RBA hikes interest rates to 4.6% in 15-year high, open to further hikes.
Welcome to Talking Business, a podcast produced in Melbourne Australia, built on the traditional lands of the Kulin Nation. The podcast is available on the Acast site, my own website, the Apple podcast store or wherever you go to get your podcasts. Or you can get it at the Business Acumen website at businessacumen.biz
I am Leon Gettler. My job is review and monitor the week’s news in business finance and economics. I bring it all to you every week.
For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business from my website leongettler.com or whatever your favourite podcast platform is.
This is episode number 35 in our series for 2026 and today’s date is Friday October 2.
First, I’ll be talking to I’ll be talking to entrepreneur and supply chain specialist Sarah Barnes-Humphrey. We’ll examine how she set up a supply chain media business and all the innovation that went into that
And I’ll be talking to AMP Capital chief economist Shane Oliver about the latest Intergenerational Report. It’s grim reading. We examine how the forecasts for increased productivity are optimistic and why the government needs to introduce serious tax reform including tax cuts and a higher GST.
.But first let’s talk to Sarah Barnes-Humphrey
So what’s happening in the news?
Let’s start with the Reserve Bank, because it made its move this week, and it’s a big one. The RBA lifted the cash rate by a quarter of a percentage point, from 4.35 to 4.6%. That’s the highest level in about fifteen years, and it’s the fourth hike this year. Add it all up and rates have gone up a full percentage point since January. The nine-member board was unanimous, and the message was pretty blunt. Businesses are dealing with higher costs and are either lifting prices or planning to, and the board said some of the upside risks to inflation are now materialising. So what’s driving it? Two things, mainly. Energy costs, which are surging because of the US-Iran war, and demand in the economy that’s proving more resilient than expected. The board says higher fuel prices are already flowing through into other goods and services, on top of the capacity pressures we already had. Their statement also pointed to the AI boom as another upward force on inflation. Markets weren’t surprised. The Aussie dollar barely moved, holding above 70 US cents. But the interesting part is what comes next. Traders now put the odds of another hike in November at about 56%. Before today’s decision, that was closer to a coin toss. BlackRock’s Katherine Palmer says November is very much live, particularly given the vote was unanimous. And the OECD and the IMF have both been urging the RBA to stay vigilant. There’s a catch, though. This lands on a housing market that’s already in a downturn, and unemployment ticked up to 4.6% last month. The board also flagged weak productivity growth as a constraint on the economy. The RBA had held at 4.35 for its previous two meetings to see how its earlier moves were landing. Today it decided it couldn’t wait any longer. As one strategist put it, this is a central bank that will hike again this year, not because it wants to, but because it may have to.
Meanwhile, the man who used to run the central bank has some blunt words for the government. Former RBA governor Philip Lowe says Labor should be running big budget surpluses and cutting spending to take the heat out of inflation and interest rates. He made the comments on a podcast from the Institute of Public Affairs, released the day after the RBA lifted the cash rate to that 15-year high of 4.6%. His argument is simple. With the economy at full employment and commodity prices high, we should be in surplus, not deficit. Instead, Treasurer Jim Chalmers this week confirmed the deficit blew out to 22.3 billion dollars in underlying terms, and 36.1 billion once you include off-budget items like Snowy Hydro and the NBN. Government spending, Lowe says, has been adding to demand and pushing up inflation. Former Treasury secretaries Ken Henry and Martin Parkinson have said much the same thing this year. Chalmers isn’t buying it. He says government spending isn’t the problem, and points the finger at international factors, especially oil prices driven by the conflict in the Middle East. Lowe also opened up about the relationship between Labor and the RBA, which he says became more strained once rates started rising after the pandemic. It’s a relationship that ended badly. Chalmers declined to extend Lowe’s term after seven years as governor and 43 years at the bank, and installed Michele Bullock instead. Reports have suggested Chalmers accused Lowe of ignoring the pain of rate rises, and later rang Bullock to complain about an RBA statement on government spending. Chalmers says those reports misrepresented his conversations. Lowe’s bigger worry is the long game. He says policy has focused too much on redistributing income rather than growing the economy, and warns we could go more than a decade without any real improvement in living standards. His fix starts with tax reform: less reliance on personal income tax, and more on the GST and land tax, to make Australia a better place to invest and hire.
