Government Has ‘Given Up’ on Fighting Inflation: Deputy Liberal Leader

Deputy Leader of the Opposition Sussan Ley at a press conference at Parliament House in Canberra, on March 29, 2023. AAP Image/Mick Tsikas

Deputy Opposition leader Sussan Ley said she believes the government “has given up” on trying to control inflation.

“As I listened to the Treasurer yesterday, I felt that the government has given up. There was a shrugging of the shoulders, what more can we do attitude. But absolutely no plan to address the key issue here, which is inflation,” she told Sky News Australia on June 7.

Ley said the most essential policy to bring down inflation was a policy to provide affordable and reliable energy.

“I think that’s number one because it feeds into everything, it feeds into the factory floors … it feeds into the costs that small businesses show me,”

Agreeing with the shadow treasurer, Angus Taylor, Ley said the budget was “absolutely” contributing to inflation in Australia.

“We know that unless you have a budget and economic settings that drive increases in productivity, wage rises are simply going to add to inflation,” she said, referring to recent agreements to increase aged care worker wages by 15 percent and all public service workers by 10.5 percent.

Further, the Fair Work Commission announced on June 2 that it would lift the national minimum wage by 8.6 percent, raising the pay rate from $21.38 (US$14.14) to $23.23 per hour.

Taylor previously accused the government of undermining the Reserve Bank—which has tried to control inflation through interest rate rises—by bolstering spending with an extra $185 billion worth of new commitments.

“Inflation now is coming from Canberra, not the Kremlin, and it’s Canberra’s problem to solve,” he told the National Press Club on May 17.

Labor Unapologetic About Wage Rises

However, Finance Minister Katy Gallagher denied that wages in Australia contributed to inflation. She also cleared the government from any responsibility in contributing to the latest interest rate hike, saying it was a matter for the Reserve Bank of Australia (RBA).

“Wages are not creating the inflation problem in this country,” she told ABC Radio National. “We have had a decade of wage stagnation.”

“Minimum wage earners and low wage earners have paid the price for that over a decade, and we are seeing modest and sustainable wage growth starting. That’s welcome.”

“We don’t apologise for low-income and minimum wage workers actually getting a pay rise,” she said.

But she acknowledged that to have long-term sustainable wages, the government will need to deal with the productivity challenge.

Finance and Women's Minister Katy Gallagher speaks during a budget lockup press conference to announce details of the 2022-23 federal budget to the media at Parliament House in Canberra, Australia, on Oct. 25, 2022. Martin Ollman/Getty Images

Gallagher placed Australia’s inflation challenge on global factors, particularly the Russia-Ukraine war.

“That’s had flow-on effects into our economy,” she said.

Compensating Everyone for Inflation Will Only Drive Inflation: RBA

Quoting Philip Lowe, governor of the RBA, Gallagher said the budget and its energy relief bill were deflationary by lifting pressure off the cost of living.

But in comments to the Morgan Stanley summit, Lowe said the road back to a two to three percent inflation rate was bumpy.

“It is still possible to navigate this path, and our ambition is to do so. But it is a narrow path and likely to be a bumpy one, with risks on both sides,” he said in his speech.

On the government’s budget, Lowe maintained his position that it was “broadly neutral.”

In the short-term, he said the budget was helping inflation through energy market intervention, price caps, and rebates, which is estimated to lower inflation by about 0.75 percent in the next financial year.

When asked about the effects of the minimum wage hike, Lowe warned that Australia would place itself in trouble by accepting the premise that every worker needed wage compensation for inflation.

“Because if we accept that premise, inflation at seven percent and wage rises to match that, what do you think inflation will be next year? It will be higher again, and then we will have to have higher wage increases again,” he answered.

Lowe acknowledged that Australia was in a difficult position where we wanted to protect the country’s lowest-paid workers from inflation, an objective he said was “perfectly understandable.”

“We have got to make sure that the higher inflation doesn’t translate into higher wage outcomes for everybody because if that happens, the inflation persists, and we will be in the world that I spoke about before that we’re really trying to avoid,” he said.

It comes after reports that Lowe allegedly warned Labor backbenchers in the economics committee against any wage increases that were not tied to increased productivity, saying it would be inflationary.

But Labor members on the committee reportedly accused Lowe of demonising wage rises.

Australia’s official interest rate, at 4.1 percent, is currently among the lowest compared to other major developed economies—lower than the United Kingdom and Canada (4.5 percent), the United States (5.25 percent), and New Zealand (5.5 percent).

The latest hike on June 6 surprised many experts who believed the cash rate at 3.85 percent had already hit its peak.

However, according to internal RBA correspondence dating back to September 2022, the cash rate will likely peak at around 4.8 percent later this year.

Victoria Kelly-Clark contributed to this report.