PETER VAN ONSELEN: Inflation surge is a disaster. And we are ONE TRILLION DOLLARS in debt. Welcome to the banana republic of Australia
- READ MORE: Millions dealt cost of living blow
Inflation has just thrown a wet blanket over every Labor spending promise made at last year’s election, and it couldn’t have arrived at a worse time.
The CPI has ticked up to 3.8 per cent from 3.7. That might sound small, but when the Reserve Bank is already putting interest rates back up, it is a disaster.
Underlying inflation also went up: a sure sign that the Treasurer must use his budget come May to find spending cuts to take pressure off inflation’s upward trajectory.
And right on cue, ministers are putting it out there that a razor gang is prowling for budget cuts, department by department, line by line.
Please! If they were really serious, we’d have seen that sort of hard discipline months ago, before inflation dug in, and before households were already suffering from rent hikes, rising grocery bills and mortgage repayments becoming harder to make.
Talking about public spending cuts in the future is the easiest trick in politics. It costs nothing today. It certainly wasn’t Labor’s message during the campaign, and it likely won’t be a year from now when it’s again looking to win an election and re-emphasise new spending initiatives.
This is the problem with modern politicians, they are always too late. Too interested in spinning that they are meeting challenges than actually doing so.
Labor will try to pin today’s inflation rise on private spending, as if government is merely an observer. That’s a fallacy.
Inflation has just thrown a wet blanket over every Labor spending promise made at last year’s election, and it couldn’t have arrived at a worse time. Above, a shopper at Woolworths
Public spending is part of demand too, which is precisely why ministers are leaking that the PM wants public spending to be reined in to fight rising inflation.
When the Commonwealth keeps shovelling money into an economy with tight supply and weak productivity, it doesn’t help.
It keeps prices higher for longer, then the Reserve Bank is forced to do what governments won’t and slam on the brakes, by putting rates up.
Don’t forget, we have record levels of public spending, higher in raw terms than during the pandemic, and only fractionally lower in percentage terms.
It's patently unsustainable. Of course all that spending puts upward pressure on inflation, in addition to being fiscally unsustainable too.
Future generations will need to either pay all that debt back, or waste budget funds annually paying off the ever present interest bill.
It's a scandalous failure by all sides of politics over the past nearly two decades. Remember, Australia had zero net debt in 2007.
We are now heading towards one trillion dollars of debt.
We are living through the consequences of Labor's failure to get the country's productivity moving again. Above, Treasurer Jim Chalmers on Wednesday
And with inflation still rising, economists are again talking about another rate rise, perhaps even to coincide with the May budget.
The Reserve Bank had hoped to pause and see what impact the last rate rise had before acting again. It might not have the time to do that anymore.
Productivity is the engine room of living standards. When it stalls, as it has for years now, the options get ugly: wages flatline or prices rise, or as is now happening, both.
Labor has failed to get productivity moving despite promises to do so, and Australians are living through the consequences.
This is what the early stages of becoming a banana republic look like, as Paul Keating once warned.
Inflation refusing to behave, interest rates threatening to rise again, budgets not under control when they should have been years earlier, and working Australians left to absorb the shock of it all while their wages fall behind.
All as we face a total lack of bold economic reform to fight our way out of the mess.
