RBA Faces Scrutiny Over Government Spending Modelling

Former Australian treasurer Joe Hockey has disputed a recent admission by senior Reserve Bank figures that they have not modelled a scenario where government spending is cut by two per cent. RBA Governor Michele Bullock and assistant governor and chief economist Sarah Hunter were questioned by Liberal MP Simon Kennedy during a parliamentary hearing about the central bank's inflation modelling. The exchange was widely shared on social media, with Mr Hockey weighing in.

According to the transcript of the committee hearing, Mr Kennedy asked Ms Bullock if the RBA had modelled a scenario where government spending was cut by two per cent. Ms Bullock replied that 'we've not run that scenario', and added that it would depend on how the models treated the type of spending being cut.

Mr Hockey responded to the exchange, claiming that 'if they actually said that - it's not true'. He alleged that the RBA had previously modelled a similar scenario when he was treasurer and used it to argue for fiscal consolidation. Mr Kennedy also expressed his concerns about the RBA's admission, stating that the central bank needed to consider this scenario in light of the impact on households with mortgages.