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Government policies under scrutiny in Australia’s cost-of-living debate

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Economists criticize excessive intervention, calling for reduced government influence.

As Australians continue to grapple with rising living costs, some economists are questioning whether government policies are exacerbating the situation. Increased public spending and regulatory constraints, they argue, may be adding to inflationary pressures by influencing business costs, competition, and productivity.

While some regulations and government intervention aim to stabilise the economy and protect consumers, critics contend that certain policies may inadvertently raise prices. For instance, stringent energy policies and housing regulations have been linked to higher costs in those sectors. Additionally, heavy public spending, particularly when not accompanied by productivity growth, can fuel inflation by increasing overall demand in the economy.

However, the relationship between government policy and inflation is complex. While deregulation can increase competition and drive down costs in some industries, it does not always result in lower prices. In cases such as electricity deregulation, reduced oversight has, at times, led to price hikes instead of savings for consumers. Moreover, targeted public investment in infrastructure and supply chains can, in some cases, lower long-term costs rather than contribute to inflation.

Some sectors remain particularly sensitive to government policies. Energy costs, for example, are affected by both regulatory frameworks and global commodity markets. Housing prices are shaped not only by interest rates and supply constraints but also by planning and zoning laws. In industries reliant on imports, a weaker Australian dollar—partly influenced by macroeconomic policy—can drive up costs, while exporters may benefit from increased competitiveness.

Critics of government intervention argue that reducing regulatory burdens and cutting public spending could help lower business costs and encourage greater competition, ultimately easing cost-of-living pressures. However, others warn that indiscriminate deregulation could lead to unintended consequences, particularly in essential services.

With cost-of-living concerns remaining a central issue for policymakers and consumers alike, the debate over the role of government in managing economic pressures is unlikely to subside anytime soon.

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