Why MMT Faces Resistance in Australia

Description

Why MMT faces resistance in Australia, with Bill Mitchell, Steven Hail and evidence on public spending, inflation and political debate.

Australians have good reason to question claims that the federal government cannot afford essential services. When people need housing, healthcare or secure work, a reference to the budget balance tells us little about whether the country can meet those needs.

Why MMT faces resistance is therefore a question about democratic accountability as well as economics. Modern Monetary Theory challenges familiar descriptions of public finance. The work of Australian economists Bill Mitchell and Steven Hail helps explain that challenge, while also making clear that money cannot remove shortages or environmental limits.

Quick Answer

MMT faces resistance in Australia because it challenges established budget rules, economic theories and ways of explaining public spending. Some opposition reflects genuine concerns about inflation and government decision-making. Familiar household-budget language also makes complex choices easier to sell politically. However, claims of complete media silence are wrong: the ABC has examined MMT. Australia’s Commonwealth government has monetary powers that households and states lack, but spending still requires lawful authority and careful use of workers, skills, materials and energy. Bill Mitchell and Steven Hail argue that public policy should focus on these real limits and social outcomes rather than treating the budget balance as the main test of success.

What monetary sovereignty allows Australia to do

Australia issues its own dollar, has a floating exchange rate and issues its government bonds primarily in Australian dollars. These arrangements give the Commonwealth a degree of monetary freedom that households, businesses and Australian state governments do not have.

In his 2017 explanation of MMT, Steven Hail distinguishes financial limits from limits on production and the environment. A currency-issuing government has the capacity to meet payments in its own currency. That does not give it an unlimited supply of things to buy.

The careful version of the argument is that the Commonwealth can arrange Australian-dollar finance for authorised spending, subject to its institutional arrangements. Whether that spending delivers affordable services depends on the economy’s capacity, the program’s design and competing demands for resources.

State governments and councils cannot issue Australian dollars. Neither can households or ordinary businesses. Commercial banks create deposits when they lend, but that does not give them the Commonwealth’s public monetary powers. Treating all these bodies as financially identical conceals an important difference.

Nor does monetary sovereignty mean that a government cannot choose to default or create legal obstacles to payment. The distinction concerns its underlying capacity to issue currency, not a promise that every government will always use that capacity wisely.

Budget rules are real but they are also choices

Australia’s existing arrangements matter. The Australian Office of Financial Management, or AOFM, issues government bonds and manages cash flows so the Commonwealth can meet its obligations. A bond is a government debt security with repayment terms; it is not simply a household loan under another name.

The Reserve Bank of Australia’s explanation of monetary policy describes the established policy of financing budget deficits through securities sold to the private sector rather than borrowing from the central bank. This is the framework within which officials currently work.

Government spending also needs lawful authority. Parliamentary appropriation makes money available for an approved purpose, while other legal requirements can determine whether a particular program is valid. The Parliamentary Library’s discussion of Commonwealth spending powers explains why appropriation alone is not a general power to spend on anything.

MMT often examines Treasury and the central bank together to explain the public monetary system. That can reveal capacities hidden by separate accounts. It does not mean a minister can disregard Parliament or direct every Reserve Bank decision.

Even the phrase “government creates money” needs context. The RBA’s money explainer says government payments are offset by funding transactions under current arrangements. MMT asks what the currency-issuing state could do and how the system works when public institutions are considered together. An explanation should specify which perspective it is using rather than present different accounting treatments as interchangeable.

A 2026 study by Shireen Morris and Matthew Crocker provides a useful legal and historical contribution. Published online on 15 July, it argues that Australia’s monetary sovereignty widened federal spending options, while financing conventions continued to constrain their use.

That is the authors’ interpretation, not a court ruling that all constraints have disappeared. Its practical value is to distinguish restrictions created by public institutions from a physical shortage of labour, materials or energy. Changing either kind of limit requires different action.

Why MMT faces resistance in economic debate

Some disagreement is genuine. Mainstream economics is not a single belief system in which every economist treats government as a household. Critics can understand currency issuance and still reject MMT’s conclusions about inflation, interest rates or the best division of responsibilities between governments and central banks.

American economist N. Gregory Mankiw makes that distinction in A Skeptic’s Guide to Modern Monetary Theory. He accepts that a currency issuer can create money to pay bills, but disputes the policy conclusions drawn from this. His concerns include interest paid on bank reserves, inflation and the practical limits of government price intervention.

Mankiw’s analysis concerns the United States. It should not be treated as a description of every Australian institution. It does show why acknowledging monetary capacity is not the same as endorsing MMT’s full framework.

