Treasurer Jim Chalmers has rejected claims that government spending has fuelled inflation, saying such criticism was “motivated by politics”.
It comes after several of the nation’s leading economists questioned the Albanese government’s fiscal settings ahead of the central bank’s rate decision on Tuesday.
Government spending as a percentage of GDP has sat at an average of 22 per cent since the 1960s.
But this has ballooned out to about 28 per cent since the high levels of government spending during the pandemic, which did not abate following lockdowns.
Mr Chalmers told Sky News he would take responsibility for his economic record but denied suggestions that public spending was driving inflation.
“I see that commentary. Often that commentary is more motivated by politics than it is founded in facts,” he said.
“We will continue to play our part in managing the budget and the economy as responsibly as we can, recognising these inflationary pressures have been hanging around.”
It comes after AMP chief economist Shane Oliver said “the best thing” for the government to do to bring down inflation would be to “cut government spending”.
Mr Oliver told Sky News he was not motivated by politics, like Mr Chalmers said, and pointed to high public spending as a percentage of GDP.
“I’m not motivated by politics, I am not favouring one side or the other here, I’m just analysing the situation as it is,” he said.
“I’m not saying that government spending has boomed in the last six months. It’s really the fact that it’s boomed over the last six or seven years.
“You’ve got to go back to World War II to see public spending as a share of the economy around these levels.”
Mr Chalmers blamed private spending – not public spending – as the big driver in the uptick of inflation.
Inflation lifted 3.8 per cent in the 12 months to December and the unemployment rate sits near historic lows.
Markets have priced about a 73 per cent chance of a rate rise on Tuesday following a period of already-high interest rates.
Australians saw rates increase 12 times under the Albanese government and only fall three times.
IFM Investors chief economist Alex Joiner warned that “the fiscal guard rails have come off” the government’s budget.
EQ Economics managing director Warren Hogan said that the government needed to “tighten up fiscal policy just a little bit”.
Meanwhile, shadow employment minister Tim Wilson told Sky News that Mr Chalmers was not in control of his portfolio.
“There are a number of drivers of inflation and they’re all backed up by excessive government spending because he can’t manage his budget,” he said.
“He’s borrowing from the future to pay for today. What that’s doing is driving inflation… to try and cover for their overall economic mismanagement.
“You just need to look at the employment data. Eight out of 10 jobs are created directly or indirectly by government expenditure. And that is what is driving inflation.”
AMP’s Diana Mousina told Sky News she expected the RBA’s board would be divided when it handed down its rate decision on Tuesday.
The RBA board has only been split once in the past 12 months and it was when the central bank delivered a shock rate hold in July last year.