RBA governor calls for budget repair

·2-min read

The federal government needs to find a way to pay for the services the community wants to get the budget out of the red, says the Reserve Bank of Australia.

RBA governor Philip Lowe outlined his concerns about fiscal policy during a parliamentary hearing on Friday.

"The community wants all these things from our governments, which is understandable," he said.

"What we haven't worked out as a community is how to pay for it, and this is why we've got these budget deficits despite full employment and the record terms of trade."

He said the government had three levers at its disposal to improve its bottom line - lifting taxes, cutting back on spending and boosting productivity to grow the entire pie.

"Each of those are very difficult ... we have to do them though, one of those three things, maybe all three of them, if we're going to pay for the goods and services that the community wants from our governments."

Dr Lowe said he wasn't worried the October budget would make the task of taming inflation more difficult, but said he would be looking at the government's fiscal policy carefully.

Treasurer Jim Chalmers has promised some cost of living relief in the October budget, namely measures to reduce the cost of childcare and medicines, but has also pledged to keep spending restrained in light of budgetary constraints.

Independent MP Allegra Spender, who was on the House of Representatives committee, said the governor made it clear the RBA had a blunt but effective tool to manage the economy and that the government had more tools at its disposal.

Ms Spender told AAP the government should consider tax reform, boosting housing supply and other structural reforms to help repair the budget.

Shadow treasurer Angus Taylor said the opposition was open to sensible economic reforms.

"But that doesn't extend to supporting an old-fashioned high-taxing, high-spending Labor agenda," he said.

"With the budget coming up in October, it is critical the government rule out taxing Australians more, at a time when cost of living pressures are rising."