The Australian economy is at a critical juncture. Inflation is above the Reserve Bank’s target range, and the GDP growth in the March quarter of 2024 was
The root cause of inflation in Australia is an imbalance between aggregate demand and supply, where there is excess demand. This imbalance can occur when demand outpaces supply, supply falls short of demand, or a combination of both. The cost-of-living crisis in Australia is not only because inflation is high but also because inflation is higher than the growth in nominal incomes, in which case real incomes are falling.
There are capacity constraints throughout the Australian economy. A new way of economic thinking or manipulating data measurement does not solve this fundamental problem. The 2024 budget contains too much spending and distortionary taxation, which can only be sustained if the terms-of-trade boom continues.
It’s crucial to prioritise a collaborative approach, engaging with the opposition to develop a bipartisan strategy for tackling these major issues. Any other approach would be a more costly solution.