Governments must cut spending or risk causing inflation: economists


Former federal Treasury official Gene Tunney said the federal government must cut spending to get a chance to curb inflation.

Tunney, now director of Adept Economics, said Australia’s current inflation rate of 5.1%, including the war in Ukraine and subsidies from the COVID-19 era, is likely to increase in the next announcement. It states that the factors contributed.

The Australian state government’s decision to adopt a strict lockdown policy has spurred the federal government to inject billions of dollars into the economy to bring families and businesses to the surface.

“Because we’re increasing the amount, it will always have an inflationary effect, but we’re not increasing the capacity of the economy at the same rate, so you have too much money to chase too few commodities,” Tanny said. Told the Epoch Times.

“Such things will always have the effect of inflation, so before and now the war in Ukraine began to realize that it was amplifying it.”

On June 21, Philip Lowe, Governor of the Reserve Bank of Australia, blamed “strong global factors” for this situation.

“The tragic event in Ukraine has led to a sharp rise in food and energy prices, and interest rates are rising around the world from record lows during the pandemic,” he said. address To the American Chamber of Commerce in Australia.

“This is all happening when unemployment is as low as decades ago and households are under pressure, so it’s a complex policy environment.”

The Reserve Bank has tried to curb inflation by raising interest rates.

Reduction of budget deficit

Meanwhile, Tanny said the Labor government needs to take strict steps to deal with continued spending.

“The Australian government still has a budget deficit worth tens of billions of dollars, which actually contributes to inflationary pressure.”

He said government support for raising the minimum wage (5%) due to inflation is a step in the wrong direction.

“We want to avoid falling into a wage-price spiral where prices rise and then wages rise to catch up, and some employers who can’t afford to raise wages take over. Raise the price. “

However, Treasury Minister Jim Chalmers said rising wages did not contribute to rising inflation.

“Wages are certainly not an issue when it comes to the problems we face, which is certainly widely accepted among independent and objective observers of the Australian economy,” he said on July 18. Told to.

Epoch Times Photo
Finance Minister Jim Chalmers spoke at a labor campaign rally in Brisbane, Australia, on May 15, 2022. (Lisa Marie Williams / Getty Images)

Chalmers called the latest debt forecast “faced”, saying the Labor government is aiming to find savings on the next budget.

He also said the recent rise in interest rates from the Reserve Bank adds billions each year.

“Given the impact of these rising interest rates on the budget, it’s over $ 1 billion this year, over $ 5 billion last year … these aren’t small,” he said.

Chalmers has ruled out continuing to reduce fuel sales tax after the end of September, saying it would be too expensive.

However, Australians are facing pressure on living expenses in several ways, including rising prices for gasoline, electricity and groceries, so treasurers may face pressure to oppose this move.

Daniel Y. Ten


Daniel Y. Teng is based in Sydney. He focuses on national politics, including federal politics, COVID-19 response, and relations between Australia and China. Do you have a hint? Contact him at [email protected].