More cost-of-living relief risks making Labor's long-term challenge harder

analysis Chalmers promised action on inflation and productivity. The scorecard on both is grim On the morning after last year's landslide Labor election win, Jim Chalmers declared a shift in priorities for the government's second term. "The first term was primarily inflation without forgetting productivity," the treasurer told Insiders. "The second term will be primarily productivity without forgetting inflation." At the midway point of this term, the scorecard on both is grim. As Reserve Bank Governor Michele Bullock put it this week, "inflation is too high and has been driven by domestic capacity pressures". As for productivity, Bullock was even more blunt: "Productivity is doing nothing." In response, both the treasurer and prime minister have spent the week on the defensive, highlighting their various efforts to both tackle inflation and kickstart productivity. Pinning blame on the war in the Middle East. Denying any contradiction with the Reserve Bank. Pointing out where the government is trying to rein in spending, only to be frustrated by the Coalition. None of it is likely to satisfy anxious households. What Labor desperately needs is some better news on inflation to restore confidence. A glimmer of hope? Chalmers saw a glimmer of hope in yesterday's data. While annual headline inflation jumped to 4 per cent, largely thanks to higher fuel prices, and the annual underlying rate remained stubbornly stuck at 3.6 per cent, the monthly numbers for August told a slightly better story. Both headline and underlying inflation for the month came down. Whether the treasurer is right to be optimistic about the monthly numbers or not, the point is he felt vindicated. He argued the data backed his claim about the Iran war being the chief driver of the recent inflation spike. He showed no signs of changing course on the government's spending plans. Indeed, Anthony Albanese was yesterday flagging more cost-of-living support measures would be announced in the mid-year budget update in December. That would be on top of the list of spending measures to deliver free TAFE, free visits to the GP, cheaper medicines, student debt relief and so on. All politically popular with the various beneficiaries, but all contributing to demand in the economy. The government insists it has "found room" for the extra spending through cuts elsewhere, but the budget remains stuck in a structural deficit. The temptation for Labor to offer even more household relief at the end of the year and no doubt more tax cuts before the next election will be strong. LoadingA new layer of difficulty for Labor One Nation is already feeding on the grievances of frustrated voters on the right. Now a new Greens leader has emerged on the left with an energetic and overwhelming focus on the cost of living. After defeating Mehreen Faruqi and Sarah Hanson-Young in a contested ballot, unprecedented for the party, David Shoebridge laid out his priorities. It was all about the hip pocket. Climate change and the Middle East barely rated a mention. "Things have got harder, much, much harder, for ordinary Australians," Shoebridge said. "We are not here to make the Labor Party any better. The Greens are here to replace them." The new Greens leader will be out to prove himself and unite his team. His focus on the plight of stressed younger Australians and his determination to blame Labor for their woes, presents a new layer of difficulty for the government. When Jim Chalmers promised a shift from inflation to productivity, the hope was that the first problem was largely under control. Halfway through the term, it's clear neither objective is where the government wants it to be, even if it can point with some justification to factors beyond its control. But it's equally clear the government is not for shifting course. As political pressure mounts from both the left and right, the risk is that pursuing more short-term relief will only make the long-term challenge harder. David Speers is national political lead and host of Insiders, which airs on ABC TV at 9am on Sunday or on iview.