Lowe slams government spending

Former Reserve Bank of Australia (RBA) governor Philip Lowe has shared his thoughts on the current state of the economy.

Speaking with the Institute of Public Affairs, Lowe said there was no reason for the government to run a large budget deficit.

"Now we find ourselves running sizable budget deficits at a time where we're at full employment and commodity prices are very high. We should be running sizable surpluses," Lowe said.

"Government spending has been adding to demand progressively over time, and that's putting upward pressure on inflation."

The comments come after the Final Budget Outcome was released by the government, showing the Budget deficit in 2025-26 was $22.3 billion. As a share of the economy, the deficit was 0.8% of GDP.

Lowe said public policy was no longer focused on "expanding the size of the pie", but rather about the distribution of income and wealth.

Lowe served at the RBA for 43 years, including the last seven as governor, before current RBA chair Michele Bullock took the reins.

Lowe suggested the government should introduce strong fiscal frameworks, for example through a budget balance over the cycle and strong cost-benefit analysis to guide public investment decisions.

Lowe also said there was "too much regulation" and said the government should focus on reducing the regulatory burden on the economy.

He added government economic policy should focus on growing the economy, rather than redistribution, and there needed to be a reduction in the reliance of the tax system on income taxes.

"[Australia taxes] income and wealth generation too highly and consumption too lightly," he said.

Lowe advocated for lower top marginal income tax rates and a higher GST to help lift investment and productivity.

On housing, Lowe said dwelling construction had failed to keep pace with population growth and the government has missed the mark on meeting its housing targets.

"They've fallen woefully short of those targets and no prospect in my view of meeting them, and that's the fundamental problem," he said.