CQ Today – Inflation is out of control

Australia now has the highest inflation rate and the highest interest rates in the developed world. In the second half of last year, Australian inflation jumped back over 3 per cent. We can all see it at the shops. The price of everything just seems to go up and up. Australia and the United Kingdom are now the only two countries in the developed world with inflation above three per cent. This week the Labor Government’s Assistant Treasurer, Daniel Mulino, said that “inflation is a global phenomenon at the moment.” That is just flat out wrong. The government sets the Reserve Bank an inflation target of between two and three per cent. Because inflation is now above 3 per cent, next week economists are tipping that the RBA will increase interest rates to try to control Australia’s high inflation rate. That would push Australian interest rates even higher when they are already the highest in the developed world. In the past three months, interest rates on Australian Government debt have surged from 4.1 per cent to 4.8 per cent. Our interest rates are now the highest they have been for 15 years. Just two months ago, the government released its latest budget update, and it estimated that it could borrow at 4.4 per cent to finance our ballooning deficits. However, if we have to refinance our now $1 trillion debt at an interest rate 0.4 per cent higher, that would add $4 billion a year to our interest payments. Interest payments are already costing us $26 billion per year, equal to the cost of subsidising pharmaceutical medicines. Interest payments could hit $40 billion per year over the next decade if interest rates stay elevated on Australian Government debt. That would mean our interest bill would be higher than what Medicare costs every year. The government can help ease pressure on interest rates by being more disciplined on spending, but instead the government’s budget continues to blow out. That government budget update, published just before Christmas, contained the biggest blowout in spending on record. Buried on page 81 of the budget update was the quote that “Since the 2025 PEFO, total expenses have been revised up by $23.5 billion in 2025–26 and by $55.0 billion over the four years from 2025-26 to 2028-29.” The “PEFO” refers to the Pre-Election Fiscal Outlook, which was published just six months earlier. So, government spending has blown out by over $50 billion in just six months, and more than $20 billion of that blowout is occurring this financial year. These blowouts are not just off the scales, they are in a different universe. Before this Labor Government, the previous biggest blowout in spending was $10 billion. A blowout of over five times that amount is unheard of and deserves closer inspection. In last year’s update, just one program blew out in cost by more than the previous biggest blowout of the entire budget. The Labor Government is subsidising the installation of home batteries mainly to rich families, because even after the subsidies you still need around $10,000 to install one. This program was originally costed at $2.3 billion, but it has now blown out by more than $10 billion to $12.3 billion in just six months. The Labor Government is also subsidising the electric vehicle preferences of rich families. Labor’s EV subsidies were estimated to cost $90 million this financial year, they will instead cost $1.35 billion. Most of these cars cost over $50,000 and recent analysis by the Electric Vehicle Council shows that half of the subsidies go to people that earn over $150,000 per year. This is because the tax benefit only really accrues to those on higher marginal tax rates. All of this government spending is keeping our interest rates and our inflation at the highest levels in the developed world. This has meant that Australians have suffered the largest drop in living standards since Covid in the developed world. In the last few years, all Australian families have had to tighten their belts. It is time the government did too.