ArticleThese days mortgage holders wait for Reserve Bank of Australia (RBA) meetings with as much joy as children in a dental clinic reception. Last week’s interest rate rise is likely to be accompanied by at least one more before Christmas.
Shakespeare wrote that when sorrows come, they come not as single spies but in battalions. At the moment, the battalions are well-armed. Geopolitical unrest. Multiple wars. The biggest oil shock since 1979. The most persistent inflation since the 1980s. A sliding housing market. A never-ending cost-of-living squeeze. And every indicator heading in the wrong direction. Economic growth is stalling, unemployment is rising, inflation is stubbornly persistent, and households are paying the price.
Successive governments from both sides of the aisle have valiantly tried to keep the emotion, morality and politics out of RBA interest rate decisions. But people aren’t buying it anymore. Recent polling confirms what can be heard around pubs, workplaces and dining tables all over the country. People are blaming both the federal government and the RBA for the pain of higher interest rates. Rather than repeated platitudes about economics, RBA independence and the inflation dragon as a monetary policy issue, the political class would do well to recognise all of this for what it is seen to be: a moral issue.
Why? Because government spending contributes to inflation alongside household spending. And also because of who interest rate rises hit, and how they hit. Australia has around 11 million households, but only around one-third (3.85 million) have a mortgage. Meaning one in three households bear the brunt of what is supposed to be a national fight against inflation. Meanwhile, governments, self-funded retirees and those who own their homes outright can keep on spending – fuelling the very thing that mortgage holders have been tasked with fighting.
One in three households bear the brunt of what is supposed to be a national fight against inflation.
Inflation exists because there is too much demand in the economy and/or not enough supply. Shoddy productivity, sloppy infrastructure and over-regulation are bad for supply. Government and household overspending raises demand. Accordingly, you would think that a combination of lower government spending on some things, better government investment in other things, and measures that reduce spending across the board is what we’re after. But instead, we have a statutory body that no one elected, that’s empowered with only one hammer (interest rates), forced to treat every inflationary season as a nail.
The bottom line: our system focuses the pain of fighting inflation on a minority subset of Australians – mortgage holders – with interest rates as our only lever. The idea is that eventually – as per that 1990s R.E.M. classic – everybody hurts: renters face higher rents because landlords pass on the increased costs of sustaining their investment loans. Small businesses suffer because there is less money in the economy. And people start losing jobs, causing them to spend less too.
The problem is that even these flow-through effects tend to hit the most vulnerable the hardest: low-income renters. The tenuously and casually employed. Fixed-income households (like pensioners and the unemployed) who have to spend a higher proportion of their income in order to survive. Instead of R.E.M., it feels more like Bruce Springsteen’s lament in ‘The River’: “There ain’t been much work on account of the economy, now all them things that seemed so important … Well, mister, they vanished right into the air.”
Our system focuses the pain of fighting inflation on a minority subset of Australians – mortgage holders – with interest rates as our only lever.
Fighting inflation by penalising only some people is a bit like making three people in a ten-person firefighting team fight the fire, while the rest stand by and throw wood on the flames. Some are hit with greater costs while others are free to spend up, driving up prices for everyone. There will always be economic pain when it comes to fighting inflation. But the moral question is trickier: how do we spread that pain equitably?
For too long, moral reasoning around monetary policy has given way to the status quo. But thankfully, creativity is not dead. Up-and-coming Labor star and current Cabinet Secretary Andrew Charlton has suggested temporarily lifting compulsory super contributions. This would spread the pain across the entire workforce while ensuring that people get to keep their money in the long run. It would also spare pensioners and the unemployed – already under the pump financially.
Charlton and others have also suggested a temporary increase to the GST, exempting essentials like utilities and groceries. NSW Premier Chris Minns (and others) have called on the federal government to rein in spending. Government spending cuts are rarely politically popular. So this would be a logical government contribution to taking some pain. And state governments could – and should – chip in too. Other suggestions have included temporary windfall-profits corporate taxes, price caps and freezes, and high-income temporary tax levies.
Not all of these ideas are easy or viable. And all of them entail complications. But surely it’s time for a more creative public conversation about inflation. If nation-building is a team sport, then we should be carrying systemic economic burdens more equally.
If nation-building is a team sport, then we should be carrying systemic economic burdens more equally.
Our challenge is us. When times are uncertain, we tend to turn inwards – wanting problems fixed without having to contribute to solutions. For example, polling suggests that more than 75% of Australians are worried about public debt, but a majority of us still want lower taxes and higher government spending across areas of our choosing. When there’s pain to be had, we’d rather someone else take it.
By contrast, the African term ‘ubuntu’ refers to human interconnectedness. It is often translated as ‘I am because we are.’ Both economically and morally, our lives are inextricably linked. Our wellbeing is tied up in the wellbeing of others. It chimes with the Bible’s call that we should bear each other’s burdens. Audacious, but perhaps the medicine we need. When the pain is spread more equally, we build more shared meaning and deeper connections with each other. Such ideas may be easy to dismiss as fluffy idealism. However, the hard science of economics – as per modern market theory pioneer Adam Smith – requires moral sentiments to work properly.
Atheist philosopher Jean-Paul Sartre declared that hell is other people. As interest rates continue to rise, it would be easy to drift into such a mindset – retreating into our tribes and demonising those who don’t share our challenges. But what if economic hell is not other people? Maybe it just feels like hell, and we’re going through it with other people. If we stick together, and governments wake up to the inequity in the system, the clouds of economic turbulence shall pass and the sky will clear. As the final line of Dante Alighieri’s Inferno declares, as Dante and his guide Virgil emerge from the hellish darkness: “As heaven brings forth, through a circular opening … And then we emerged to see the stars again.”
Max Jeganathan is a Senior Research Fellow at the Centre for Public Christianity (CPX). He served as an adviser in the Rudd-Gillard Governments and is undertaking a PhD in law on the ethical foundations of liberalism.
This article was first published in Eureka Street.