Premiers out of depth with RBA

Labor state premiers have reverted to their worst pandemic, populist instincts with lectures to the Reserve Bank of Australia to cut interest rates. An enduring lesson of good policy is that an independent RBA is free to make decisions in the best interests of the nation, not the political fortunes of whoever may be in power at the time. The thought that any economic manager would take instructions from Labor either in Victoria or Queensland is beyond belief.

Jacinta Allan presides over a state that is on track to reach net debt of nearly $180bn by 2026-27, with no real plan to rein in spending. Likewise, Queensland finances today are a long way from the cleaner accounts left by earlier conservative governments at a time when it was the only state with public service retirement plans fully funded. To have credibility, politicians must stop lecturing the RBA and hold up their side of the bargain.

A lack of spending restraint on the public service and on welfare in general has played its part in boosting inflation.

With oil prices falling back to stable levels and supply-chain issues largely resolved, it is the actions of domestic governments that will count most in the RBA’s calculations. This is true of both state and federal governments. Queensland Premier Steven Miles is being opportunistic ahead of a looming state election. Opposition Treasury spokesman Angus Taylor is right to demand that Jim Chalmers pull his Labor colleagues into line. “The reality is, the RBA has been forced to slam the brakes because of the government’s economic mismanagement,” Mr Taylor said. Australian Industry Group chief executive Innes Willox is also correct to say that rather than commenting from the sidelines to meet a political imperative, governments can play their part by implementing policies that don’t feed inflation, getting their debt under control and supporting the boosting of productivity at every turn.

The intervention by state premiers into areas they do not control is a worrying sign of how far public policy has drifted from the fundamentals. Like the changes to the stage three tax cuts, envy politics is designed to play to the mob rather than the bigger picture. In the long run, cutting interest rates before the inflation problem is under control will only hurt those who can least afford it. Badgering the RBA to act will undermine confidence in the financial system more generally. Both these things will have repercussions far more consequential than five minutes of fame for premiers telling people what they want to hear.