One Nation demands accountability as Chalmers defends his inflation record

Pauline Hanson’s demand for the Treasurer’s resignation has sharpened the political argument over rising interest rates. The economic question is more complicated: how much of Australia’s inflation problem comes from overseas, and what should the government be doing at home?

One Nation has turned the Reserve Bank’s latest interest rate increase into a direct challenge to Treasurer Jim Chalmers, demanding accountability for an inflation problem that continues to put pressure on Australian households.

Pauline Hanson called for Chalmers to resign after Tuesday’s decision to lift the cash rate by another quarter of a percentage point to 4.60 per cent. It was the fourth increase this year. Her response places the government’s economic management at the centre of One Nation’s attack.

For borrowers, the consequences are immediate. Higher interest rates increase the cost of servicing variable mortgages and business loans as lenders pass them through. They also leave less money available for purchases, investment and the ordinary activities that sustain local businesses.

For the government, the consequences are political as well as economic. Explaining why Australians are under pressure is becoming inseparable from explaining why its policies have not relieved that pressure sufficiently.

But a demand for accountability and proof of responsibility are different things.

Chalmers has a case—but it needs careful examination

The Treasurer’s argument rests heavily on the renewed international energy shock.

Higher oil prices flow through petrol and diesel, freight, production and the movement of goods. Australia cannot insulate itself completely from those costs, and the federal government does not control the course of the Middle East conflict.

Wednesday’s inflation figures provided evidence for that part of his explanation. Annual headline inflation rose from 3.5 per cent in July to 4 per cent in August, while underlying inflation remained at 3.6 per cent. Chalmers attributed the increase in annual headline inflation to higher fuel costs and the unwinding of earlier electricity rebates.

There is an important distinction here.

Explaining why inflation increased in the latest figures does not fully explain why Australia already had inflation above the Reserve Bank’s target.

Nor does it establish that domestic policy has done everything reasonably possible to reduce the pressure.

The Reserve Bank’s explanation goes further

Governor Michele Bullock’s account of Tuesday’s decision identified domestic capacity pressures, stronger-than-expected spending and investment, and weak productivity.

The Middle East conflict has added to those pressures. It did not create all of them.

The Bank also warned that higher energy costs and developments associated with the global artificial intelligence investment boom could prolong inflation. Further interest rate increases remain possible if required to bring inflation back to target.

The underlying problem is that spending can grow faster than the economy’s ability to supply goods and services.

When businesses cannot readily obtain the workers, infrastructure, equipment or other inputs they need, additional demand can produce higher prices rather than a matching increase in output.

Interest rates restrain that demand. Improving productivity and expanding capacity address the other side of the equation.

That is why the argument cannot end at the price of oil.

Has the Treasurer denied responsibility?

Chalmers has rejected the proposition that the government’s budget management is driving the inflation problem. However, it would be inaccurate to say he has accepted no responsibility for dealing with it.

At Wednesday’s press conference, he explicitly accepted responsibility for the government’s part in fighting inflation. He defended its record by pointing to two earlier budget surpluses, savings, improved budget outcomes and slowing public demand growth.

He also acknowledged that Australia had an existing inflation challenge which the war had made worse.

Those are arguments that deserve examination.

A budget improvement is relevant, but comparison with an inherited forecast does not by itself establish whether today’s fiscal settings are appropriate for today’s economy.

Similarly, public demand can be growing more slowly while still competing with private businesses for scarce resources.

Government spending must therefore be assessed by its timing, purpose and effect. Some expenditure expands productive capacity. Some meets essential needs. Some adds demand before additional supply becomes available.

The question is whether the overall combination helps inflation fall—or leaves the Reserve Bank needing to restrain households and businesses more severely.

Where Wayne Swan fits

Chalmers’ relationship with former treasurer Wayne Swan is a documented part of his political and professional background.

He served as Swan’s chief of staff and has publicly described him as a mentor. That relationship helps explain an important influence on his economic formation.

It does not establish that Swan devised or directed the policies now being implemented.

A former employer’s influence on a minister’s outlook is different from responsibility for a particular budget decision. Without evidence of a specific role, attributing current policies to Swan would go beyond what the documented relationship supports.

The government’s decisions must be judged on their merits, and responsibility rests with the ministers and government making them.

One Nation faces a policy test too

Hanson’s intervention raises a legitimate question about accountability. It does not, by itself, demonstrate that One Nation offers a more effective inflation strategy.

The party has proposed allowing eligible mortgage holders and renters to temporarily receive part of their compulsory superannuation contributions as take-home pay. That could provide immediate household relief, while reducing the money going into retirement savings.

It also creates an economic question: how much would be used to reduce debt, and how much would become additional spending?

Relief for an individual household and lower inflation across the economy are not automatically the same outcome.

One Nation’s proposals should face the same scrutiny as the government’s: what would they cost, what would they change, and would they reduce the need for higher interest rates?

The Times View

Chalmers is right that international events are imposing costs Australia cannot control. The Reserve Bank is also clear that domestic pressures matter.

Neither finding gives a political party an exemption from explaining its policies.

The government must demonstrate that its spending, reforms and investment are helping the economy supply more without generating excessive demand. One Nation must demonstrate that its alternatives would improve that balance.

For Australians paying more to borrow, the distinction between an explanation and a solution is becoming increasingly important.

Australians cannot hold their government responsible for starting a war overseas. They can hold it responsible for what it does at home.