Anthony Albanese and his cabinet really couldn’t have chosen a worse moment to undertake the sweeping tax changes in its most recent budget.
House prices across the country have fallen significantly since the budget, and home owners, even though they typically buy and sell in the same market, are watching the value of their home fall while the cost of just about everything else rises with inflation.
Tuesday’s decision delivered the fifth rate rise in 2026 alone , and home mortgage rates are at their highest level since 2008.
It’s a perfect storm of poor economic conditions, and voters are blaming Albanese for it and deserting Labor (and the Coalition) in droves , parking a protest vote with One Nation.
In February, when the United States and Israel first attacked Iran, it was foreseeable that this fight, combined with the war in Ukraine and the Oval Office’s many unpredictable moves, would damage the global economy and play havoc with fuel prices. Labor gambled and pressed ahead with most of what it wanted to do in the May budget, and it is paying the price for that gamble.
But few would have predicted the Iran war would be unresolved nine months later, keeping oil prices uncomfortably high, while the Reserve Bank admits it misjudged the extent to which domestic capacity pressures such as the AI construction boom have contributed to inflation.
While the government should be given some credit for courage, it’s looking more like the sort of political bravery that Sir Humphrey Appleby used to advise against in the 1980s TV comedy Yes, Minister.
Reserve Bank governor Michele Bullock didn’t mince her words as she declared on Tuesday that “I don’t tell them [the federal government] what do to with fiscal policy; they don’t tell me what to do with interest rates”.
This was not quite right. The bank has been indicating for some time that government spending at federal and state levels is a contributing factor to rising inflation.
More seriously, Bullock was asked at least three times at her post-rates conference on Tuesday about the prospect of a recession in Australia. Chalmers also faced questions about recession. Both suggested they did not expect one, but the fact everyone keeps asking should set off alarms in the ministerial wing of Parliament House.
Bullock, who as governor now holds a press conference after each RBA meeting under changes introduced by Chalmers, gave the sort of answer that makes the prime minister tear his hair out.
“We are not looking to tip the economy into recession, if we can avoid it. But we do need to get inflation down, and we do have excess demand at the moment,” she said, adding that some people might feel like Australia is in a recession already “because they feel poorer”.
That’s not a reassuring message and not one the prime minister could parry instantly, given he is half a world away at a Commonwealth Heads of Government Meeting in the Caribbean .
Albanese’s transparent attempt to distance his government from the Reserve Bank last week, describing rate rises as a “blunt instrument” , would not have convinced many people that the federal government wasn’t at least partly to blame.
In the same interview, the prime minister said new savings would be found in next month’s mid-year budget update, but he refused to commit to a net savings package.
That’s a mistake, and blaming the RBA is not going to cut it, either. The bank is clearly looking for the government to constrain spending – and it has been looking for some time.
At a minimum, Albanese and his economic team need to make some hard choices about where and how to cut federal spending, even if there’s a backlash from bleeding hearts in the Labor caucus.
Chalmers has signalled he has further tax cuts planned before the next election. While it may be tempted to unveil them in the 2027 budget, rather than in the 2028 election as planned, to restore the government’s ailing popularity, that would be a mistake that could trigger further inflation.
It would also be seen for what it is: a flagrant attempt at currying favour with the electorate which would be pocketed and promptly forgotten.
Nothing is sticking for the government, which lost control of the economic narrative soon after the budget was handed down. It cannot make major changes to its budget measures, much of which have now passed, because doing so would be comparable to Kevin Rudd’s decision to abandon his carbon pollution reduction scheme.
Albanese has only one choice: tough it out, much as Australians are having to do, and make some cuts.
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