Canberra’s inflation kryptonite

In his 1981 inaugural address, Ronald Reagan famously said "government is not the solution to our problem; government is the problem". Forty-five years later, those Australians alive to global affairs will relate to his sentiment.

Staring down the barrel of a historic fuel crisis caused by war-related supply shortages, the brains trust in Canberra can't resist the inclination to intervene. Following a national cabinet meeting, Prime Minister Anthony Albanese announced a 50 per cent reduction in the fuel excise tax for at least the next three months. Because anyone who has studied Economics 101 knows the best way to address a supply shortage is stimulating more demand! It's the economic equivalent of trying to put out a raging bushfire by adding oxygen and fanning the flames. What's more, the failure to curb demand for fuel via higher prices may indeed exacerbate existing supply shortages in the coming weeks.

One can only imagine the backwards logic used to land on such a policy. After all, it's not like Australia has any recent experience dealing with war-related fuel supply shocks. We need to cast our minds back all the way to March 2022 to find a similar scenario where the dying corpse of the Morrison government introduced the exact same policy in response to the price shocks caused by the conflict in Ukraine.