Bank boss blasts payroll tax, Comyn flags higher rates amid AI construction boom

The hearing into the banking sector was dominated by the state of the economy, government spending and the housing market.

Irvine, who took over as NAB's head in 2024, said he remained stunned that a country as large as Australia with a population of less than 30 million could have a housing crisis. 'It's honestly like we're playing poker with a handful of aces and we're losing. How is that possible? I find it so disappointing,' he said.

He described the level of regulation across the country, especially in construction, as way too high, then turned his attention to state payroll taxes. ‘[It’s] the most atrocious, abominable tax. It would be like taxing people who give blood,’ he said.

Irvine said that in the early 2000s, government spending as a share of the economy was a ‘world-class’ 23 per cent, but now sat at around 29 per cent, lower than in most nations, and having grown strongly under both sides of politics. Lower spending, which Treasurer Jim Chalmers has signalled will form part of his mid-year budget update next month, would take pressure off inflation and interest rates while allowing the private sector to grow, Irvine argued.

'It is undoubtedly true that additional public sector spending, in an environment where we have poor productive supply capacity, is unhelpful,' he said. 'Public spending in and of itself is crowding out private sector spending and that is problematic. I would point out it's not just the federal government, it's all levels of government, state government, local councils, it's everything.'

Comyn noted that lower government spending would reduce inflation pressures but warned it would not be a panacea. He said the surge in spending in areas such as AI meant the very low interest rates of the 2010s, when the cash rate fell to 0.75 per cent ahead of the pandemic, were gone. ‘The outlook for interest rates is higher than it has been for the past decade,’ he said.

Comyn also suggested the Reserve Bank, which has lifted the cash rate five times this year, may have erred in cutting rates last year, saying it could have waited longer to ensure inflation was going to stay within its 2-3 per cent target band before easing monetary policy.

'Living within your means as a company and country is important … there are much more significant and more frequent shocks likely to affect the economy,' he said, citing pressures from the AI construction boom, demographic change and geopolitical tensions.

Westpac’s chief economist, Luci Ellis, said the RBA may be done with rate rises as the economy slows more quickly than anticipated by the Reserve. She said the fallout from this year’s steep fall in house prices would weigh on the broader economy and inflation well into next year, and that lower oil prices would also help reduce price pressures. ‘[Monetary] policy is clearly restrictive, and the risk of overdoing the inflation correction is growing,’ she said. ‘By the time we get to February, we think there will be more evidence that the domestic economy is slowing materially, and the inflation outlook with it.’

Further confirmation of the slowdown came from shoe retailer Accent Group, which told the ASX on Friday that ‘elevated fuel prices, interest rate rises and general consumer confidence’ had started to hit sales. For the period since August, sales in its stores were down 5 per cent on the preceding two months.