Queensland election piles more heat on the Reserve Bank

The Queensland election result is set to widen the already yawning gulf between the government in Canberra and the RBA.

For the past year, an unprecedented schism has opened between the government of the day and the Reserve Bank of Australia.

It is the failure of Canberra’s energy policy that is to blame, because it delivered Australia’s unique energy bill shocks.

Rather than fix the problem at the source, a weak-kneed Albanese government opted for energy rebates for households and businesses. The ABS included the rebates in the headline CPI, reducing inflation.

However, the RBA refused to acknowledge the rebate’s efficacy and set a policy based on trimmed mean inflation that ignored the rebates, refusing to cut.

Now the Queensland election result is set to widen the gulf between Canberra and the RBA after the outgoing Labor government had some electoral success with even more cost-of-living rebates.

Anthony Albanese. Picture: Simon Bullard/NewsWire

The history of rebates

The East Coast gas cartel shocked the economy from 2022 onwards, using every monopolist tactic under the sun – from war profiteering to lobbying and production strikes.

This landed on households and businesses in the form of utility bill shocks, which made Australian inflation uniquely worse in the global context.

Rather than tackle the source of the problem by regulating the energy cartels, the Albanese government opted for rebates.

Rebates are a political trick, because all they do is shift the cost of the energy gouging from bills into taxes, as well as actually subsidising the monopolist.

But rebates do still lower the energy component of headline inflation. And, over time, that lowers overall inflation because roughly 20 per cent of the CPI is administered prices – booze, education, health – which is linked to the headline rate.

Such temporary rebates have a long history of being enduring or becoming permanent. Examples include road toll rebates and fuel excise cuts.

But, again, the RBA has refused to see the rebates as anything other than short-term and has ignored them.

The RBA is already behind the curve.

Queenslander!

The Queensland election result may tip the balance.

Labor was widely expected to lose the election in a landslide.

However, the result was not as bad as predicted, in part, thanks to beefed-up rebates from the incumbent attempting to buy votes leading into the poll.

The cost-of-living rebates included energy, public transport, car registration, and e-scooters.

These are credited with stemming the bleeding for the Labor government and the lesson will not be lost on Labor’s struggling federal colleagues.

Albo’s giveaways

The Albanese government has already hinted that it will be extending its cost-of-living energy rebate scheme deep into 2025.

This announcement will likely come with the Mid-Year Economic and Fiscal Outlook (MYEFO).

After the Queensland election, we can expect some beefed-up version, as well other giveaways.

These might include the fuel excise or other administered prices.

Labor will calculate that the pressure brought to bear upon the RBA will prove too much and it will be forced to cut the cash rate sooner rather than later, dramatically boosting its re-election chances.

Prime Minister Albanese. Picture: Fiona Goodall/Getty Images

The RBA is cornered

The RBA’s refusal to accept cost-of-living rebates as genuine disinflation has been admirable.

Most especially, it has drawn attention to the gas cartel, which the Albanese government is effectively subsidising to gouge households and businesses.

But the jig is up. The rebates are not temporary. They are enduring and they are going to lower both headline and trimmed mean inflation meaningfully.

The RBA is behind the curve already and the Queensland election just pushed it further back.

Originally published as Queensland election piles more heat on the Reserve Bank