Australian families are facing acute and immediate cost of living pressures, due to rapidly rising inflation, energy costs, and rising mortgage repayments. A key cause of rising inflation is debt and deficit government spending. New IPA research examines the relationship between government spending, inflation, and mortgage repayment rates. The key findings are:
- Average annual federal government spending is expected to increase by 4.6% between 2023 and 2026. This equates to contributing to 1.62 percentage points higher inflation every year.
- A 1.62 percentage point increase in inflation will result in household variable mortgage interest rates rising by 0.67 percentage points.
- For households, a 0.67 percentage point increase in the mortgage repayment rate will have an estimated effect of raising monthly mortgage repayments by $257, or $3,088 per year.
Governments must tackle inflation and the cost of living problem by cutting spending, eliminating budget deficits, and reducing the debt.