Key Highlights

  • Hunter said government spending is part of demand and is included in the RBA's forecasts, but the RBA should not advise on how much governments spend.
  • The RBA is independent and unelected, with a mandate to return inflation to the 2–3 per cent range while balancing full employment.
  • Fiscal measures can show up in inflation data, with electricity up 12.8 per cent mainly because Commonwealth rebates ended.

Sarah Hunter explained on national television that public spending is built into the Reserve Bank's forecasts, but that deciding its size is not the job of an unelected central bank.

Whenever interest rates rise, a familiar question follows: is government spending making the Reserve Bank's job harder? It is a question Sarah Hunter, the RBA's Assistant Governor (Economic), faced on 60 Minutes in an interview with Adam Hegarty, recorded on 21 October and broadcast on 25 October 2026.

Her answer drew a careful line. Government spending is part of demand in the economy, she said, and it is included in the RBA's forecasts. But as an independent, unelected body, the RBA should not advise governments on how much they spend.

That position reflects a long-standing division of responsibilities in Australia's economic framework, and understanding it helps explain how the Board approaches its decisions, including the one due on 3 November.

Spending is part of demand

At the simplest level, an economy's total demand includes spending by households, businesses and governments. When the RBA forecasts growth and inflation, it has to account for all of those sources, including public spending at every level.

That is relevant because, in Ms Hunter's description, one of the two challenges facing the RBA is excess domestic demand relative to sustainable supply. The other is an overseas oil shock. If total demand is running ahead of what the economy can produce without generating inflation, every component of demand matters.

Governor Michele Bullock made a related point in her opening statement to the Senate Economics Legislation Committee on 28 October. Low productivity growth, she said, means the economy cannot grow rapidly without adding to inflation pressure, and "we still see inflation arising from domestic capacity pressures."

At her 29 September media conference, the Governor put it directly: "Inflation is too high and has been driven by domestic capacity pressures."

Why the RBA stays out of fiscal choices

The reason the RBA declines to prescribe spending levels lies in its status. The Bank is independent and unelected, and decisions about how much governments tax and spend are made by elected representatives accountable to voters.

Ms Hunter's position is that the RBA's role is to take those decisions as given, incorporate them into its forecasts and set monetary policy accordingly. The Governor described the RBA's purpose at the University of New England graduation ceremony on 23 October: "Parliament has charged us with promoting the prosperity and welfare of the Australian people."

The Bank's mandate, as set out in the Governor's Senate statement, is to return inflation to the 2–3 per cent target range, with the midpoint as reference, while retaining some flexibility on timing to balance full employment. Fiscal policy is not within that remit.

Where fiscal and monetary policy meet

The two arms of policy do interact. Ms Hunter offered an example in the same interview: higher interest rates are slowing housing, as intended, and tax changes from the May budget are also having an effect. In that case, fiscal and monetary settings are working in the same direction on one part of the economy.

Fiscal measures can also show up directly in inflation data. The Australian Bureau of Statistics reported on 28 October that electricity prices rose 12.8 per cent in the 12 months to September 2026, mainly because Commonwealth electricity rebates ended. That contributed to headline CPI rising 4.3 per cent over the year, up from 4.0 per cent in August.

Some key points from the September CPI release:

  • Headline CPI: 4.3 per cent annual.
  • Trimmed mean (underlying): 3.6 per cent, up from a revised 3.5 per cent.
  • CPI excluding volatile items: 3.7 per cent.
  • Goods: 4.6 per cent; services: 4.1 per cent.

None of this means the RBA is passing judgement on those policy choices. It simply records their effects and factors them into its assessment of the outlook.

The cost of the alternative

Ms Hunter's broader argument on 60 Minutes was that interest rates, despite their costs, are the right tool for bringing inflation down. "We know that higher interest rates will bring inflation down," she said, adding that "there's no painless tool, but this tool does work, and that's why we use it."

She recalled earlier approaches, including 1970s price controls, an early-1980s wage freeze and credit or money targeting. "What we learned through that sort of journey, none of those were particularly effective," she said. And she argued: "It's not pain-free, it's not costless, but the cost of it is less using interest rates than it would be using other tools."

The Board has raised the cash rate target four times this year, most recently on 29 September to 4.60 per cent, for a cumulative increase of 100 basis points. The Governor told senators that the full effects of recent rate rises are yet to be felt, and that "Inflation will therefore likely be higher than was our base case in August," because global energy prices are higher than assumed.

Ms Hunter declined to signal the next decision. The Board's own guidance is that it is open to "increasing the cash rate target further if needed" and will be "attentive to the data and the evolving assessment of the outlook and risks". The 3 November decision has not been made.

The bottom line

The RBA treats government spending as one component of demand that it must forecast and respond to, not as something it should direct. Sarah Hunter's message was that an independent, unelected central bank should not tell elected governments how much to spend, even while fiscal decisions such as the end of electricity rebates or May budget tax changes show up in the data. With headline inflation at 4.3 per cent and underlying inflation at 3.6 per cent, the Board's next move, announced at 2.30 pm (AEDT) on 3 November alongside new forecasts, will be based on its reading of total demand, wherever it comes from.