Economic message from US result

The big lesson from Donald Trump’s thumping victory is that it’s the economy that still matters most, stupid. Kamala Harris paid the price for her lack of an economic narrative.

Many US voters believed that they and the economy had done better under Mr Trump from 2016 to 2020. In Australia, while the major parties engage on the subject, voters want constructive action, not rhetorical platitudes, after 13 interest rate rises since May 2022. Those hikes have created severe cost-of-living problems and sent many small businesses close to bankruptcy.

Delivering policies to dampen inflation and pave the way for interest rate cuts is the responsibility of Anthony Albanese and Jim Chalmers. But in his eagerness to bank a political win, the Treasurer has chosen to place undue emphasis on Reserve Bank governor Michele Bullock stating that the RBA looked at headline inflation when deliberating on interest rates.

In glossing over the fact the central bank and Ms Bullock consistently look past that measure when considering rates because it has been lowered temporarily by state and federal electricity rebates and other giveaways, Dr Chalmers has muddied the waters. While acknowledging headline inflation, Ms Bullock has emphasised repeatedly that the RBA will ignore the measure and focus instead on underlying inflation, which was the “pulse of inflation” as she said on Tuesday.

Headline inflation has fallen sharply in recent months because of declines in fuel and electricity prices, as the bank’s latest Statement on Monetary Policy notes. But “underlying inflation, which is more indicative of inflation momentum, remains too high”, it says. Underlying inflation has eased across advanced economies, the RBA says, more so than in Australia.

As Betashares chief economist David Bassanese told Jack Quail, Dr Chalmers’ focus on the headline inflation reading was a “political tactic” that “didn’t hold water … I don’t think people will buy it”. Most economists will agree with the RBA. And borrowers struggling with elevated interest rates will not appreciate Dr Chalmers’ tactics. He should also heed Ms Bullock’s warning to be “very conscious” of the inflationary impact of any new spending announcements.

She has admitted that the ­ RBA had underestimated the growth in government spending because of unexpected cost-of-living handouts and higher spending in health and social services. The government also needs to act on the bank’s warning about weak productivity as it seeks to boost investment, activity and business profits in the real economy.

As in the US, Australians want real jobs. The current pattern – in which two-thirds of the jobs ­created under the Albanese government are being funded by taxpayers, in the public service and through government-aligned jobs in the care economy – is unsustainable.

Labor’s instinct is to spend more on the healthcare, welfare, education and disability sectors. But Dr Chalmers will be responsible for ensuring the government avoids that approach. It would be a hiding to nothing for the economy and for Labor.

ALP members who openly admire former Queensland premier Steven Miles’s reckless cash splash and extravagant promises (that he knew would never be implemented) for “saving the furniture” in the state election need to grasp the fact that non-means-tested populist spending ensures interest rates stay higher for longer.

Labor wiping 20 per cent off student debt, at a cost of $16bn to net debt, shows the party is heading down the wrong path. The adverse consequences of excessive public sector spending will be a major campaign theme.