Tim Wilson, the newly appointed shadow treasurer, has ignited a political firestorm by claiming the Reserve Bank of Australia is not placing sufficient emphasis on inflation. In comments reported by Nine newspapers, Wilson suggested the Coalition might review the RBA's 80-year-old dual mandate, which aims for both low inflation and full employment. He argues that the central bank has been too soft on inflation, potentially keeping interest rates too low and risking price stability in 2025, even if it means a weaker economy.
Labor and Unions Respond with Criticism
Labor was quick to counter Wilson's remarks, with Treasurer Jim Chalmers releasing a statement titled "Tim Wilson's plan for higher unemployment." The criticism intensified as ACTU secretary Sally McManus joined the fray, labeling Wilson's stance as disgraceful and accusing him of advocating for more Australian workers to be unemployed. This backlash comes on the heels of positive jobs data, with unemployment holding steady at 4.1% in January, showcasing the resilience of Australia's post-pandemic labor market.
Historical Context and Expert Opinions
Wilson's comments echo sentiments from conservative figures globally, such as Mike Pence in the United States, who has campaigned to remove the employment component from the Federal Reserve's mandate. However, experts like Jonathan Kearns, chief economist at Challenger and a former senior RBA official, defend the dual mandate, noting that monetary policy inherently affects both inflation and employment. Kearns emphasizes that targeting inflation while avoiding significant employment costs is a balanced approach supported by historical research.
Luci Ellis, Westpac's chief economist and former head of the RBA's economics department, adds that even central banks with a sole inflation mandate naturally consider employment impacts. She points out that recent changes to the RBA's policy agreement have actually tightened its focus on inflation, aiming for the midpoint of the 2-3% target range. Ellis suggests that the RBA may have become even more attentive to minor deviations in inflation trends since this adjustment.
Debate Over Policy Errors and Balance
Kearns acknowledges that the RBA may have made judgment errors, such as cutting interest rates three times last year only to reverse course when inflation exceeded 3% in 2025. However, he disputes the idea that the RBA is structurally biased toward jobs over price stability, attributing any missteps to judgment rather than an inappropriate balance. Wilson, in an interview with Guardian Australia, clarified that he supports the dual mandate but questions whether the RBA is executing it correctly, citing misread inflation as evidence of insufficient emphasis.
Political Implications and Future Questions
As the Liberals seek to regain support from the populist right, Wilson's stance raises questions about his alignment with so-called "inflation nutters," a term coined by former Bank of England head Mervyn King in 1997 for those prioritizing inflation control regardless of economic fallout. Political opponents are likely to probe this issue further, making it a focal point in ongoing economic debates. The strong jobs market, with a record-high workforce participation rate, underscores the stakes, as many households rely on employment stability to mitigate cost-of-living pressures.
Ultimately, Wilson's remarks have sparked a broader discussion on monetary policy, inflation management, and employment goals in Australia. Whether his views will influence Coalition policy or remain a point of contention remains to be seen, but they have certainly made waves in political and economic circles.
