It seems like the Aston by-election was not just a disaster for the Liberal Party, losing a once-safe seat from Opposition, but just as bad for home buyers.

Aston’s population has a high proportion of mortgage borrowers and at the time of the election, the RBA had hiked interest rates by 3.5 percentage points. It became something of a test to see if voters were blaming the Albanese government for higher rates. It turned out they were not, instead they dumped a credible Liberal candidate and gave the seat to the ALP.

The inflation causes of a broken international supply chains, excessive pandemic spending, and the Ukraine war seemed to have politically quarantined the government from mortgage pain.

Labor politicians had also become strong proponents of central bank ‘independence’, religiously reminding us all the RBA was ‘solely’ responsible for rate decisions.

And every time rates went up, news stories appeared speculating whether the RBA Governor’s term would be extended after September 2023. A not too subtle way of shifting blame onto him.

Even since the Aston by-election on April 1, interest rates have risen 50 basis points, yet you still don’t sense the political tide is turning. Home borrowers appear fatalistic, passively accepting their plight.

They remind me of those long-suffering family pet Labradors, stoically bearing years of young kids riding them like horses, pulling their tails and grabbing their ears.

Since April 2022, official interest rates have risen by four percentage points. Given there is $2.1 trillion in housing loans in Australia, a 4 per cent rise in rates implies that next year, households face $87 billion in higher interest repayments (assuming full pass-on).

I suspect few mortgage borrowers fully realise that higher rates of this magnitude is not an inescapable reality, it is not an immutable law of physics.

The government has many levers to pull to help spread the pain. It’s worth reviewing some of the available options.

One is for government to do what it can to suppress public and private sector wage growth, as there is a strong correlation between wage costs and inflation.

This strategy was, in fact, adopted by Labor Prime Minister, Bob Hawke and his Treasurer, Paul Keating in the 1980s through agreements called the Prices and Incomes Accord.

These agreements sought to contain union wage claims in return for non-inflationary benefits called the ‘social wage’.

The Albanese government is taking the opposite approach. Instead of encouraging non-inflationary wage claims, they have called on the Fair Work Commission to compensate award workers for higher prices, reminiscent of the old 1970s system of automatic wage indexation.

On the same June day that the RBA increased the official cash rate to 4.1 per cent, Industrial Relations Minister Tony Burke was publicly arguing that childcare workers should get a wage increase of 25 per cent – ten times the official inflation target.

A second inflation-fighting strategy is for government to reduce its own spending or increase taxes, either approach helps reduce demands for goods and services.

The government is eschewing this option as well. In Budget Paper No.1 released last month, it estimates that in the current year (2022-23), the government is spending an amount of money equivalent to 24.8 per cent of Australia’s GDP.

In the next 12 months, commencing on 1 July, the government is planning to spend an amount equivalent to 26.5 per cent of GDP – an increase of 1.7 percentage points.

Not much of this extra spending is being offset by tax or other revenue rises. The budget papers show that in this year, revenue collected is 25.0 per cent of GDP. Next year it rises to 25.9 per cent.

Offsetting higher spending against higher revenue, the budget reveals increased net spending next year of $18 billion.

How can that be considered ‘inflation fighting’? At a time when unemployment is 3.5 per cent and inflation more than twice the rate it should be, this is quite something.

The impact on inflation of the budget gets worse when you consider the specific initiatives adopted.

For example, a reasonable chunk of increased taxes comes from LNG exporters. But as they are 95 per cent foreign-owned, extracting more from them has a negligible impact on Australian inflation – the money was going overseas anyway.

Different story when higher tax comes from the pockets of Australian consumers, say through a higher GST rate. That suppresses consumer demand.

And on the spending side, money is being given to cash-strapped households which means it will definitely be used to buy more stuff, and not saved. Once again, the approach is inflationary.

A third government strategy to help lower inflation involves direct regulatory interventions to reduce certain consumer prices, such as what’s happened in the gas market intervention.

By capping the wholesale price of gas at $12 per gigajoule, the broader inflation indicator is predicted to fall 0.5 percentage point. There is debate about whether this will work and whether the RBA should even take it into consideration when making interest rate decisions. What happens when the cap is removed, won’t the CPI then jump again?

And there may be an unintended inflationary impact by giving people extra money. Let’s assume the intervention helps households reduce their gas bill by an average of $10 per month.

Won’t they just use that money to buy something else, like a few extra takeaway coffees, therefore putting upward pressure on cappuccino prices?

The final option to discuss is for government to embark upon productivity-enhancing reforms, which aim to empower businesses to reduce costs and provide the flexibility to make beneficial management decisions.

On this front, we see some craziness. To improve the performance of Australian businesses, Labor luminary Paul Keating introduced enterprise bargaining, where workers negotiated wages and conditions with business owners.

Last year, Albanese steered away from this approach, introducing ‘pattern’ bargaining legislation to supposedly ‘get wages moving again’, but in fact as a step to bolster the flagging union movement – to give union reps legal cover to start unionising the aged and childcare workforces.

By rejecting all other approaches, the Government is putting a serious burden on home borrowers to fix inflation. Aston really did prove that axiom, ‘You get what you vote for.’

Nick Hossack is a public policy consultant. He is former policy director at the Australian Bankers’ Association and former adviser to Prime Minister John Howard.