The Albanese government cannot talk its way out of this. Australians understand that excessive government spending is adding to demand and helping fuel inflation, yet ministers continue to avoid acknowledging their share of the responsibility.
Commonwealth spending accounted for 26.9 per cent of GDP last financial year—its largest share in four decades outside the pandemic. Against that backdrop, the government’s claims of fiscal restraint are difficult to accept.
Ministers can deny the criticism, attack economists who question their explanations and blame everyone from Donald Trump to Scott Morrison. None of those tactics reduces demand in the economy or pays a cent of the additional interest now facing mortgage holders.
High inflation cannot be explained away, and excessive public spending does not become harmless simply because the government insists that it is.
Finance Minister Katy Gallagher attempted precisely that defence, declaring that “the challenges that we’re having now in relation to inflation are not caused by government spending”.
That is a remarkably convenient position for the minister responsible for managing expenditure: the spending, in her account, bears no responsibility for its consequences.
It is also plainly wrong, as Reserve Bank Governor Michele Bullock made clear at her media conference on Wednesday. The finance minister, who does not hold an economics qualification, is either mistaken about the issue or deliberately misleading the public.
Neither explanation reflects well on the government.
Finance Minister Katy Gallagher said that “the challenges that we’re having now in relation to inflation are not caused by government spending”.
Bullock said inflation had been “driven by domestic capacity pressures”. The shock from the Middle East came on top of an existing problem. The Reserve Bank had begun raising interest rates before the conflict started, demonstrating that domestic pressures were already contributing. Using the Iran conflict as a shield is therefore not sufficient.
Bullock also confirmed that both public and private demand contribute to aggregate demand. That means government spending is part of the inflation equation, and Labor cannot simply shift the blame to households and businesses.
Governments compete with households and businesses for labour, materials and services. When demand outstrips the economy’s capacity to supply them, public spending intensifies the pressure. The economic impact does not vanish because ministers approve of how the money is being used.
Recognising Canberra’s responsibility does not require anyone to dismiss the effects of war or higher oil prices. The government cannot control events in the Middle East. It can, however, control its own budget—or at least it should be able to.
Labor has increasingly treated election promises as temporary commitments: assurances made to secure votes, then abandoned once the election is over and political pressure has eased.
Before the 2022 election, voters were told that the legislated stage-three income tax cuts would remain. They were later rewritten. The government also insisted there were no plans to change superannuation, before introducing higher taxes on large balances. Its promised $275 annual cut to electricity bills never materialised.
Ahead of the 2025 election, Labor ruled out changes to negative gearing and capital gains taxes. After the votes were counted, those assurances were discarded as well.
Whether they are described as lies or broken promises, the pattern is clear: Team Albo reassures voters before polling day, then expects them to accept the reversal afterwards and hopes the public will forget before the next election.
Michele Bullock said at her media conference on Wednesday that it was plainly incorrect to claim government spending had no role in inflation.
Team Albo reassures voters before polling day, then expects them to accept the reversal afterwards, hoping memories will fade before the next election.
Some of these policy changes may be defensible on their merits. But that does not make the original promises accurate, nor does it excuse Labor for breaking them.
Especially without first giving voters a chance to judge them for the shift.
The government now faces a problem that can’t be overcome by spin, explaining why yesterday’s solemn assurance no longer applies.
Fiscal policy (government spending) should help monetary policy (the setting of interest rates) bring demand into line with supply. That means deferring lower-priority spending, cutting waste and funding essential commitments by making savings elsewhere.
You can’t tell me a 40-year (non-pandemic) high in government spending is showing fiscal restraint! Australian governments have become addicted to spending and, having become addicted, they don’t have the courage to enter rehab and do something about it.
Labor is approaching four and a half years in office. By the time the next election is due it will be six years. The previous government’s failures, as real as they were, can’t be an excuse for this government also failing this far into their tenure.
Labor’s excuses are freely delivered. Living with the consequences of those excuses is getting brutally expensive for voters.
When will this government finally start taking responsibility?