “savings” fib, Dr Chalmers came up with two explanations for higher rates.
The war between the US, Israel and Iran has pushed up oil prices from $US80 a barrel to about $US110, which flows through to the cost of everything that has to move, from bananas to flights.
“The Middle East is a big factor in the uptick in inflation,” he said.
Which is true, but doesn’t stop the Government from taking corresponding action to put downward pressure on prices. One option could be to end the tax break for electric cars that has made the Tesla Model Y the third-most-popular new car this year.
The other fact Dr Chalmers seized on was a temporary slowing of growth in government spending.
The Reserve Bank, which tracks spending across the economy, cut its estimate for government spending increases from 3.2 per cent to 2.1 per cent this year.
Dr Chalmers made a big deal of the downwards revision. What he did not mention is the figure measures spending increases by all governments, not just his, and the forecast growth rate will accelerate to 3.8 per cent next year.
Also, the Reserve Bank upgraded overall economic growth from 1.4 per cent this year to 1.6 per cent.
In normal times, growth is good. When you’re battling inflation, accelerating growth makes it harder to control inflation. Whenever Dr Chalmers boasts about strong economic growth, he’s deceiving Australians about the primary economic challenge facing the nation.
In coming weeks banks and other lenders will begin charging more for loans. The effects will be felt in millions of small ways: a less generous 21st present for a loved son or daughter, a summer holiday at home rather than at a resort, a pair of leather shoes resoled rather than replaced.
For every one of these fiscal punishments, Dr Chalmers and Mr Albanese must bear partial responsibility. Rather than pretending it is not their fault, the two men and the rest of the Cabinet could try another approach: lead.
