Analysis

As Jim Chalmers steps ever so slightly away from the Reserve Bank, there are so many economic policy areas to step towards

Treasurer Jim Chalmers constantly refers to our central bank these days as "the independent" central bank.

Maybe he has been doing it for a while and we just haven't noticed.

Or maybe we thought it was just him paying deference to its independence rather than, maybe, just stepping ever so slightly away from its decisions, as some of his predecessors have also found themselves doing over the years.

"This afternoon the independent Reserve Bank has increased interest rates by 25 basis points to 4.35 per cent," Chalmers told a press conference on Tuesday afternoon.

"This will make life harder for people who are already doing it tough."

The bank takes "these decisions independently", he said. "[It] can explain those decisions and I refer you to the statement for the explanation of what's happened today."

Politicians need higher interest rates — particularly when there is a cost-of-living squeeze on — like a hole in the head.

Unfortunately for treasurers, including Chalmers, the monthly meeting of the Reserve Bank board has been the most regular event on the economic calendar for the past 20 years. Treasurers have to follow on in the wake of whatever the bank decides for better or worse. Passengers on board the RBA Express.

Prior to that, it used to be the monthly balance of payments figures — and the treasurer's press conference that used to follow them — in the days when Paul Keating was treasurer.

Just who was running monetary policy in those days was, of course, often a matter of conjecture. But the general vibe was much more that the treasurer held all the economic levers.

The absolute core political issue

Both the current arrangement, and the previous one, have their downsides politically, whatever their policy implications.

But the current settings only tend to reinforce the idea that all economic policy settings lead to dealing with inflation, rather than the multitude of other economic measurements and policy goals at play.

The political problem might be cost of living. But the government is dealing with a much wider range of trends in the economy at the same time.

Politics has been having one of its rather unfocused phases in recent weeks.

There was some post-referendum defeat drift.

The prime minister has had important relationships to enforce or stabilise in Washington and China. And meetings to attend.

The media has been overwhelmed by the horror unfolding in the Middle East. Australian politicians have been trying to find the right language for dealing with it.

The Senate has been sitting. But not the House of Representatives.

But the growing sullenness amongst voters about the cost-of-living pressures they face — whether or not they feel the effects of higher interest rates — makes it inevitable that the economy will once again become the absolute core issue.

And that is going to mean a lot more than putting out press releases designed to inspire catatonia or the rote recital of measures already taken to help with the cost of living.

The good news you might have missed

What you might have missed in all the focus on stubborn inflation, and interest rates once again heading higher, is that there is actually quite a lot of good news in the economy at the moment (unless you are an economist — who notoriously always sound like they want it to be worse).

We haven't had a recession — which had been a concern 12 months ago. What's more, the Statement on Monetary Policy — the Reserve Bank's quarterly economic assessment of where things are up to — released on Friday is heralding a stronger economy than had been previously expected. It's hardly a roaring economy — but more resilient than forecasters expected.

Similarly, the labour market has been holding up: absorbing the migrants whose arrival has helped keep the economy ticking over as well as generating enough jobs so that people being financially squeezed can get second jobs to help keep them afloat.

In fact, a lot of the relationships in the economy are operating in different ways to the ones we have generally come to expect.

For example, as a number of economists have noted recently, higher interest rates that are supposed to slow the economy have been benefitting all those mainly older households who aren't carrying much debt.

They are going out and adding to consumption — which is one of the parts of the economy which has continued to roar ahead to the surprise of many forecasters.

As reported in the Financial Review on Friday, UBS chief economist for Australia George Tharenou notes households' income from interest has surged to 5 per cent of household income, and income drawn from superannuation "in the last year is already over $100 billion, or a stunning 8 per cent of aggregate household income".

In other words, Australia's savings rate has now reached a point where higher interest rates aren't really either just bad news, or a policy lever that has just one effect.

The point here isn't that any of these things are good or bad, just that they all highlight how the economy is always morphing, requiring different policy responses from government that are a little more creative than just cutting spending or increase spending.

A series of small bangs

Jim Chalmers is a young and ambitious treasurer: ambitious in his own right but creditably ambitious to deliver better, and credible, policy than some we have seen in recent years.

He is also an institutionalist — keen to make clear he respects institutions like the Reserve Bank and the public service.

And you sense he has a much more cautious view than others in the government about how vulnerable the government might be at the next election — because it would not take too many losses in Western Australia and Queensland to put Labor at the least in minority government, or out of office, no matter how electorally unattractive many in Labor ranks may believe Peter Dutton to be.

The questions Chalmers faces are whether he can harness a prime minister no longer distracted by the referendum, think outside the institutional boundaries and the cyclical economic calendar, and outside his own political caution to do a few things in what remains of this term that might reflect these changes in the economy and possibly also help cost-of-living issues.

The media always wants to set up the case for the big bang economic policy change.

But the economy is morphing before our eyes. That must both demand and invite opportunities for a series of smaller bangs in areas like revenue.

The recent High Court decision on the Victorian electric vehicles road user charge, for example, leaves a question hanging about what the federal government does about a fuel excise base, and road funding that is collapsing with the uptake of EVs.

The very size of the housing crisis we face should be prompting some bigger medium-term plans for generating more build-to-rent housing than are currently in prospect.

So many areas for a treasurer to step towards, even as they step away from those of the independent Reserve Bank.

Laura Tingle is 7.30's chief political correspondent.