Poor economic management of Anthony Albanese, Jim Chalmers will soon be exposed as China falters

Treasurer Jim Chalmers with RBA governor Michele Bullock. PIcture: Aaron Francis

Institutional memory is as rare in much of the media today as it seems to be in government.

How else to understand the stoush between Prime Minister Anthony Albanese and Treasurer Jim Chalmers on one hand and the Reserve Bank board on the other over the board’s August 6 decision not to lower interest rates?

Remember, Chalmers personally appointed new RBA governor Michele Bullock less than a year ago. Turns out Bullock, luckily for the nation, rejects the market denialism of Albo and Jim.

Many in the media reacted with surprise when the RBA’s most recent monetary policy statement had a gentle poke at the effect of public sector spending on inflation. There had been talk of a possible rates cut after a bout of global sharemarket jitters, but Bullock’s pointer to a further six months without a cut caught some by surprise.

The RBA suggested infrastructure spending by the states and increased federal spending were pushing up demand, and hence prices, as the economy reaches productive capacity.

Yet the role of public sector demand in pushing up inflation had been reported back in November just as the first signs began emerging of Labor faltering in published political polling.

On November 12, this column said: “No government has received more warnings from media and public policy experts of the inflationary dangers of its core policies and been so determined to ignore them.”

Deliberate government policies driving inflation, the column argued, included record high immigration and student numbers, deliberate industrial relations changes pushing up wages and allowing virtual pattern bargaining, the 15 per cent wage subsidy to aged care workers (now being replicated in childcare) and energy policies that were driving up power prices.

“The International Monetary Fund on November 1 formally added ballooning state government infrastructure spending to the list of inflation drivers,” the November 12 piece said. It cited Melbourne’s $200bn Suburban Rail Loop, vast rail and road spending in Sydney, and the Brisbane Olympics.

The RBA’s flagging of “higher public demand” was also aimed at rising federal spending including direct transfers and subsidies to households that effectively are taking fiscal policy in the opposite direction to the bank’s monetary policy settings. The board increased its public demand forecast rise from 1.5 per cent to 4.3 per cent.

While the two national papers covered the issue well, the ABC, the Nine papers and Guardian Australia seem to have struggled to come to terms with its seriousness.

Last Wednesday, ABC Radio reported it as a debate over whether the RBA thought the economy was running too hot and quoted former opposition leader, now Minister for the high-spending National Disability Insurance Scheme, Bill Shorten, ridiculing the suggestion. This is not what the RBA is saying.

NDIS and Government Services Minister Bill Shorten. Picture: NewsWire / Martin Ollman

As John Kehoe wrote in The Australian Financial Review on Thursday: “If Bill Shorten is worried the RBA could cause a recession … he should kick the addiction to government spending.” The “too hot” phrase that Shorten objected to referred to public demand.

On Radio National’s breakfast show on August 7, host Patricia Karvelas attempted to hold Chalmers accountable but seemed unable to give his opposite number, Angus Taylor, the space the following day to nail the issue: economic management. Karvelas just wanted to know which areas of government spending the Coalition would cut.

ABC TV’s 7.30 left the story alone. A strange decision, given this debate goes to the nature of the Albanese government, which claims to have modelled itself on the reforming Hawke and Keating governments of the 1980s and ’90s but behaves more like the Whitlam government of the early ’70s.

Once upon a time, 7.30 – under Kerry O’Brien and later each weeknight the now defunct Lateline under Maxine McKew, and before that program the brilliant economics commentator Max Walsh on the Carleton-Walsh report – would have relentlessly pursued a story about a new government trying to browbeat a new RBA governor. Today, ABC current affairs is more focused on social issues and human interest stories than hardcore public policy.

This is a pity because at issue is whether Chalmers’ tricky political attempt to hide the headline inflation number with a $300 energy rebate, and to offset higher rates with poorly targeted tax cuts, actually do anything to help the economy. They do not.

Chalmers says the energy payments and tax cuts help Australians facing high cost-of-living rises. He seems not to accept they also pull fiscal policy in the opposite direction to monetary policy.

Add in government-supported wage rises to care workers and it is clear Chalmers is worsening inflationary pressure. That is, rate rises that are specifically designed to restrict private spending are being deliberately blunted by the government pushing money to households to offset those higher rates.

If good policy is good politics then Chalmers should be preaching fiscal restraint at the cabinet table. Yet as Judith Sloan pointed out in The Australian on August 8, real government spending last financial year rose 4.5 per cent to 25.4 per cent of GDP.

This year it is expected to rise 3.6 per cent to 26.4 per cent of GDP and a budget deficit of $28bn.

Even Chalmers’ two surpluses to date were not structural surpluses but figures propped up by higher-than-expected tax receipts from a booming mining sector.

China’s economy is now slowing, iron ore and coal prices are falling and Chalmers will have no luck on mining receipts this year.

As Tom Dusevic wrote in The Weekend Australian on August 10, while it might be Chalmers’ job to “be the face and voice of Labor’s economic marketing”, neither the RBA nor inflation will respond to his talk. “It’s the data, stupid.”

Kehoe on Thursday reported federal and state governments in May and June alone “injected an extra 2.2 percentage points of GDP, more than $50bn, into the economy.” This is what the RBA means by too hot – not a household boom but a government spending boom.

Australia has been lucky since the Global Financial Crisis, largely saved from being forced to repair its high spending and low productivity problems by China’s demand for our iron and coal. Neither side of politics has attempted genuine reform.

Since the election of the Labor government of Kevin Rudd in late 2007, huge spending items such as the NDIS, the Gonski education funding models under Labor’s Julia Gillard and the Coalition government of Malcolm Turnbull, and now the Albanese government’s funding of pay rises for private sector workers in the care sector, have posed as economic reform. They are not.

Neither side of politics has engaged in meaningful tax reform to help pay for 15 years of largesse – to which now must be added the $368bn AUKUS submarine deal.

The nation has been spending money paid by China raised from industries the Greens, parts of the ALP, most of the ABC, Guardian and Nine papers want to see close down.

The piper is calling as China falters and Albanese and Chalmers will soon have to pay the price. The only question is whether this will be clear to voters before the federal election due no later than May, or in the next term of government.