Public Spending Strains Economy

A surge in population and public spending is placing significant pressure on Australia’s economy, contributing to inflation concerns that keep the Reserve Bank on high alert.

While Treasurer Jim Chalmers criticized the Reserve Bank’s restrictive monetary policy, it’s the record growth in population and public spending that are currently driving the economy forward.

In the June quarter, Australia’s population grew by 0.65%, largely due to an influx of international students and temporary visa holders, pushing annual growth to about 2.5%. This surge is fueling demand, particularly in service exports, despite weak consumer spending.

Public spending also hit new highs, with increased outlays on social services, wages, and rebates. This expansionary fiscal policy, as noted by the Reserve Bank, is delaying the return of inflation to its target range.

New data shows public demand reaching 22.5% of GDP, raising concerns about sustainable growth. While the Reserve Bank maintains its stance on the need for tight monetary policy, a recent survey reveals that a significant portion of the public blames government spending for rising inflation, underscoring the complex economic challenges ahead.