Big news out of Canberra this week, and it’s one that’s going to keep the tax debate simmering. The final budget outcome is in, and it shows Jim Chalmers is on track to become the highest-taxing treasurer in Australian history. Tax revenue as a share of the economy came in at 24.1%. The May budget had forecast 23.6%, so that’s a decent jump. To put that in context, it’s now above the 23.9% ceiling that former Coalition finance minister Mathias Cormann set for himself, a cap Labor never signed up to. And it’s just a whisker off the record of 24.2%, set under the Howard government back in 2004 and 2006, at the height of the mining boom. Spending is also running hot. Payments hit 26.9% of GDP, the highest outside the pandemic in four decades. Still, the deficit for the year was $22.3 billion, which is actually $6 billion better than expected. Most of that came from stronger superannuation taxes and more tax from individuals, though Chalmers was quick to point out that this wasn’t PAYG tax on wages. He says it’s about investor returns and super funds performing well. The politics are heating up, of course. Opposition Leader Angus Taylor says that if Labor had simply offset its extra spending, we’d be in surplus right now. Chalmers fires back that the Coalition’s own promises, like defence spending and indexing tax brackets, would cost even more, and put upward pressure on inflation and rates. Now, the Intergenerational Report suggests a 24.2% tax-to-GDP ratio should be the trigger for tax cuts. On the current trajectory, we’d hit that before 2028. Economist Chris Richardson reckons the government’s painted itself into a corner: either tax more, or let the deficit blow out.
New research from the e61 Institute says Australia’s federal budget has a blind spot: it’s just not built for genuine shocks. Economist Aaron Wong modelled what happens if we get hit by a recession, a bond market meltdown, or — the big one — a geopolitical crisis, like a conflict in the Asia-Pacific or major trade routes shutting down. That last scenario could cost the budget the equivalent of 18% of GDP in its worst year, ballooning to 46% of GDP over a decade once you tally up the flow-on effects. Climate disasters add another 6% of GDP in costs out to 2055. The problem? The government’s “rainy day fund” — the contingency reserve — was never designed for shocks this size. It’s built for small forecasting errors, not the kind of event that could push net debt above 30% of GDP. Wong’s pitch: set up dedicated crisis funds or debt caps now, before disaster hits, rather than scrambling reactively like we did with the GFC and COVID — two crises whose debt scars we’re still carrying, with interest payments about to overtake Medicare spending by 2029. Even RBA governor Michele Bullock weighed in, joking that every governor in recent memory has had their own “pear-shaped” crisis — Asian financial crisis, GFC, COVID — and she’s not expecting to be the exception.
OpenAI has apologised after one of its AI models broke into Medicare’s non-public systems. The company says it happened in June, during internal training. An experimental model was asked to research how much governments spend per person on skin-condition medicines in Victorian communities. It couldn’t find the data, so it went looking, found a way into Services Australia’s Medicare Statistics Reporting Service, and started reading technical information and source code. OpenAI says no medical records were accessed. The model also got into the NSW Bureau of Crime Statistics and Research, the Victorian Department of Health, and the Australian Institute of Health and Welfare. The handling has drawn as much criticism as the breach. OpenAI told Services Australia through a generic email inbox almost three months later, and it took weeks more before the public was told. The Greens have summoned the heads of OpenAI and Anthropic to a Senate inquiry, and OpenAI’s Jason Kwon will appear next week. Meanwhile, a new report from SAP says 71% of government entities still rely on legacy technology, which makes them easier targets for AI-driven attacks. Acting Home Affairs Minister Richard Marles says government systems have to keep up, because we can’t wait for an old system to fail before replacing it.
Now to crime, where AI is helping organised crime syndicates grow their business. Heather Cook, who heads the Australian Criminal Intelligence Commission, says serious and organised crime cost the economy 82.3 billion dollars last year, about 3.2% of GDP. That’s more than the entire defence budget, and she says the figure has gone up, with new numbers due in November. Her message is that these groups now operate like multinationals. They buy in criminal services, from money laundering to violence for hire, and they use technology to move money around at speed with very little human involvement. The most alarming trend is who they’re recruiting. Offshore syndicates are using gaming and social media platforms to hire young people for shootings and arson. Cook says these kids are attracted by the money and the adventure, and they have no idea who’s directing them. Much of that violence is tied to the black market in cigarettes. More than half the tobacco consumed in Australia last year was bought illegally, and both the Coalition and One Nation want to slash excise to undercut it. Cook wouldn’t weigh in on policy, but she says one powerful syndicate is behind the surge since 2024, and her job is to target it at the source.
And that’s it for this week.
And next week, I’ll be talking to leadership coach Kylie Paatsche who helps leaders build trust and accountability at senior levels without over-managing.
And I’ll be talking to EY regional chief economist Cherelle Murphy on why the RBA had to raise rates and Australia’s latest CPI figures.
For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business from my website leongettler.com or whatever your favourite podcast platform is.
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