Rob Mitchell: Federal Labor MPs worried about ‘bad’ government spending adding to inflation

Federal Labor MPs are concerned the Albanese Government’s badly targeted spending could make inflation worse, following the Reserve Bank’s fourth rate rise this year and another jump in the consumer price index fuelled more by local factors.

While Treasurer Jim Chalmers is blaming the Iran war for Australia’s inflation challenge, the Reserve Bank is citing “domestic capacity pressures” with official data showing homegrown inflation is in fact much worse than imported factors.

Labor backbencher Rob Mitchell, who holds the Federal seat of McEwen in outer Melbourne, has cautioned his own party against the idea of cash handouts to cope with the cost-of-living crisis that weren’t linked to future productivity gains.

“Bad spending is when you do it on recurrent stuff that’s not actually going to get anywhere,” he told The Nightly on Friday.

“Spending money just to get by, whether it’s cash handouts, that sort of thing. That’s not where you need to be.

“If you’re putting money into the public that creates more inflationary pressures, that’s not good spending.”

While he supports spending on road and rail infrastructure projects and childcare rebates, Mr Mitchell conceded the Albanese Government needed to rein in spending, even if the Commonwealth was able to service its debt obligations.

“I think all ministers have been told that they’ve got to start keeping an eye on things,” he said.

“I think there’s always something you can find in probably a lot of departments.”

Shadow treasurer Tim Wilson said Labor should be delivering surplus Budgets, not deficits, echoing a point made this week by former Reserve Bank governor Philip Lowe.

“The problem is this government has no real sense of constraint,” he told News24 on Friday.

“They see themselves as the answer to most problems. We know that they’re spending on a 40-year high once you remove the pandemic, we know that if they just pulled their belt in, we’d have $22 billion in surplus for the Budget.”

Mr Wilson said current spending levels were unsustainable because the highest bond yields in 15 years would mean higher government debt interest payments.

“That is part of the conversation that we need to have because it’s very clear to me the government cannot continue to spend like it currently is,” he said.

“The biggest concern I have is how much they’re going to spend over the coming next two Budget cycles.”

NSW Premier Chris Minns this week distanced himself from his party’s Prime Minister Anthony Albanese and Dr Chalmers over economic management as the State’s Labor government prepares to seek a second term in March next year.

“I’m not going to make a long commentary about other governments. It’s up to them and their decisions, obviously,” Mr Minns said.

“But we want to make it clear that we’ve been careful with public money, particularly the growth in public money, and that will continue if we’re re-elected next March.”

Reserve Bank of Australia governor Michele Bullock on Tuesday cited government spending as a factor adding to inflation after her nine-member monetary policy board voted unanimously to hike interest rates for the fourth time this year, taking the cash rate to a 15-year high of 4.6 per cent.

“So, I’ve made the point a number of times before that aggregate demand is made up of public demand and private demand,” she told reporters. “They are both adding to aggregate demand.”

Ms Bullock blamed persistently weak productivity for adding to price pressures.

“The bottom line is that productivity is doing nothing,” she said.

“So, I think, again, it seems there’s nothing we can do about productivity, but the supply side of the economy has to grow because the demand side can’t grow strongly unless that supply side is growing.”

Ms Bullock noted inflation was driven primarily by “domestic capacity pressures” - using that phrase twice in her 57-minute media conference including in the fourth sentence of her opening statement to reporters.

A day later, the Australian Bureau of Statistics revealed inflation in August had soared to a three-month high pace of 4 per cent, putting the annual CPI above the RBA’s 2-3 per cent target for the 13th straight month, following a 14.8 per cent surge in automotive fuel costs in August alone as the Commonwealth’s 16-cent a litre fuel tax cut ended.

But non-tradables inflation, covering goods and services made in Australia, surged by 4.5 per cent, which was significantly higher than the 2.9 per cent increase in tradable inflation covering imports, even during the Middle East conflict.

Shortly before that data release, Westpac joined ANZ in forecasting a follow-up rate rise on November 3, that would take the RBA cash rate to an 18-year high of 4.85 per cent.

That would amount to the fifth hike this year and the 17th on Labor’s watch since it came to office in May 2022.

The 16 to date under Labor are already more than the 15 increases on John Howard’s watch as Liberal prime minister from 1996 to 2007.

Dr Chalmers started the week revealing the deficit for 2025-26 would be $6 billion less than forecast in the May Budget, based on higher-than-expected revenue from business and superannuation taxes.

The final Budget outcome revealed a deficit of $22.3b for the last financial year and government spending being at the highest level in four decades outside of COVID, with payments making up 26.9 per cent of GDP, up from 26.6 per cent predicted in the May Budget.

“Now, responsible economic management is a defining feature of this government,” Dr Chalmers told reporters this week.

“You can see that in the way that we have made savings. In fact, the last two Budget updates had positive net policy decisions. You can see that in the way we’ve banked revisions.”

In March 2022, two months before the federal election that would see Labor return to power, Dr Chalmers criticised his Liberal opponent Josh Frydenberg for failing to take some heat out of the economy — and that was before the RBA embarked on the first of 13 rate hikes in 2022 and 2023.

“What’s missing in the Budget is a longer-term plan to take some of the sting out of inflation, to grow the economy without adding to these inflationary pressures,” he told Seven political editor Mark Riley at the time.