A top economist has warned interest rates could continue to go \u201cup and up\u201d throughout 2027 if government spending does not come down.<\/p>\n
It comes after the RBA hiked the cash rate<\/a> to a 15-year high of 4.6 per cent on Tuesday.<\/p>\n EQ Economics\u2019 managing director Warren Hogan\u00a0said Australian governments have \u201cnot shown any restraint\u201d as inflation has continued to wear on.<\/p>\n Mr Hogan said governments could have been given the benefit of the doubt for the level of spending in 2024.<\/p>\n \u201cBut it’s quite clear, with the resurgence of inflation in the last 12 months as our economy recovered from very weak growth to only 2.5 per cent\u2026 (this) was clearly enough to trigger inflation,\u201d he told News24.com.au.<\/p>\n \u201cThe governments of Australia are all planning to increase spending by around 3 per cent when the economy\u2019s capacity is 2, that really means the rest of us are getting squeezed out.\u201d<\/p>\n Mr Hogan said it was the RBA\u2019s responsibility to enforce restraint on the private sector through higher rates, but if the government was not cutting back, rates would continue to go up.<\/p>\n \u201cIf the governments of Australia don’t think about really cutting back recurrent spending quick smart, the cash rate might not just go up one or two more times,\u201d he said.<\/p>\n \u201cIt might just keep going up and up and up all through next year. And of course we know where that ends in a nasty recession, if not a financial crisis.\u201d<\/p>\n Mr Hogan said the federal government\u2019s recurrent spending had begun to \u201csurge\u201d in recent years when they had been \u201cvery stable\u201d for about 40-50 years.<\/p>\n \u201cBut from about 10 years ago, the federal government started with the NDIS and various things, increasing payments and locked in spending. It’s now gone from the average of seven and half percent of GDP to 11,\u201d he said.<\/p>\n \u201cThat’s a 40 per cent plus structural increase in the presence of federal government, locked in. And I don’t think our economy is coping with it at all.<\/p>\n \u201cThe states are increasing their spending as well, but it’s really that federal increase in spending that’s the standout and the problem and needs to be cut back.\u201d<\/p>\n Mr Hogan said the cost of higher government spending was more than just higher taxes in order to fund it, but also the \u201csqueezing out\u201d of the private sector which was pushing down living standards.<\/p>\n He said the combination of higher taxes and lower standard of living came at a time when the Australian economy didn\u2019t have \u201cmuch room to manoeuvre\u201d.<\/p>\n \u201cBecause, as the governor reiterated again today, we don’t have much spare capacity because of the ageing population,\u201d he said.<\/p>\n Mr Hogan said Australians had to face the ultimatum of choosing between less government spending now or a \u201ccrisis\u201d later.<\/p>\n \u201cWe’ve got to decide as a community now, do we actively pursue a program of reducing the size of federal government and do it in a controlled manner ourselves, or do we wait for a crisis to force us in an uncontrolled manner for it to happen upon us?\u201d he said.<\/p>\n \u201cI think we’d all agree doing it ourselves would be much better.\u201d<\/p>\n Read related topics:Inflation<\/a>Interest Rates <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"A top economist has warned interest rates could continue to go \u201cup and up\u201d throughout 2027 if 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