Talkback callers across Australia called the Reserve Bank “heartless” and “cruel” this week after governor Michele Bullock lifted the cash rate to 4.6% on Tuesday and warned that further increases could follow soon. Many callers were already under financial pressure. Their anger points to where the economy will sit in politics right through the 2028 federal poll.
Interest rates are at a 15-year high. Headline inflation reached 4% in the year to August, up from 3.5%. Trimmed mean inflation, the Reserve Bank’s preferred measure, held at 3.6% for a third month, well above the bank’s 2% to 3% target band. Unemployment has climbed to a near five-year high. House prices have fallen for a sixth consecutive month, following changes that made negative gearing and capital gains tax less generous.
Who Is Feeling the Squeeze
The public is also struggling to understand why rates rise. Reserve Bank research released in July found that only 25% of respondents could correctly explain that higher rates would ultimately lead to lower inflation. More than half believed higher rates would push up costs across the economy. That’s the opposite of what the central bank intends, leaving households with bigger repayments and little sense of why.
Anthony Albanese and Jim Chalmers blame Donald Trump’s war in Iran and the resulting global fuel shock for the inflation problem. Chalmers told a summit organised by the Australian Public Policy Institute on Wednesday that Australia’s challenges were “not exclusively global, but right now they are primarily global”.
Bullock offered a different account. She pointed to excess demand tied to government spending and said fuel prices and other disruption from the Middle East were “in addition” to domestic problems. New South Wales premier Chris Minns distanced himself from Labor colleagues in Canberra, saying his government had controlled spending, partly by pursuing offsets to balance the cost of new programs.
Chalmers responded with figures from the final budget outcome for 2025-2026. Real spending growth averaged 2% a year under Labor, pulled down by a sharp fall in 2022-2023 as pandemic support packages wound back. Excluding that year, real spending grew by an average of 4.2% a year, compared with 2.6% under the Coalition in the six years before the pandemic.
The Budget Bind
The options are narrow. Apart from major cuts to the National Disability Insurance Scheme, Labor may have few ways to reduce spending while pursuing its plans for health, education, social programs and defence. The government could also add universal childcare if it wins a third term in 18 months’ time. Modest savings measures, including capping some allied health benefits for veterans and reducing the private health insurance rebate for seniors, have already proved politically painful.
Productivity offers no quick relief. Chalmers said he was putting all available effort into lifting it. Bullock said it was “doing nothing” to help. Budget watcher Chris Richardson called the economy “completely clapped out” and warned: “every time we get five minutes of economic sunshine, the inflation dragon rears its head again.”
The mid-year budget update lands just before Christmas. Surging global interest rates are expected to raise borrowing costs for governments and companies, including cash-hungry AI developers. The Australian Financial Review reported that Treasury forecasts interest payments will overtake Medicare spending by 2028-2029, driven by $1.2tn in federal debt. Chalmers and finance minister Katy Gallagher will need to find more savings before the end of the year.
The Opposition’s Pitch
Liberal leader Angus Taylor gave Labor no leeway for the energy crisis’s contribution to inflation. Asked where he’d cut spending, he named Labor’s net zero by 2050 programs, some of its vehicles for delivering new housing, “corporate welfare”, the NDIS and other welfare programs. He’d also restrict first-home-buyer support to Australian citizens.
One Nation looks set to harvest voter anger, with the party expected to win a slew of seats in Victoria’s state election in November and in New South Wales in March. The article called Pauline Hanson’s policies “gibberish” and said Taylor must show voters his plans would turn things around, setting the Coalition apart from both Labor and One Nation.
Why This Matters: Rate rises hit hardest for households with the least room to absorb them, and callers venting at the Reserve Bank are an early sign of that strain. Unemployment is at a near five-year high, and inflation remains above target. People are being squeezed on several fronts at once. The budget choices ahead touch programs real people rely on: disability support, veterans’ allied health, seniors’ health rebates and first-home-buyer help. Whichever party writes the next round of savings, who bears the cost is a matter for democratic debate. Public confusion about how interest rates work makes that debate harder, and voter frustration is already feeding One Nation’s rise.