Callers struggling to meet expenses branded Reserve Bank governor Michele Bullock “heartless” and “cruel” after Tuesday’s cash-rate rise to 4.6%. The bank said rates could climb again. The decision came as inflation persisted and voters grew angry about living costs, leaving borrowers with higher repayments while governments and companies faced rising borrowing costs too.
Who Pays
Headline inflation hit 4% in the year to August, up from 3.5%. Trimmed mean inflation, the Reserve Bank’s preferred measure, held at 3.6%, above its 2% to 3% target band. Unemployment had climbed to a near five-year high, while house prices fell for a sixth consecutive month after changes made negative gearing and capital gains tax less generous.
Research the Reserve Bank released in July found just 25% of respondents could correctly explain that higher interest rates would eventually bring inflation down. More than half thought rate rises would increase costs across the economy—the opposite of the bank’s intended effect. Callers’ fury reflects a policy that households struggle to understand as they face immediate financial strain.
Anthony Albanese and Jim Chalmers blamed Donald Trump’s war in Iran and the resulting global fuel shock for inflation. Bullock also cited domestic excess demand linked to government spending. Middle East fuel prices and other disruption, she said, came “in addition” to domestic problems.
Public Spending and Debt
Chalmers said real spending growth averaged 2% a year under Labor. That figure included a sharp fall in spending in 2022-2023, when the government wound back pandemic support packages. Excluding that year, real spending rose by an average of 4.2% a year, against 2.6% under the Coalition in the six years before the pandemic. The figures appeared in the statement on the final budget outcome for 2025-2026.
Speaking at an Australian Public Policy Institute summit on Wednesday, Chalmers said Australia’s economic challenges were “not exclusively global, but right now they are primarily global”. Labor may have few options to cut spending beyond major reductions to the National Disability Insurance Scheme, while it pursues plans for health, education, social programs and defence. The government could also introduce universal childcare if it wins a third term in 18 months’ time.
The mid-year budget update is due just before Christmas. Global interest rates are surging, and governments and companies—including cash-hungry AI developers—are expected to face higher borrowing costs amid what the article described as unsustainably high government deficits. The Australian Financial Review reported Treasury forecasts that interest payments will overtake Medicare spending by 2028-2029, with federal debt at $1.2tn.
The Political Choices
Chalmers and finance minister Katy Gallagher must find more savings before the end of the year. Measures already taken include capping some allied health benefits for veterans and reducing the private health insurance rebate for seniors. Both moves have proved politically painful.
Liberal leader Angus Taylor identified Labor’s net zero by 2050 programs, some of its vehicles for delivering new housing, “corporate welfare,” the NDIS and other welfare programs, and first-home-buyer support as areas he would cut or restrict. He said support should go only to Australian citizens. The Coalition must regain voters’ confidence as a better manager of the economy, but Taylor has offered no leeway for the international energy crisis’s contribution to Australian inflation.
One Nation could harness voter anger. The party looks set to win seats in Victoria’s state election in November and in New South Wales in March. Labor remains vulnerable on inflation, interest rates and cost-of-living pressures ahead of the 2028 federal poll.