The Reserve Bank of Australia’s ongoing reliance on interest rate increases as a primary tool to combat inflation would be lessened if the federal government adopted more disciplined fiscal policies, economists have advised Prime Minister Anthony Albanese. Their comments come ahead of the central bank’s expected decision on Tuesday, with market expectations indicating a near 80 percent probability of a 25 basis point increase in the cash rate to 4.85 percent.

In an interview with the Nine newspapers, Albanese described monetary policy as a “blunt instrument,” marking the first time he has characterized the Reserve Bank’s approach in such terms during his time in office. This acknowledgment comes amid growing voter unease over rising interest rates and broader economic management under the Labor government.

Economists widely agree that while the Reserve Bank’s tools are limited to adjusting interest rates, a more coordinated approach involving restrained government spending could ease inflationary pressures and provide the central bank with greater flexibility. KPMG chief economist Brendan Rynne noted that the government’s expenditure currently runs near 28 percent of GDP and suggested that balancing new spending with cuts to existing programs would create a more sustainable fiscal position.

AMP chief economist Shane Oliver expressed hope that Albanese’s remarks signal forthcoming “sensible and significant” spending reductions. He argued that a real decline in government expenditure could alleviate the Reserve Bank’s burden, reducing the necessity to rely heavily on interest rate hikes to achieve its 2 to 3 percent inflation target.

Former senior Reserve Bank official and current Challenger chief economist Jonathan Kearns described Albanese’s comments as stating the “bleeding obvious,” but also viewed them as a potential attempt by the government to pre-empt criticism ahead of the anticipated rate rise. Kearns characterized the Prime Minister’s remarks as acknowledging the undesirability of the current approach while underscoring the imperative to act to prevent further inflation increases.

Amid mounting calls for the government to outline clear spending cuts in the upcoming mid-year budget update, Finance Minister Katy Gallagher declined on Sunday to commit to a net savings package, which would involve saving more than the government spends. Speaking on the ABC’s Insiders program, Gallagher indicated that decisions on fiscal measures remain under Cabinet’s expenditure review committee process. She emphasized the government’s efforts to identify savings but stopped short of promising a net reduction in expenditure.

Labor has previously highlighted approximately A$180 billion in gross savings and reprioritisations since winning office in 2022, yet this figure does not account for additional spending and tax changes amounting to about A$103 billion, which have increased overall budgetary outlays.

Gallagher defended the government’s current spending levels—which stand at a 40-year high relative to the size of the economy outside the pandemic period—by pointing to expanded fiscal demands faced by the administration. She cited new commitments such as the AUKUS security pact, pressures on aged care, demographic shifts, and challenges within Medicare as factors distinguishing the present fiscal environment from that of previous governments.