Morrison pork or Howard worship to blame for rate rises?

So say “economists“:

Cost-of-living spending in the federal budget “100 per cent” helped pull forward the Reserve Bank’s decision to increase official interest rates, say economists who warn most Australians will suffer real falls in wages over the next 18 months.

As Prime Minister Scott Morrison and Treasurer Josh Frydenberg defended their handling of the budget, senior economists said the extra spending promised by both sides of politics in the election campaign was adding to inflationary pressures.

…The March 29 budget contained $25 billion in extra spending initiatives over the next four years, including $5 billion for the $250 cost-of-living bonus and the 22.1¢-a-litre reduction in fuel excise.

The super-sized low and middle-income tax offset, which will start flowing into bank accounts from early July, will pump at least $12 billion into the economy.

Economist Steven Hamilton, a visiting fellow at the Tax and Transfer Policy Institute at the Australian National University, said there was no doubt the extra spending in the budget – on top of what was being promised by both major parties during the campaign – had been a factor in the Reserve Bank’s move.

“The RBA is targeting where inflation will be in about 12 months’ time. You can’t inject about 1 per cent of GDP into the economy and not have an impact.”

Grattan Institute economics policy director Brendan Coates said it was clear the budget’s extra spending was adding to the nation’s inflation pressures, forcing the RBA to act.

It’s true that it is contributing factor even if it is partial analysis given the many factors at play.

The clincher for the blame is more about the role of fiscal policy in the cycle than it is the actual spending. If it is the role of fiscal policy to be reduced to take pressure off interest rates in a mature cycle – and it is conventional wisdom that it is – then Morrison is guilty as charged.

This is easily illustrated by the counterfactual. If the budget had instead withdrawn 1% of GDP in spending then would the RBA have hiked? It is doubtful.

The LNP worship of John Howard, who did exactly the same thing in 2007, appears to have killed it.

Houses and Holes
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  1. Had to laugh at Scummo this morning on the ABC saying the budget couldn’t have anything to do with the rate rise because it was brought down before the CPI figures came out.

    Sabra Lane of course was totally out of her depth and was unable to call out the obvious misdirection.

    • happy valleyMEMBER

      Or is Lane just another of the many LNP sympathisers (Speers, Sales, Stan Grant, Karvelas, Probyn, Fran Kelly etc etc) now inhabiting your ABC?

      • Or is Lane just another of the many LNP sympathisers

        Lane on Twitter:
        Quotes Julia Gillard favourably
        Quotes Tanya Plibersek favourably
        Quotes Rachelle MIller favourably
        Quotes Kevin Rudd favourably
        Quotes PRGuy17 favourably
        Quotes Mike Carlton favourably

        it is true, her sentiments are similar to Leigh Sales though…. ”

        “LNP sympathisers” – LULZ!!#!

        • ErmingtonPlumbingMEMBER

          Geez you’d love the Schtick on, Sydney’s number 1 radio station for Boomer ignoramuses, 2GB Rusty
          Look em up on line and have a listen.
          Esp the morning shows.
          You’ll be in bliss.

    • turvilleMEMBER

      and the rate rise had very little to do with the budget – inflation caused by and large by external factors. press useless as usual

  2. turvilleMEMBER

    Complete and utter BS- a rate rise has been on the cards and it’s only the inept and hard of hearing RBA that have caused the delay and the the sudden U turn.

  3. FFS
    Interest rates are .35 of a percent and likely to peak at 1 to 2 %
    This is “accomodative monetary policy”.
    If 1.5% interest rates are gonna crash the economy, (i dont think so) then we need to look at fixing the underlying problems,
    MB articles of late seem to call for interest free money forever
    What has it gotten us? If all this cheap money was going into businesses and infrastructure you might have an argument,
    Clearly most of it go s into inflating real estate prices in which very few Australians actually profit from if you take the long view.

  4. kierans777MEMBER

    The LNP worship of John Howard, who did exactly the same thing in 2007, appears to have killed it.

    Nup. The next 4 days are going to be about Albo forgetting something again. Our media are so brain dead that they focus on trivial issues instead of substance. Can I remember my times tables vs do I have plan to do something to help disabled people on the NDIS. FFS.

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