Federal Election 2022: Australia’s economy debated in roundtable discussion

The economy has dominated this election as inflation and interest rates rise. But our experts say relief will be on the way for millions of worried Australians.

The inflation storm will continue whoever wins this weekend’s election but could ease next year, and both sides of politics must do more to help build more homes, key economists say.

Housing, inflation and debt dominated debate in Tuesday night’s online economic discussion moderated by News Corp columnist Joe Hildebrand.

And there may be some good news ahead around a big issue worrying millions of Australians – interest rate rises.

REA Group senior economist Eleanor Creagh said the Reserve Bank of Australia would probably raise its official interest to around 1 per cent before a potential pause – especially if inflation tapered as global supply issues eased and demand slowed.

“I don’t think the RBA will be able to be anywhere near as aggressive as some are forecasting,” she said.

Some economists predict a RBA rate above 2 per cent next year but Ms Creagh said “raising rates too far and too fast will jeopardise pushing unemployment lower”.

The RBA uses rates to keep inflation within a 2-3 per cent target band, and Australia’s current inflation rate is 5.1 per cent.

AMP chief economist Shane Oliver said inflation was “a serious problem”, because when inflation got out of control in the 1960s and 1970s it led to tough economic times.

We don’t want inflation like this to continue,” he said.

“There’s no easy answer in the short term – it does need some pain unfortunately.”

“If we simply index all wages to the rate of inflation that will just lead to a wage price spiral that we saw in the 1970s.”

Dr Oliver and the other economists on the roundtable panel agreed that increasing the minimum wage in line with inflation rises was welcome, but middle and higher-income earners would need to wear some pain.

BetaShares chief economist David Bassanese said inflation pressures reflected global bottlenecks and supply issues and major Covid financial stimulus, which caused a short-term price spike.

“If we can get through this over the next year and not try to compensate too many people … there’s light at the end of the tunnel,” he said.

“The things that kept inflation down prior to Covid – tech disruption, globalization, an ageing population - will get inflation back down again so I think a little patience is required rather than major policy changes.

Mr Bassanese criticised both major political parties basing financial forecasting on budget forward estimates, which improved over time as the economy grew and tax income rose.

“If you go far enough ahead it’s always showing improvement, and so no one bothers about improving it today,” he said.

Ms Creagh said both the Coalition’s housing policy of using super for home deposits and Labor’s shared equity housing scheme would increase demand in the short term “but they don’t do much to address real long-term solutions to housing affordability”.

“The only solution that really works is to build more homes in places that people want to live, and that is what is missing from housing policy at the moment”.

Dr Oliver agreed: “Just boosting demand is what we’ve been doing for 20 years and that’s made things worse - we do nothing on the supply side and just pump up demand. And we don’t build enough homes to house immigrants.”