Reserve Bank governor Michele Bullock has fired back at Nationals senator Matt Canavan after he accused her of “gaslighting” Australians over the state of the Australian economy.
Ms Bullock has also rejected repeated efforts by the federal opposition to pin the blame for rising inflation and interest rates on government spending.
Appearing at a Senate Estimates hearing this morning, more than a week after the central bank raised rates, Ms Bullock expressed frustration at the line of questioning from some senators, saying she had answered similar questions for a week.
“I do want to inject one positive here, and that’s the labour market,” Ms Bullock said.
“I think everyone’s been focusing on the negatives, but we’re in this position because the economy is actually doing okay.
“It can’t grow really strongly because productivity is not growing, but the labour market is holding up.
“It’s still a little bit tight, and this is good news, and in fact it’s much better news than some other countries overseas have seen with their labour markets.”Â
Senator Canavan disagreed with her view and it prompted a heated exchange.
“I think people are only going to get angry in this country if they’re gaslit into thinking the economy is okay, when their lived experience is absolutely terrible right now,” he said.Loading…
Ms Bullock said she took exception to that comment.
“I am not gaslighting anyone,” she replied sharply.
RBA deputy governor defends central bank from critics
“I have said that there are certain aspects of the economy which are doing well and one of them is the labour market, which is positive for people.
“Now I understand that some people are doing it tough. I do understand. I get letters and I read them.Â
“But that is not to say that you can’t recognise that there are some parts of the economy that are doing well and the labour market, I think, has been a really positive thing for this country.”
Liberal senator Jane Hume again asked whether private sector or public sector demand was to blame for the surprise surge in inflation from 3.4 to 3.8 per cent.
“I really feel that I am answering the same question over and over again,” Ms Bullock replied.
Jane Hume questioned the RBA governor about public sector and private sector demand. (AAP: Lukas Coch)
Ms Bullock said the bank raised the cash rate from 3.6 per cent to 3.85 per cent because demand from both the private sector and the public sector was higher than the economy could accommodate, causing inflation to spike in December.
“If you look at the difference between our forecasts in November, where we had inflation coming back into the band, and you look at our forecasts now, where inflation isn’t, the key difference there is not fiscal policy. It’s pretty much the same as it was in November,” Ms Bullock said.
“The key difference is private demand.”
The idea that government spending is to blame for the economy overheating has been prosecuted by the federal opposition for weeks.
Public spending part of demand
Ms Bullock has consistently refused to buy into that idea, which is supported by some private sector economists, notably Shane Oliver at AMP, but rejected by Treasurer Jim Chalmers.
In a note to clients on Tuesday, Dr Oliver said that while it was true that growth in government spending slowed down in the September quarter, while growth in private spending surged, “this ignores the fact that public spending is part of demand in the economy and its level is also very important.”
RBA governor grilled over rising inflation
“On this front, after many years since late last decade with real growth in excess of 4 per cent [per annum], public demand in the economy is still around a record 28 per cent of GDP, whereas in the 40 years prior to the pandemic it averaged around 22.6 per cent,” he said.
On a broader measure of government spending that includes the states, Australia’s government spending was 38.4 per cent of gross domestic product in 2022, the most recent year from which Organisation for Economic Cooperation and Development (OECD) data is available.
This was the ninth-lowest of 33 OECD countries.
France was the highest at 58.4 per cent and Ireland the lowest at 20.6 per cent.