Koch Slams RBA: Government Spending Driving Inflation, Not Households

Compare The Market's economic director David Koch has written an open letter to Reserve Bank Governor Michele Bullock, urging her to consider government spending as a major driver of inflation.

Koch claims that households are being unfairly penalized with higher interest rates for inflation they did not cause. He points out that household spending has increased just 0.4% since the last economic downturn, and most of this growth can be attributed to families switching to electric vehicles to cut their petrol bills.

Savings have risen by 6.5%, business investment has decreased, and unemployment is at a high of 4.5%. Meanwhile, government spending has climbed to 26.8% of GDP, the highest level since 1986 (excluding pandemic years). Public sector wages are growing faster than private sector wages, and prices for services like childcare, education, healthcare, utilities, and insurance are surging higher than market-driven prices.

Koch is warning that if interest rates rise again on September 29, it could add $93 a month to repayments on a $600,000 loan. He urges borrowers to negotiate with their lenders and compare their home loans and utility bills against competing offers to ensure they are getting the best possible deals.

Koch acknowledges the difficulty of the economic conditions facing the RBA but argues that Governor Bullock should acknowledge the role of government spending in driving inflation, and how it would impact Australian households. He asks her to explain how much government spending has contributed to inflation and whether a fiscal statement from federal and state treasurers is necessary.