The RBA's March 2026 bulletin included a section on fiscal-monetary interactions that was unusually direct. It noted that "expansionary fiscal policy has contributed to aggregate demand pressures that have made the task of returning inflation to target more difficult."

The government's response was to dispute the characterisation and point to the energy rebates as anti-inflationary. But rebates reduce measured CPI temporarily — they don't reduce underlying demand.

The federal budget is in surplus, but state governments are running significant deficits, and total public sector spending has increased substantially. Is the RBA right?

The RBA's concern is about the composition of spending, not just the level. Infrastructure spending, NDIS growth, and defence expenditure are all demand-side injections that compete for the same scarce labour and materials as private sector activity.

When the government builds a road or a hospital, it bids up the wages of construction workers and the price of materials. That's inflationary in a supply-constrained economy. The federal surplus doesn't capture this if state governments are simultaneously running deficits.

The NDIS is now a $46 billion annual program and growing at 8% per year. That's a massive demand injection into the care economy. The government has been trying to slow the growth, but it's structurally very difficult to do.

I support the NDIS in principle. But the fiscal reality is that a program growing at 8% per year in a 3% inflation environment is adding to price pressures in the sectors it touches.

The government's position deserves a fair hearing. The federal budget is in surplus. The energy rebates did reduce measured CPI. And the RBA's own modelling shows that the primary driver of Australian inflation has been supply-side — energy prices, supply chain disruptions, and housing costs.

Blaming government spending for inflation that is primarily supply-driven is politically convenient but not well-supported by the evidence.

The RBA has kept rates higher for longer than most peer central banks. The official cash rate is still 4.1% — above the US, UK, and Canada. The RBA's own communications suggest that fiscal policy is one reason they've been reluctant to cut.

Every month rates stay high, mortgage holders pay more. The government's fiscal settings are directly affecting the interest rate environment that households face. That's a real cost.

The federal surplus is real but partly cyclical — driven by high commodity prices and strong income tax receipts from a tight labour market. The structural budget position is less favourable.

The Parliamentary Budget Office's long-run projections show the budget returning to deficit within three years as commodity prices normalise and the NDIS and aged care costs continue to grow. The current surplus is not a sign of fiscal restraint — it's a sign of favourable conditions.