The political battle over Australia's economy has intensified, with the Coalition seizing on a recent rise in inflation to directly blame Treasurer Jim Chalmers and the Labor government's fiscal policies.
The Birth of 'Jimflation'
This week, Liberal staffers handed out stickers to the Canberra press gallery emblazoned with the term 'Jimflation'. The tagline accused the Treasurer's 'creation' of 'wrecking the nation'. The portmanteau, combining the treasurer's first name, Jim, with inflation, was coined by Shadow Treasurer Ted O'Brien in parliament.
O'Brien stated that 'Australia's inflation crisis, otherwise known to many as the 'Jimflation' effect, is destroying our national prosperity.' He repeatedly blamed the unwelcome uptick in inflation, which has led the Reserve Bank to hold interest rates and hike its inflation forecasts, on what he termed Labor's 'spending spree'.
Is Government Spending Really to Blame?
Treasurer Jim Chalmers swiftly dismissed the accusations. He challenged the Coalition's narrative by pointing to interest rate cuts earlier in the year, including two that occurred after the March budget. 'If he [O'Brien] wants to say that government spending and government budgets are the decisive factor in interest rate decisions then he needs to explain those three interest rate cuts,' Chalmers argued.
Economists acknowledge a fundamental link between public spending and inflation. Jonathan Kearns, Chief Economist at Challenger and a former top RBA official, confirmed that public spending has 'obviously' added to demand and been responsible for a large share of economic growth in recent years.
However, Kearns introduces a critical nuance, questioning whether Australians would have tolerated the alternative. 'GDP per capita has been falling for two years. Would we have been happy with it falling even more?' he asked, suggesting that without this spending, pressure for rate cuts would have been even greater.
The Bigger Picture: Public Expectations and Productivity
The debate extends beyond simple blame. Independent economist Chris Richardson suggests the government's expanded role reflects a new 'social compact' where Australians expect more from public services in healthcare, education, and aged care.
Cutting spending to fight inflation, therefore, raises difficult questions. Should the government have withheld pay rises for aged care and childcare workers? Should it not have cut the price of medicines or boosted bulk billing? These are the specific trade-offs that abstract calls for fiscal restraint often ignore.
Richardson also highlights a more profound issue facing Australian politicians: the nation's poor productivity performance. He urges the government, which he says has a significant mandate, to be bold on economic reform. The recent inflation spike may prove temporary, but the underlying challenge of boosting productivity remains a long-term imperative for the nation's prosperity.
