Joint Media Release | RBA confirms Labor’s spending is pushing interest rates higher | 03 December 2025

Joint Media Release

Wednesday, 3 December 2025

RBA confirms Labor’s spending is pushing interest rates higher

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The Reserve Bank has confirmed that Labor’s spending spree and rising deficits are putting upward pressure on interest rates.

Under questioning at Senate Estimates today, Governor Michele Bullock agreed that government spending has accounted for around half of all GDP growth in recent years.

When asked whether that was “a significant proportion”, the Governor responded, “Yes.”

Governor Bullock also confirmed a link between deficits, savings and higher rates, confirming a point made last week by the head of the RBA’s International Department, Penelope Smith.

In the Governor’s words, “if there is less savings in the economy… that will put upward pressure on the neutral rate.” Bullock accepted that a higher neutral rate requires a higher cash rate to stabilise inflation.

Bullock’s evidence was equally direct on inflation. Asked what happens when government spending increases, she said, “we expect inflation would be higher.”

Since the Albanese Government came to office, government spending has risen from 24 to 27% of GDP – the highest level outside of recession since 1986. In the last financial year, government spending grew four times faster than the economy.

The RBA’s own forecasts show inflation remaining above target until 2027, reinforcing that domestic policy choices are contributing to persistent price pressures. The cost of these

decisions is being carried by Australian households set to pay, indefinitely, $1,800 more per month in interest than when the Coalition left office.

And the market now expects that the next rate move will be up, not down.

Labor’s choices have made inflation more persistent and interest rates higher than they need to be. Australian households are carrying the cost of a government that has lost control of the budget.

ENDS