Treasurer Jim Chalmers is unlikely to invoke what economists describe as the "nuclear option" of directly intervening in the Reserve Bank of Australia's (RBA) interest rate decisions.
While such intervention could undermine more than three decades of RBA independence, the Greens have been vocally critical of recent rate hikes and are pushing for immediate cuts.
Cash rate drops in other industrialised nations
The RBA raised the cash rate 13 times from May 2022 to November 2023, and the Greens argue these increases have disproportionately hurt younger Australians with mortgages while benefiting older savers.
There are related concerns that the bank is moving more slowly than other industrialised nations to drop the official cash rate of 4.35%, in a month where the central banks of Canada, England, New Zealand, China, Sweden, the European Union and of course, the US, have started taking the scythe to rates.
Senator Nick McKim, the Greens’ spokesman for economic justice, has called for a 25 basis-point cut in interest rates, describing the current levels as "smashing the economy" and causing job losses.
He dismissed the notion of RBA independence, stating, "They're not infallible high priests of the economy and should not be immune to criticism."
Despite their criticism of the RBA, the Greens have signalled they would support Chalmers’ proposed reforms to the bank if certain powers, such as the treasurer's ability to overturn RBA decisions, remain intact.
Chalmers has reiterated his preference to maintain the RBA’s independence and has shown no inclination towards using the treasurer's override powers.
Both he and RBA Governor Michele Bullock have emphasised the need for reforms to the Bank’s governance and operations, following criticisms of its pandemic-era decision-making.
The proposed reforms would establish a second board focused on overseeing the Bank’s internal structures, allowing the current board to concentrate on monetary policy.
All this is moot without Coalition support. The opposition has backed away from its support for the proposals, accusing Chalmers of attempting to pressure the RBA.
With little backing from the opposition, Chalmers may have to rely on crossbench support to pass the reforms.
Economic misery index
This coincides with research that indicates Australian consumers are facing the most protracted period of economic misery since 2011.
The misery index is measured using a combination of inflation, interest rates and unemployment to present a general view of the economic misery experienced.
The new analysis from the Committee for Economic Development of Australia (CEDA) has found that inflation has been a significant contributor to the economic strain felt by Australian households between mid-2021 and mid-2023.
Although the country’s economic misery index has decreased from its pandemic-era peak, it remains at elevated levels due to the cumulative impact of inflation, unemployment and, of course, interest rates.
While the index reflects tough economic times, some economists, like Ben Phillips from the Australian National University, argue that the current situation is not as severe as past periods of economic distress, such as the early 1990s recession.
Critics point out that while inflation has eroded living standards and increased costs, low unemployment, at around 4.2%, is a mitigating factor in the economic outlook.
Economists also warn of potential risks if businesses are engaging in "labour hoarding," which could lead to a sharp rise in unemployment if the economy slows further.
Phillips said he believes the current economic hardship is somewhat overstated, noting that while inflation is high, the overall economy remains relatively strong.
Looking ahead, productivity growth is emerging as a key issue in addressing long-term economic challenges, with weak productivity making it more difficult to combat inflation and achieve wage growth.
Without significant improvements in productivity, Australia's economic conditions could remain challenging, even as inflation rates gradually ease.