In early 2009, as the world was reeling from the fallout of the global financial crisis, the Rudd government sent most families a $900 cheque to “support jobs in the middle of a severe global recession”.
This was a standard economic policy response. The world economy was slowing, so injecting cash hoped to stimulate spending and economic growth.
But the opposite is true too. When inflation is too high, governments should seek to reduce spending to take the heat out of the economy and get the cost of living down.
This week the government announced that it would give every household $300.
The government says this is to reduce power bills, but the economic impact of the payment is the same as that of Rudd’s $900 cheque. Sending households taxpayer cash heats up the economy and adds fuel to the inflation fire raging through Australian households.
If the $300 to families had been offset by the government reducing spending elsewhere that could make sense. But, instead, the government has spent billions more on its pet interests.
Overall, the government has injected another $24bn into the economy in new, net spending. This is after injecting $20bn in last year’s budget. And, these figures do not include so-called “off-budget” spending on Snowy Hydro and various subsidies to the billionaires investing in renewable energy.
Putting aside the Covid-19 years, Labor’s first two budgets have been the biggest spending non-Covid-19 budgets since Rudd’s global financial crisis.
Almost all economists have rightly panned the budget as being the wrong medicine for an economy where the cost of living keeps going up and up for people. Respected economist Chris Richardson said that the budget would “poke the inflationary bear”.
This government may not like fossil fuels but it sure is pouring a lot of petrol on the inflation fire raging through Australian households.
It is no wonder then that inflation remains higher in Australia than most other developed countries. And, in the last quarter inflation accelerated to more than 4 per cent a year, on a quarter-by-quarter basis.
Our Treasurer claims that inflation will fall below 3 per cent by Christmas. But in last year’s budget the Treasurer claimed that inflation this year would average 3.25 per cent. Instead, it has averaged 3.7 per cent and with just weeks to go until the end of the financial year, there is almost zero chance that the Treasurer’s inflation prediction last year will be met.
If the Treasurer got inflation forecasting wrong last year, how can he be trusted this year?
Because of this government’s runaway spending, markets are now predicting another interest rate rise this year. A 25-basis-point rise in the interest rate would increase repayments on the average mortgage by almost $1000 a year. So if interest rates do go up again because of this government’s runaway spending, households with a mortgage could have their $300 payment wiped out three times over.
What we need right now is a government that is willing to make the tough choices in tough times to get inflation under control. Handouts from the government will not fix the cost of living crisis. Handouts will just make a bad situation worse. Labor has failed to have the courage to be direct with people and tell them that the government must tighten its belt to help everyone.
The only way we can get inflation down without causing a recession is to grow our economic potential. That would require government to lower taxes and cut red tape. Instead, this government thinks that Canberra knows best and is giving massive handouts to billionaires investing in the latest green fads. It’s an economic policy with about as much foundation as the town of Springfield – of The Simpsons fame – building a new monorail to reinvigorate the town.
This government has had less fiscal discipline than Mayor Quimby and even less than the infamously spendthrift Kevin Rudd. We are all paying the price through a higher cost of living and higher interest rates.
When Kevin Rudd sent out $900 cheques, he at least had the restraint to restrict them to people earning less than $100,000 a year. Instead, this government is sending $300 to every household even billionaires. In fact, millionaires with a holiday home will get two $300 payments.
The government’s budget is not fair, but worse, it is the complete opposite of what we need right now to get inflation down and help struggling families pay their bills.
