Labor out of excuses on homegrown inflation

The PM and Treasurer like to repeat the misnomer that inflation is a “global phenomenon”. This out-of-date suggestion has the smell of expired milk about it.

The recently appointed Reserve Bank of Australia governor, Michele Bullock, has contradicted the excuses Labor repeatedly uses for why inflation remains stubbornly high.

The government’s argument is that it’s a global problem – translation: don’t blame us. Bullock’s contrasting assessment is predicated on the latest data rather than outdated political spin.

She told a Sydney audience this week the inflation problem is “homegrown”, which makes sense because around most of the rest of the developed world inflation figures are now falling. Yet here in Australia interest rates are more likely to go up again before they go down, precisely because our inflation figures remain stubbornly high, a stubbornness borne out of domestic circumstances according to the RBA governor.

“An important implication of this homegrown and demand-driven component to inflation is that getting inflation back to target will take time,” Bullock says. In other words, the high inflationary environment isn’t going away anytime soon, and will most likely still be with us when the next federal election rolls around in 12 to 18 months’ time.

Treasurer Jim Chalmers likes to blame “supply side” issues anytime he’s asked about inflation, pointing out high inflation remains a global problem. But, as Bullock said, the inflation problem is demand-driven and homegrown. Precisely the opposite of what the Treasurer says.

Just in case you think calling the Treasurer a liar is too strong a descriptor for the misdirection his rhetoric relies on, Bullock also said this in Wednesday’s speech: “This shift from mainly supply-driven to mainly demand-driven inflation has been a part of our inflation outlook for some time.” In other words, for some time now the government has sought to mislead us all about why inflation isn’t coming down, in a bid to abrogate responsibility. Monetary and fiscal policy settings have roles to play. So does economic reform. The government is responsible for two of the three.

The Prime Minister repeated the misnomer that inflation is a “global phenomenon” again on Thursday. The out-of-date suggestion now has the smell of expired milk about it, but the PM is happy to serve it up to voters anyway, in the hope they can’t taste the difference.

And maybe they won’t. The Coalition’s Treasury spokesman is Angus Taylor, one of the least convincing politicians in the parliament. It boggles the mind how ineffective he has been in the portfolio he holds when the state of the economy is the only domestic political topic in town. Peter Dutton urgently needs a reshuffle to move Taylor on, but that’s unlikely. Tough economic conditions should be political manna from heaven for an opposition, if it had a decent Treasury spokesperson.

While voters aren’t yet convinced the Coalition is ready for a return to power, the more time that passes the harder it becomes for Labor to blame the previous Coalition government for economic problems that need addressing. All but one of the interest rate rises has occurred since the federal election. Labor has been in power now for 18 months. It’s handed down two budgets, appointed Bullock to head up the RBA and Labor no longer has Philip Lowe to kick around anymore. It is running out of excuses.

Imagine having to fight a potentially difficult re-election campaign admitting that real wages continue to cascade backwards courtesy of domestically generated high inflation, which is forcing interest rates up. Oh, and the only solution to the mess is to hope the economy slows and unemployment rises sufficiently to bring rates back down.

In July next year the stage three tax cuts take effect, unless Labor seeks to repeal them. Tax reform is necessary, and Australian income tax rates are too high. Repealing the legislated cut would be political poison, but letting them take effect will further fuel inflation. A classic catch-22 for the government.

A recent Roy Morgan poll put the Coalition in front of Labor for the first time since the election. It is probably little more than a mirage: No first-term government has lost a re-election attempt since 1931. But the poll should put this government on notice. Its workplace laws are stifling doing business when it should be liberalising the labour market. It isn’t adequately consulting before announcing policy shifts, despite early claims by Anthony Albanese that he would run a traditional cabinet government.

Crowing about a surplus largely generated by high commodity prices, which isn’t sustainable anyway given the projected growth in government spending, probably won’t abate people’s fears that the economic health of the nation isn’t great.

The solution to high inflation isn’t to advocate putting wages up the way the government has asked the Fair Work Commission to do. And it doesn’t help if the economy is further fuelled by unnecessary spending announcements, which Labor and the Coalition will probably do come the next election, in an attempt to pork-barrel. Labor wants credit for spending restraint in its last two budgets. Yes, Labor hasn’t let spending balloon further out of control, that’s true. But it hasn’t trimmed it back either. Baked-in excessive government spending during the pandemic persists today. Chalmers and Albanese needed to do what John Howard and Peter Costello did when they took control of the Treasury in 1996. If they had, the stubbornly high inflation of today, caused by domestic factors, would have been sharply lower.

Higher productivity is also an important driver towards lowering inflation, yet the government only wants to discuss the politically correct ways to lift productivity: more childcare to help more women (and men) into the workforce, alongside growing the digital economy. Nothing wrong with that, but Labor’s industrial roots also want to impose productivity-sapping constraints on the gig economy, which are counter-productive to the cause.

And nobody wants to discuss the elephant in the room: Since the pandemic people are choosing lifestyle over hard work. Chalmers has explicitly said he doesn’t want Australians working harder. That’s fine for some, and not possible for others: for example, families grappling with rising rents or higher mortgage payments. But too many white-collar workers would struggle to recall which floor they work on, it’s been so long since they last went into the office. And even if they do remember it, they certainly won’t recall where they left their security pass.

Peter van Onselen is a professor of politics and public policy at the University of Western Australia and Griffith University.