Rate cut no thanks to the government

The Prime Minister and Treasurer have no basis for claiming that their government’s economic management has brought inflation under control and led to this rate cut, writes John Rolfe.

If you believe Jim Chalmers, the Albanese government deserves the credit for both keeping the economy growing and taming inflation.

In December, after the release of the most recent set of national accounts, Dr Chalmers said: “Without the contribution from public final demand, the economy would have gone backwards, and that’s been a common feature … this year.”

He then said that was mostly due to spending by the states.

But the numbers tell a different story. Year on year, the increases were led by consumption expenditure and “fixed capital formation” at a national level.

If you believe Jim Chalmers, the Albanese government deserves the credit for both keeping the economy growing and taming inflation. Picture: NewsWire / Martin Ollman

The truth is that extra spending in the form of, say, electricity bill rebates – paid out only because Labor failed to deliver on its promise to cut energy prices – hasn’t made life easier for the Reserve Bank.

That extra spending has made it harder for Michele Bullock.

So the Prime Minister and Treasurer have no basis for claiming that their government’s economic management has brought inflation under control and led to this rate cut.

Dr Chalmers would of course argue otherwise. But the good doctor also says that electricity bill rebates lower inflation, which is complete nonsense.

The real reason inflation is coming under control is that 13 hikes have drained billions of dollars from the pockets of businesses and households.

As Ms Bullock and the RBA board said in their statement announcing the cut: “Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance.”

Finally, there is some relief for borrowers.

Most economists expect two more cuts this year, with the first to come in May.

However, Ms Bullock and the board aren’t so bullish.

“While today’s policy decision recognises welcome progress on inflation, the board remains cautious on prospects for further policy easing,” their statement said.

Originally published as Rate cut no thanks to the government