Anthony Albanese is governing against a headwind that no domestic policy lever can fully redirect. He knows this. His Treasury knows this. The question of the next few months is not whether the government can solve the problem. It is whether it can survive looking like it is trying.
The moves have been deliberate and, taken individually, defensible. Federal energy rebates were delivered through 2025, offering temporary relief on household bills while they lasted. NDIS spending has been tightened in an effort to signal fiscal seriousness. And the government has now formalised a negative gearing reform that will limit the concession to new builds from 1 July 2027, with existing arrangements grandfathered. That last measure is a direct response to a housing affordability crisis that has produced the kind of electoral discontent we saw reflected this weekend in polling: according to the Resolve Political Monitor, Pauline Hanson is now the preferred prime minister ahead of Albanese, and One Nation leads all parties on primary vote for the first time. These are the tools of a government under pressure from both the economy and the electorate, trying to act on two problems that are, in many ways, structurally incompatible.
The energy rebates are the most illustrative example of how limited this toolkit is. While they ran, they suppressed the headline inflation number by offsetting electricity bills directly. The RBA looked at that number, but also through it. Now that the federal rebates have unwound, the underlying electricity price is fully visible: 25.4 per cent higher than a year ago, according to the ABS March quarter figures. That spike is partly the mathematical consequence of the rebates expiring, not despite anything the government is currently doing. The cash rate has been at 4.35 per cent since May, following three increases during 2026. The relief, when it existed, was real for household cash flow and temporary for the inflation trajectory. You cannot rebate your way out of a global price environment, and the disappearance of the rebate makes the underlying price visible all at once.
This is where Michael Howell’s analysis of global liquidity conditions becomes directly relevant to the domestic picture, even though Howell said nothing about Australia and was focused entirely on the United States and China. His argument, made in a recent interview with Wealthion, is that the global liquidity cycle has peaked and is beginning to roll over. The US economy is strong, drawing money out of financial markets and into the real economy, creating the conditions for higher bond yields and persistent inflation. China, whose liquidity injections have driven much of the commodity and gold market momentum of the past two years, has abruptly pulled back. “Liquidity conditions by the People’s Bank have kind of fallen off a cliff of late,” he said. The Federal Reserve, in his view, will be forced to raise rates again within the next twelve months because the 2 per cent inflation target is, in his direct assessment, “fantasy.”
The Federal Reserve will be forced to raise rates again within the next twelve months because the 2 per cent inflation target is, in his direct assessment, “fantasy”
That matters for Australia in ways that are immediate and compounding. China is Australia’s largest trading partner and the primary consumer of Australian iron ore, coal and LNG. If Beijing is in a deliberate pause on liquidity creation, that restraint flows through to Chinese industrial demand and, in turn, to the commodity prices that underwrite Australian export revenue and state and federal royalty receipts. The federal budget is more sensitive to the iron ore price than most Australians realise. A sustained Chinese liquidity contraction would be quietly brutal for the revenue assumptions that underpin the government’s spending commitments, including the very cost-of-living measures it is deploying to manage political pressure.
On the other side of the commodity picture, Howell raised something genuinely uncomfortable about oil. He has tracked the ratio of the gold price to the oil price over fifty years and found that it has averaged roughly twenty times. With gold recently trading around US$4,100 an ounce, having retreated from a record above US$5,300 in January, that ratio implies an oil price somewhere above US$200 a barrel if it holds. He acknowledged this sounds extreme. He also noted that every time he has presented this to institutional investors, the pushback is immediate and total, which from a contrarian standpoint is itself a data point. If he is right, or even partially right, the inflationary consequences for a fuel-importing, freight-dependent economy like Australia’s are severe. The rebates do not cover petrol. Freight costs are already embedded in the price of everything.
The Reserve Bank is navigating this in real time with less room than it would like. Each rate rise adds to the mortgage stress of Australian households who bought property during the low-rate years and are now servicing debt at prices that assumed a different world. Recent auction data points to a weaker market, with Sydney clearance rates sitting well below last year’s levels and varying sharply depending on the reporting source. The market is not crashing but it is not functioning normally either. Many owners appear reluctant to sell into a softer market, particularly where higher borrowing costs would make a replacement purchase difficult. That is a different kind of stress, quieter and more diffuse, and it does not show up cleanly in the headline statistics that politicians quote.
Into this environment, the government has formalised its negative gearing policy. From 1 July 2027, the concession will apply only to new builds. Existing investors are grandfathered. Critics argue that allowing investors to deduct rental losses against unrelated income has channelled capital into existing housing stock rather than new supply, contributing to higher prices and making entry more difficult for first-home buyers. The grandfathering is the political concession that makes the reform passable. The risk is that even a prospective change nudges investors to reassess a market already under rate pressure. You do not change the rules of an asset class during a slow correction without some participants deciding now is the moment to exit. The timing is, charitably, complicated.
What makes all of this politically combustible is that the pressure is visible at the bottom of the income distribution before it shows up in the economic forecasts. People feel the cost of groceries, the electricity bill, the mortgage repayment, before the quarterly CPI is released. And what they appear to be doing with that feeling is moving toward a party that is offering the emotional satisfaction of blame rather than the administrative complexity of solutions. One Nation at 29 per cent primary vote, leading every other party in the country for the first time, is not an economic theory. It is a distress signal.
Howell described the current market phase as the transition from “speculation” to “turbulence.” In the speculation phase, he said, you can still make money but volatility is high and the quality of returns is low. In the turbulence phase, you tend to lose money and it is painful. The ASX is not the economy, but it is where Australian superannuation balances live, and turbulence in global equities lands in retirement accounts and consumer confidence simultaneously.
Albanese has until a state election cycle becomes a broader federal reckoning to demonstrate that the government’s response is proportionate to the actual size of what is bearing down. The problem is that the forces Howell describes, a rolling US liquidity cycle, a Chinese pullback, a Fed that is behind the inflation curve and commodities primed for another run, are not responsive to energy rebates or NDIS reforms or even a well-designed negative gearing policy. They are the tide, not the weather. And the tide does not negotiate with the government of the day about its timing.
That is not an argument against doing the right things domestically. It is an argument for being honest about what they can and cannot achieve. The government that manages this period well will not be the one that solved a global liquidity contraction with fiscal transfers. It will be the one that was clear-eyed enough to tell people what was coming and steady enough to hold the line when it did.
Whether that government is the current one is, with One Nation polling at 29 per cent and Hanson now ahead of Albanese as preferred prime minister in the Resolve survey, an open question.
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