"Today's rates decision must be a turning point for our economic policy settings if we are to avoid pushing business and households to the brink. The one thing the Government can control is its spending and it must rein it in now to stop fuelling an inflation spiral," said Innes Willox, Chief Executive of the national employer association, Australian Industry Group.
"Make no mistake, the RBA's decision to raise the cash rate to 4.85% is necessary but painful. Inflation has been too high for too long and is only going up. The consequences for households and businesses will be dire at a time when the economy is slowing and house prices are in free-fall.
"Much of our economy feels like we are in are in a recession. Businesses across the spectrum have reported that October was a particularly difficult month. We must take immediate steps to avoid finding ourselves in this situation again.
"Government cannot credibly sheet the blame to external factors. While the global energy crisis has contributed, inflation was already too high before the crisis, and much of what we are now experiencing is clearly home-grown.
"Fuel prices are not the reason we have seen price increases of 4.8% for medical services, 5.0% for childcare, 5.1% for insurance, 6.0% for property rates, 6.6% for secondary school fees or 10.6% for electricity bills over the past year.
"The Federal Budget ran a $28 billion deficit last financial year, which will rise to $32 billion next year. Policy decisions in the May budget alone added $12 billion to those two financial years – another injection of cash that overheats inflation at precisely the worst time.
"Fiscal and monetary policy must work together, and it is increasingly irresponsible for government to keep spending while the RBA battles against inflation. Spending growth needs to slow in next month's MYEFO, and again in the 2027 budget.
"Policy attention must then immediately turn to the malaise that has delivered Australia nearly seven years without productivity growth – the longest drought on record. Productivity sets the limit for how fast we can grow before inflation breaks out, and while it's zero we hit that limit very quickly.
"The solution for our productivity crisis is well-known: regulatory and tax reform that will reduce barriers to business efficiency and investment. But governments have become accustomed to addressing policy problems with more spending rather than fixing the underlying regulatory causes.
"Australia needs to re-learn the art of genuine regulatory and tax reform.
"Today's rate rise might be the final warning that we need to change economic policy direction – it is critical that governments heed it," Mr Willox said.
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