MRC Report: Inflation

the inflationary cost of big-spending governments

Published: Feburary 2025

Inflation is a silent killer of living standards. ‘Taxation without legislation’ is a damning description of inflation’s character, famously coined by economist Milton Friedman. Like a tax, inflation quietly eats away at savings and incomes, diminishing people’s ability to buy goods and services as prices rise, even if our payslips remain the same.

The prices Australians see in stores have risen around 10% across all goods and services since the last election and the real value of our income has fallen significantly. As a result, real household disposable income has fallen almost 9% on a per capita basis.

This paper examines the most egregious contributor to recent inflation in Australia: government spending.

In recent years since the end of the COVID pandemic, the Commonwealth Government and State governments have continued to increase spending in pursuit of political dividends. In 2023 the Albanese Government spent $19 billion more than the Morrison Government did during 2020-21 at the height of COVID, in the midst of JobKeeper and record health spending.

Using economic modelling based on data to 30 June 2024, this paper demonstrates how the impacts of Commonwealth spending since the first Albanese Government Budget are resulting in higher inflation today.

This higher spending is leading to lower living standards for all Australians and delaying the return of inflation to the RBA’s target band.