Former Reserve Bank of Australia governor Philip Lowe has urged the Labor government to rein in spending, arguing that budget deficits are adding to demand and inflation when employment and commodity prices are high. His intervention comes as Treasurer Jim Chalmers reports a budget deficit of $22.3 billion on an underlying basis, and as the central bank has raised rates again, renewing debate over what is driving price pressures and borrowers’ costs.

The Reserve Bank lifted its cash rate by 0.25 percentage points to 4.6 per cent, a 15-year high, and Governor Michele Bullock said further increases remain possible if needed to bring inflation down. Bullock said excess demand was present before the Middle East conflict worsened inflation, and noted that both public and private spending contribute to demand; Finance Minister Katy Gallagher disputed that federal spending was driving current price pressures. Lowe also called for tax reform to encourage business investment and productivity, warning that weak growth could leave real living standards stagnant for more than a decade.