Back inflation, the cuts to cut the menu, and the coalition claims that “spending work” is to blame.
Liberal staff even handed out stickers blasting “Jimflation” at the Canberra Press Gallery this week. Tagline: “Chalmers creatures are ruining the country”.
In case you’re not in the loop, it’s a portmanteau of the Treasurer’s first name, Jim, and inflation.
The Shadow Treasurer, Ted O’Brien, joined the Parliament on Tuesday, when he said that “the inflation crisis in Australia, is destroying our ‘Jimflation’ effect, undermining our national prosperity.”
Later that day in question time, and after the Reserve Bank had held rates and hiked its inflation forecasts for the coming 18 months, O’Brien again blamed the unwelcome uptick in inflation on Labor’s “spending spree”.
Chalmers, naturally, dismissed the accusation.
“If he [O’Brien] Want to say that government spending and government budgets are the decisive factor in interest rate decisions that he should explain the three interest rates last year,” he said.
Where to start? A huge government spending on government work to blame for the unwanted return of inflation? Would our mortgage payments be lower if the thallmers were less wiped out?
To a significant degree, inflation causes more money to chase less. And it is inevitable that the role of the public sector in the economy has expanded largely from the pandemic and because work will have power in 2022.
Commonwealth spending as a share of GDP is expected to be around 27% for many years, according to the Parliamentary Budget Office. That’s two percentage points above pre-pandemic levels, or about an extra $60bn a year.
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So, then, is all that extra spending the reason inflation is proving so stubborn?
“Strictly speaking, there is an element of truth to this,” said Jonathan Karns, Challenger’s chief economist and a former Reserve Bank chief executive.
Kearns said that public spending has “clearly” added to demand in recent years and is responsible for “a very large part of economic growth”.
But there are subtleties here that O’Brien wants to skate over.
“The question is whether we want the alternative: to have lower demand and lower inflation,” Kearns said.
“GDP per Capita has fallen for two years. Would we be happy to see it fall further? Because if that’s the case, rates will be cut further.”
Thornier also asked which spending programs should be cut to ease inflationary pressure, and whether or not Australians would feel better off as a result.
In other words, if labor is “to blame” for increasing the economic demand left by inflation higher than this, it must also be the delivery of overpaid care and child care workers and care workers and care workers.
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You can also “blame” the government for cutting the price of prescription drugs and increasing bulk billing.
In other words, the fiscal sound good in the abstract, but a tougher sell in the specifics – as Peter Dutton found at the last election.
Chris Richardson, an independent economist and leading budget expert, weighed in on the “blame game”.
“It’s a factor? That’s for sure. But there’s no simple line of sight from government spending to more inflation,” Richardson said. “And I’m not sure to blame the right approach.”
Richardson explained that the greater role of the government in the economy reflects a new “social compact” in which Australians expect more public services, from health, to childcare.
This is an option we are talking about – if we haven’t decided how to pay.
As for the recent rebound in inflation that boosted the majority of parliament this week, whose fault will be a stick to the RBA’s 2.5% target ‘5%.
For Richardson, there is one biggest point that deserves the full attention of our politicians, which is that “Australians are not known for poor productivity”.
“We have had a wonderful improvement in our living standards over time and we continue to look forward to the arrival of this baby.”
Richardson said Labor was incapable of giving birth when it came to economic reform.
“The government has the closest thing to a free hand we’ve seen in decades. The question is: Are they taking the opportunity to do something?”