The Reserve Bank of Australia (RBA) is facing growing calls to speed up interest rate cuts amid signs of a weakening labour market and slowing public spending. According to Stephen Miller of GSFM, the central bank may soon need to “press the accelerator” to prevent a rise in unemployment.
Australia’s job market has been buoyed in recent years by government-driven hiring, especially in sectors such as health, education, and public services. As federal and state spending begins to slow, economists warn that this shift could expose underlying weaknesses in the private sector and force the RBA to act.
Slowing Public Spending Threatens Job Growth
Public sector investment has been a major driver of employment since the pandemic. About four in five jobs created over the past two years have been in non-market sectors, heavily influenced by government funding and regulation. According to Miller, this reliance has masked “tepid” private sector job creation, particularly in industries that depend on market demand rather than government budgets.
Recent signals from state and federal governments suggest a pause in spending growth. This slowdown, combined with an unemployment rate that unexpectedly rose to 4.3% in June, is raising concerns about how the market sector will absorb the shortfall.
Research from the Centre for Independent Studies (CIS) adds to the warning, revealing that over 50% of Australians depend on government wages, benefits or subsidies, while federal spending has surged to 27.6% of GDP, compared to 24–25% a decade ago.
Miller argued on Sky News’ Business Now that “what’s held up the labour market has been growth and employment in the non-market sector,” adding that “public spending is going on a hiatus,” which could put pressure on the private sector to fill the gap.
Inflation Easing Strengthens Case for Rate Cuts
Falling inflation has fuelled expectations that the RBA could move towards cutting rates as early as August. According to Miller, with consumer prices trending back towards the RBA’s 2–3% target band, the central bank must “pay more attention to the employment side.”
The RBA held rates steady in July, a decision that was met with criticism from economists who argue that the weakening labour market now deserves priority. While inflation appears to be under control, the shift in economic focus is clear: “Bullock will have to contend with a weakening labour market,” Miller said, referring to RBA Governor Michele Bullock.
As Australia prepares for the upcoming Economic Reform Roundtable, where policymakers, economists and industry leaders will meet to address sluggish productivity, the debate over rate cuts highlights a key dilemma for the RBA: balancing stable prices with growing risks to employment.
