Labor vote-buying will cost us

In the wake of the government’s populist handout to wipe 20 per cent of Higher Education Contribution Learning Program debts, set to add up to $16bn to net debt, Anthony Albanese’s promise to caucus on Tuesday to announce a series of election-winning policies in coming weeks sets alarm bells ringing. As we reported, economists are warning the Prime Minister against any more cost-of-living giveaways because a loosening of the government’s fiscal strategy will further delay interest rate cuts, keep inflation higher for longer, and saddle the nation with higher debt and households and small businesses with elevated interest rates for longer. That is a consequence voters need to grasp, and one Peter Dutton should highlight, while keeping a tight rein on the Coalition’s pre-election commitments.

The RBA board’s interest rate decision on Tuesday underlines the economic dangers. Announcing it was leaving rates on hold at 4.35 per cent, the central bank admitted it had underestimated the growth in government spending, as Jack Quail reports. The RBA also warned that underlying inflation was outstripping every other major advanced economy, except the UK. Nor did it rule out further interest rate increases.

“The staff forecast of public consumption has been revised higher several times over the past year in response to announcements of additional spending,” the RBA’s new statement on monetary policy said.

“A large share of the announced additional spending has been for existing services as well as cost-of-living support packages.” It added it would be “some time yet’’ before inflation was sustainably in the target range and said this “reinforces the need to remain vigilant to upside risks to inflation, and the board is not ruling anything in or out”.

Federal and state governments should calibrate spending accordingly. After the Queensland election, Mr Albanese came under internal pressure to mimic former premier Steven Miles’ scattergun cost-of-living ­strategy, which included 50c ­public transport fees, free school lunches and vehicle registration discounts. Even ALP president and former treasurer Wayne Swan irresponsibly praised Mr Miles’ pitch, which was not means-tested, as one of the “great electoral outcomes’’ of the past 40 years. But Queensland Labor, in an unwinnable position, knew it would never have to implement its promises. Transposed to federal level, that attitude would endanger national security and wellbeing.

The downsides of the nation’s precarious financial position are already apparent, exacerbated by the Albanese government’s prioritising populist giveaways over more important issues. The cancelling of the $7bn military-grade satellite communications system the government approved 18 months ago is a prime example. That decision will weaken the nation’s defences against cyber attacks and warfare, some of the most potent military tools of the age. Another example is the decision to indefinitely defer 45 medicines from being listed on the Pharmaceutical Benefits Scheme, to the detriment of cancer patients and sufferers of other chronic diseases. Consumers deserve an explanation. A well-managed budget process should not necessitate such painful choices.

As UNSW economics professor Richard Holden told The Australian this week, the government’s wiping $16bn off student debts, to the benefit of wealthy professionals, was akin to “acting like this doesn’t count, it’s just Monopoly money’’. Anything that looked vaguely like the Queensland electoral strategy, as he said, would be “very inflationary”. Households with mortgages, small businesses, borrowers and renters are already paying the price because, as former RBA board member ­Warwick McKibbin says, there will not be any interest rate cuts in the near term because “there’s too much spending in the economy”.