Labor needs to do more of the heavy lifting on inflation
not spending more is where federal Labor’s assistance for Australians ends. the government’s other cost of living measures are firmly or likely to be inflationary. BY Amanda Stoker.
First published in the Australian Financial Review.
At last, Australians are starting to see the rate of inflation start to decrease – but it’s a long way from time for Labor to start patting itself on the back.
Instead, the federal government should perhaps be thanking Australia’s mortgage holders for making the tough decisions needed at the household level to rein in spending, given the absence of leadership from the cabinet to do the same at the fiscal level.
Inflation of 6 per cent in the June quarter represents a reduction from 7 per cent in the March quarter, which was itself a decline from a peak of 7.8 per cent in the December 2022 quarter.
It’s enough of a pattern to say Australia is now in a period of “disinflation” – which is not the same as deflation. Prices aren’t going down, but the rate at which they are increasing is slower.
The head of price statistics at the Australian Bureau of Statistics, Michelle Marquardt, observes that “CPI inflation slowed in the June quarter, with the quarterly rise being the lowest since September 2021. While prices continued to rise for most goods and services, there were some offsetting price falls this quarter including for domestic holiday travel and accommodation and automotive fuel.”
The heavy lifting in achieving this fall in inflation has been done by the Reserve Bank of Australia and the mortgage holders affected by its decision to lift interest rates substantially over the past 13 months. It has been borne by renters too – rents have experienced the highest quarterly rise since 1988, at least in part because property investors have passed on those interest rate rises in an environment of low supply.
And as of July 19, RBA deputy governor Michele Bullock foreshadowed the likely need for more interest rate rises, although she was unwilling to specify how many or how high they would be. They were, mercifully, kept on hold on Tuesday.
At the time of the budget in May, the treasurer, Dr Jim Chalmers, said his objective was to provide “responsible cost of living relief”.
To give credit where it is due, Chalmers seems to be doing one important and helpful thing to avoid worsening the cost-of-living pressures faced by Australians: he is banking the increased tax revenue from the high commodity prices that are benefitting the nation’s bottom line.
Put in the inverse, he is resisting the many calls to spend the first surplus we have seen in about 15 years.
That is wise, given high commodity prices are not likely to remain for the long term. Indeed, the price of iron ore has already fallen from highs of more than US$150 a tonne last year to US$111 a tonne today, and the price of coal has similarly declined from highs of more than US$400 a tonne last year to US$137 a tonne now.
It’s telling that several major investment houses have downgraded forecasts for resources titans BHP and Rio Tinto in the expectation of further falls.
But not spending more is where federal Labor’s assistance for Australians ends – and that’s not good enough for an electorate grappling with genuine hardship of a kind they have not seen since the Hawke-Keating years.
Literally, all the other cost of living measures Labor has offered to assist Australians with are firmly or likely to be inflationary.
The cost of living relief it has offered to Australians in hardship consists of:
Increased childcare subsidies, including for people on incomes of more than $500,000. Up to 90 per cent of that increase is immediately absorbed by inflation in the price of childcare.
Targeted energy bill subsidies that fail to bring down the cost of energy in any systemic way. Indeed, Labor’s climate policies have adopted such a rushed timetable that it is inflating the price of electricity well beyond Australians’ $20-a-month appetite for the cost of so-called “climate action”, past which their support for emissions reduction measures plummets.
Increased welfare expenditure, which does nothing to reduce inflation and is likely to increase it.
They have not delivered any measure to deal with the extreme rise in the cost of housing, whether measured by the cost of construction – up 44 per cent in Queensland over the past two years, and by almost as much along the Eastern seaboard – or by recent increases in the rental market.
The only policy proposal Labor has offered in this space, which parliament will consider this week, is the Housing Australia Future Fund. It is designed to fund 30,000 units of social housing over the next five years by borrowing $10 billion, investing it and applying the return on investment for housing projects.
Of course, whether it delivers any homes at all will depend on the investment positions taken on behalf of the taxpayer, but given the original Future Fund lost 1.2 per cent over the last financial year, it should not be assumed that 5000 homes a year will be achieved.
Even if it meets its goal, building 5000 homes a year barely touches the sides of the 106,000 home shortage the National Housing Finance and Investment Corporation (NHFIC) says Australia will face within two years. And that persistently short supply will keep driving inflation upwards.
The RBA and householders shouldn’t be left to carry the can of inflation alone. It’s time for the government to show fiscal restraint and deliver productivity-driving reform that will make a lasting difference to the rate of inflation Australians are expected to shoulder.
That means productivity-sapping industrial relations changes should be shelved, green tape must be loosened and simplified to allow more houses to be built, and well-meaning but project-stifling Indigenous policies must be rethought.
If small business is to survive, the red tape must be slashed and creativity used to get relevant skills to the market quickly.
All these policy areas lie squarely in the hands of federal Labor. It’s time for the government to stop sitting on those hands and lead.
Amanda Stoker is a former LNP senator for Queensland and a distinguished fellow of the Menzies Research Centre.