RBA wages war on younger Australians


On Thursday, I gave our weekly Treasury of Common Sense interview on Radio 2GB with Luke Grant.

This week’s interview covered the latest inflation results and the interest rate outlook.

I also explained how the RBA’s war on inflation is effectively a war on younger Australians.

They are bearing the brunt of the interest rate pain, while older households, alongside extreme levels of immigration, are driving the bulk of the demand and spending across the economy.


Edited Transcript:

Last week, Michele Bullock gave a speech where she said that Australians are spending too much on dentistry and haircuts and that those two things are a sign of over-consumption, and that’s helping to drive inflation, which is quite frankly ridiculous.

I mean, those are effectively essential spending. Does Ms Bullock want us to walk around scruffy and Toothless? It’s a bit ridiculous.


Then this week she gave a presentation to a central bankers conference in Tokyo on Tuesday night where she basically said that household spending and finances are holding up well and we’ve also got these really high levels of savings that we built up over the pandemic.

But the reality is that individual households aren’t holding up well. They’re cutting spending. Again, it’s this problem of adding so many households.

And she’s looking at the overall household sector, which is obviously being juiced by this massive population growth.


We’ve also got a huge amount of disparity between households. So, the CBA economics team released some data last week. It was fantastic. And what it actually showed was that retirees are spending like drunken sailors.

So, they’re actually spending at a rate that’s far above inflation, whereas anyone under 40 is actually cutting back on their spending.


The reason for that is obvious. If you’re under 40, you’re most likely to have a mortgage or you’re renting. So, you’re getting smashed by mortgage rates or you’re getting smashed by rents.

All this tells you, though, is that if you’re paying rent or you’re paying a mortgage, you’re getting smashed and you’re making cutbacks.


But the older people above 65 tend to own their homes mortgage-free, and they’re not renting.

They’re actually making out like bandits because higher interest rates give them greater deposits.

Deposits by age

They also are more likely to own investment homes and a lot of those are owned outright. So, they’re making heaps of money off rent.

They’re spending up. I don’t begrudge them for spending if they want to. But the problem with it is the RBA is trying to control this demand across the economy and it’s doing it via one tool: interest rates, which only impacts about one-third of households with an owner occupier mortgage.

So, effectively the RBA is smashing the young people who are making the cutbacks to try and curb demand, which has been pushed higher by people who are retired, mostly, who aren’t impacted by those interest rates.


So again, it’s this stupid blunt tool that we’ve got. The federal government has a whole bunch of tools to help the RBA out.

You can’t go and target retirees directly; it’s hard. But they could certainly cut immigration so that we don’t keep adding all these spenders to the economy, pushing up demand and obviously also pushing up rental inflation, which is a major driver of inflation.


We need a circuit breaker from the federal government.

We’re probably not going to get rate cuts for a fairly long time. They’re probably going to stay at a high level. But they wouldn’t need to stay at a high level if the federal government would help the RBA out.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.