The Great Aussie Squeeze: Why Rate Hikes and Foreign Spending Don’t Add Up
Australia is currently facing a perfect storm of economic pressure. While households are being told to spend less to combat inflation, the Federal Government continues a massive international spending program. This report breaks down the current state of the nation.
1. The RBA’s Decision: A New Financial Burden
At its meeting today, the Reserve Bank of Australia (RBA) increased the cash rate target by 25 basis points to 3.85%. This move follows a material pickup in inflation during the second half of 2025.
The RBA has justified this hike by citing:
- Capacity Pressures: Greater momentum in demand than the economy can supply.
- Strong Private Demand: Household spending and business investment have remained higher than expected.
- Housing Market Activity: Prices and activity continue to climb, despite previous rate rises.
- Tight Labour Market: Unemployment is lower than projected, keeping pressure on wages and unit labour costs.
2. Government Spending: The Elephant in the Room
While the RBA uses interest rates to pull money out of the pockets of everyday Australians, the Labor Government’s spending has come under fire for being out of control. Since taking office in May 2022, billions of dollars in taxpayer money have been directed toward foreign aid (Official Development Assistance) rather than domestic relief.
The Global Spending List
Australia’s current international financial commitments include:
- Ukraine: Over $1.7 billion in total aid (primarily military and humanitarian).
- Papua New Guinea: Over $500 million annually for infrastructure and governance.
- Myanmar & Bangladesh: $370 million over three years for regional crises.
- Gaza & Lebanon: Over $130 million in humanitarian support.
- Multilateral Funds: Re-joining the Green Climate Fund ($50m) and substantial funding to the WHO and UNICEF.
The government has also committed to a 2.5% annual increase in the total aid budget, ensuring more money leaves the country every year.
3. The Impact: Putting Australia Last?
The core of the frustration for many Australians is the “opportunity cost” of this spending. At a time when mortgage holders are paying 3.85% (and retail bank rates sit much higher), the government is prioritizing:
- Regional Policing: Massive investments in the Solomon Islands.
- Climate Resilience Abroad: Helping Tuvalu and Fiji with coastal adaptation.
- Global Health: Funding international organizations while local wait times grow.
For many, the message is clear: the Australian taxpayer is being asked to solve the world’s problems while their own domestic budget is being crushed by the RBA.
4. Economic Outlook and Uncertainty
The RBA has warned that inflation is likely to remain above the 2–3% target for some time. They noted that “financial conditions eased over 2025,” making it uncertain whether current rates are restrictive enough.
The Risks Ahead:
- If demand remains stronger than supply, more rate hikes are likely.
- Global trade has “surprised on the upside,” which keeps the economy hot and prices high.
- Until the government reins in fiscal spending at home and abroad, the RBA may be forced to keep interest rates higher for longer.
5. Summary Table: Where the Money Goes
| Focus Area | Key Recipients | Estimated Commitment |
| Direct Aid | PNG, Solomon Islands, Indonesia | Billions (Indo-Pacific focus) |
| Conflict Relief | Ukraine, Gaza, Lebanon | ~$1.83 Billion+ |
| Climate/Health | Green Climate Fund, WHO | Hundreds of millions |
| Domestic Cost | Australian Homeowners | 25bps hike (3.85% total) |
Where the Money is Going (2025-26 Budget)
While you skip the weekend coffee to pay the bank, your tax dollars are heading overseas at record levels:
$5.1 Billion in Total Foreign Aid: This is the highest nominal amount in Australian history, up $135 million from last year.
$2.15 Billion to the Pacific: A record-breaking spend aimed at “regional resilience.”
$1.7 Billion+ to Ukraine: Total support since 2022 now exceeds $1.7 billion, including the recent $95 million package (military gear and air defence radars) announced in late 2025.
$1 Billion “Economic Resilience” Package: Funneled into Southeast Asia and the Pacific to “create jobs” and “strengthen financial systems” abroad.
The Bottom Line
The RBA has made it clear: they will keep raising rates as long as the economy stays “hot.” But as long as the government continues to prioritize being a global benefactor over the financial survival of its own citizens, that heat isn’t going anywhere. It’s time to start asking why “Australia First” isn’t the primary goal of the national budget.
Sources: Reserve Bank of Australia