Government spending has helped Australia dodge an even worse economic report card, says the finance minister as she comes under pressure to defend the Commonwealth’s budget strategy.

Following a sluggish economic growth report, Finance Minister Katy Gallagher said the government had carefully targeted and phased its spending to support the economy and households without exacerbating the inflation challenge. 

“For example, if we hadn’t been investing and providing people with a bit of extra help during this time, those results would have been more difficult yesterday,” Senator Gallagher told ABC TV on Thursday.

The opposition seized on the national accounts data to attack the government, with Shadow Treasurer Angus Taylor warning Labor had its foot in the accelerator while the Reserve Bank had its foot is on the brake. 

“The Reserve Bank has one lever, it’s interest rates,” Mr Taylor told ABC radio on Thursday.

“The government has many, many levers – whether it’s productivity policies, industrial relations, immigration policy…. they’re not using them.”

In the June quarter, the Australian Bureau of Statistics recorded a paltry 0.2 per cent growth and one per cent through-the-year increase.

Outside the pandemic, the annual rate was the lowest since the 1991 recession.

The Reserve Bank of Australia was expecting a sluggish reading, with a slower economy an expected consequence of higher interest rates, jacked up and kept elevated to weaken demand and bring down inflation.

Governor Michele Bullock will have an opportunity to opine on the data and offer her assessment of economic conditions during a speech to the Anika Foundation on Thursday.

With Wednesday’s growth figures about in line with the RBA’s expectations, ANZ economists were not expecting a material shift in thinking.

Household spending did come in notably weaker than forecasts but ANZ’s Catherine Birch and Adam Boyton said tax relief and energy bill rebates should give disposable incomes a boost.

“Which should see a gradual lift in household spending growth,” they wrote in a note.

EY chief economist Cherelle Murphy was unimpressed by Wednesday’s data, singling out weak productivity performance and strong government spending as reasons for the central bank to keep interest rates elevated. 

Public spending rose strongly while the private sector stalled, with one of the key performers in the latter – spending by foreign students – scheduled to be capped.

Ms Murphy said spending by governments was doing nothing to improve productivity, with GDP per hour worked down 0.8 per cent in the June quarter.

“This is the worst possible combination of statistics, as it means Australian businesses are gaining very little from government spending, which is focused on short-term cost-of-living relief for households and band-aid fixes to neglected problems,” she said.

“For the private sector, there’s a lack of encouragement to invest for our long-term prosperity.”

This post was originally published on Michael West.