Former Reserve Bank of Australia governor Phillip Lowe has urged Anthony Albanese’s government to curb spending, arguing that budget deficits are adding to demand and pushing inflation and interest rates higher. He said Australia should be running surpluses given full employment and high commodity prices, and warned that weak economic growth could prolong stagnation in living standards.

Treasurer Jim Chalmers said the federal budget deficit had reached A$22.3 billion on an underlying basis and A$36.1 billion on a headline basis. Lowe also described the Reserve Bank’s relationship with the current government as more strained than with the previous Coalition government. He called for tax reform to encourage business investment, innovation and hiring, and said Australia needed to prioritise growth alongside the distribution of income and wealth.