Clinton Maynard:
It’s 4:12. Well, as you know, the federal government has responded to the RBA’s decision to increase interest rates this week by 0.25% to 3.85%, and that’s off the back of rising inflation. They have responded mostly by pointing the finger at the previous coalition government. Now, this isn’t to say that the previous government were wonderful when it came to economic management. They spent a hell of a lot of money. But it seems that Anthony Albanese and Jim Chalmers have taken great joy, pleasure at saying, “Well, hang on. When we took over, inflation was 6%. Now it’s down to four. We’re wonderful.” They point out that Scott Morrison’s government, and some of this is true, spent more money than Anthony Albanese’s government.
They conveniently ignore the fact that when Scott Morrison was prime minister, he was prime minister throughout COVID. And most governments around the Western world were spending huge amounts of money to keep their economies afloat to ensure that people who couldn’t work still had some sort of income. And at the time, that was very much supported by Labour. But the government keeps referring back to the past.
Well, in a few months time, Jim Chalmers hands down another budget. And the question’s going to be, is he going to actually have the guts to make some cuts? Now, politically, surely he’s going to be in a position to be able to make some reforms, to maybe make some unpopular decisions, because Labor’s that far in front of the opposition, if you can even call them an opposition. It does give them some political muscle. Adam Creighton is the Chief Economist with the Institute of Public Affairs. Hello, Adam.
Adam Creighton:
Good afternoon. Thanks for having me.
Clinton Maynard:
Do you think Jim Chalmers will make cuts in May?
Adam Creighton:
No, he certainly won’t. In fact, he’s been hinting at increasing tax, changing the capital gains tax discount, which is a very bad move. They certainly should be cutting. That argument you mentioned before about the 6% under Morrison is completely ridiculous because as you pointed out, there was a lot of money spent, a lot of money pumped into the economy. But the Labour Party at the time wanted more. So if they had been in charge, it would have been even higher than 6%. And I think they know that deep down inside. So, I think that’s a very mischievous argument.
Spending is growing far too fast in Australia with the fastest growth at the federal level in spending since the Whitlam years, if you exclude COVID. And that is very concerning. That is obviously putting pressure on prices. We have budget deficits as far as the eye can see basically. Taxation, which is growing really fast because of bracket creep and various other reasons, is not even keeping up with spending. And that’s why we have these huge deficits. So sadly, I don’t think there’ll be any cuts. There might be a few token things here and there, but if you look at the aggregate of the Labour government the last three years, it’s just been excess. I mean, just look at the public sector. They’ve added about 40,000 new bureaucrats in Canberra. And the NDIS is out of control, it’s about to cost more than the military. It’s hard to know where to end.
Clinton Maynard:
And the $57 billion black hole that was exposed last week that is in the forward estimates, a lot of that’s got to do with that expansion in public service. Now, I think public servants are getting an 11% pay rise. And it’s not to say that public servants shouldn’t be given extra wages, but if you’re employing 40,000 more, well, the government can’t meet what they were predicting at the last election.
Adam Creighton:
Yes. Yes, that is exactly right. The public sector, and it’s not just the federal level too. State governments too. Largely labour governments are hiring way too many people. Their wage bills are going up seven or 8% a year, year after year. That does not reflect a prudent government, in my view. Sadly, the government seems to think it’s not having an effect on inflation, and it’s just basically putting it all back on the reserve bank.
Well, the reserve bank has now lifted rates. They’ll probably lift a second time. That’s going to hit hundreds of thousands of households who actually were led to believe only six months ago that rates were going to keep going down. And the federal government even introduced that new 5% scheme for first home buyers, which I’m sure encouraged a lot of people to get into the market. And now look what’s happening. They’ve been burned.
Clinton Maynard:
Adam, if they don’t cut spending, if Jim Chalmers doesn’t cut dramatically, what taxes do you think you’ll look to increase? And obviously CGT and those discounts on CGT for investment properties, that’s been discussed this week.
Adam Creighton:
Well, look, we’re already extremely heavily taxed, especially on the income front. So there really isn’t much you can do, except for that capital gains tax discount. And the word discount is misleading. I mean, it’s there because you don’t want to tax people on inflation when they sell their asset. So, there has to be some sort of reduction. And it was decided back in 1999 that the easiest, simple way to do that was if you hold an asset for more than 12 months, you get a 50% reduction. So if they tamper with that, then people will be less likely to invest, which will ultimately hit economic growth. So, it’s a very bad idea. It’s very distressing. And you do wonder already whether there’ll be a big stampede to buy things, to buy assets now, because it will probably be grandfathered. So people who hold assets won’t be hit with the change.
Clinton Maynard:
Which will then spike the property market as well, probably.
Adam Creighton:
Yeah, exactly.
Clinton Maynard:
Thank you for your time and your expertise, Adam.
Adam Creighton:
No problem. Thanks very much.
Clinton Maynard:
Adam Creighton, who’s the Chief Economist with the Institute of Public Affairs.
This transcript of Adam Creighton speaking on Sydney Now with Clinton Maynard 2GB from 5 February 2026 has been edited for clarity.
