Company Interview / Shane's View: Central bank bonanza incoming!

It was welcome news to see the Federal Government moving to rein in the rapid growth in spending on the NDIS this week.

A blowout in government spending as a share of the economy by leaving less room for private spending and acting as a drag on productivity growth has been a major reason behind Australia’s cost of living and inflation problem and the blowout in spending on the NDIS has been part of that.

The NDIS is a great program, but it has grown much faster than originally anticipated to be now bigger than Medicare. With this has come explosive growth in health care and social assistance jobs (which have risen by about two percentage points as a share of total employment over the last four years). If the NDIS is not reined in there is a danger that it could lose its social licence, particularly with increasing reports as to how it’s being rorted. This is what happened to relatively unrestricted unemployment benefits in the 1980s and gave rise to the term “dole bludger”.

If the Government can deliver on its announced NDIS savings, spending on it should stabilise as a share of GDP. 

With the surge in inflation threatening a further rise in inflation expectations and wages claims likely further pushing out the RBA’s expectations for when inflation will return to target we expect the RBA to hike rates again, probably at its May meeting. However, with a collapse in confidence pointing to a hit to growth we remain of the view that it will be a close call and put the probability of a hike versus a hold at 60/40.