Institutional resistance is visible in Australia too. On 3 February 2021, then RBA governor Philip Lowe rejected direct central-bank financing of government and dismissed MMT. His description reduced MMT to direct financing, whereas its proponents also analyse employment, taxation, prices and resource use.

The fair response is to examine the disagreement. Supporters need to explain how their proposals would work. Critics need to engage with those proposals rather than an imagined promise of costless, unlimited spending.

Political incentives and the appeal of simple budget stories

SJA’s assessment is that familiar budget language can make resistance easier to sustain. A promise to repair the budget is simpler to explain than a plan to coordinate training, construction schedules, taxation and inflation management. A deficit is a single number; national wellbeing is much harder to measure.

This creates a plausible political incentive to retain the familiar story. A government can present a spending refusal as unavoidable financial discipline. An opposition can attack a deficit without establishing whether the spending is useful or whether resources are available. These are incentives, not proof of what any particular politician privately believes.

The consequences deserve scrutiny. If officials say a housing program is unaffordable, citizens should be able to discover whether the barrier is a shortage of builders, a financing rule, inflation risk or a decision to favour another use of public resources.

That distinction also helps identify honest disagreements. People may agree that the Commonwealth has financial capacity but disagree about public ownership, eligibility, delivery methods or priorities. Those are political choices that should be argued openly.

Commercial interests can be affected by these choices. Public provision may reduce demand for some private services, while new public contracts may benefit other businesses. This gives us a reason to investigate particular lobbying and policy decisions. It does not establish that corporations, politicians and journalists act together to suppress MMT.

A critical article is stronger when it separates a documented conflict of interest from a suspected motive. Evidence about who benefits is useful, but benefit alone does not prove who caused a decision.

Mainstream coverage exists but acceptance is a different question

The claim that mainstream media never acknowledge MMT does not withstand checking. ABC economics journalist Gareth Hutchens published a substantial explanation in July 2020. It described currency issuance, full employment and the resource limits central to the theory.

In a March 2024 discussion of the documentary Finding the Money, Hutchens separated MMT’s description of monetary operations from proposals such as a Job Guarantee. He also questioned claims that the federal government is simply broke. ABC Big Ideas broadcast a discussion with Stephanie Kelton that same month.

These examples establish that the argument has received mainstream attention. They do not establish how often it appears across Australian media, or how much it changes routine budget reporting. That would require a systematic study of coverage.

The same caution applies to politicians and parties. It is too sweeping to say that none has ever acknowledged monetary sovereignty. Understanding part of the monetary system, supporting a particular public investment and adopting MMT as a governing framework are three different things.

The useful question is whether reporting makes those distinctions clear. A news story can accurately report a minister’s funding claim while still leaving readers without the information needed to evaluate it.

Bill Mitchell puts employment at the centre

Bill Mitchell is one of MMT’s original developers. His account of its basic principles distinguishes an explanation of monetary operations from choices about how public powers should be used. Recognising capacity does not, by itself, decide which programs deserve support.

His work also challenges the assumption that unemployment must bear the burden of economic adjustment. In his explanation of the Job Guarantee, Mitchell proposes a standing public job offer at a set wage for people who want work. Participation would grow when private employment weakens and shrink as other employers recruit.

The set wage is intended to provide an anchor for wages and prices. The proposal seeks to support income and employment without making government an unlimited bidder for labour at ever-higher wages. This is a proposed stabilising mechanism, not an established guarantee that every implementation would control inflation successfully.

Its appeal is easy to understand at a human level. A useful job can provide income, routine, social contact and a chance to contribute. A community may also have worthwhile work that does not attract enough commercial investment.

Yet delivery cannot be treated as an afterthought. A credible Australian design would need safe work, supervision, accessible roles, training and a clear way to resolve complaints. It would need to prevent existing employees being replaced by lower-paid participants.

Essential services would still need permanent skilled staff. A short-term rise in Job Guarantee participation cannot supply qualified nurses on demand. Nor should an employment offer remove income support from people who cannot work or overlook unpaid caring responsibilities. These are design requirements that deserve debate alongside the financing question.

SJA’s discussion of a Job Guarantee in Australia explores the case for greater employment security. The question here is how Mitchell’s proposal changes the argument about spending limits and who carries the cost of stabilising the economy.

Steven Hail connects monetary capacity with ecological limits

Steven Hail’s Economics for Sustainable Prosperity, published in 2018, brings MMT and a permanent, inclusive Job Guarantee into a wider argument about wellbeing. The book’s stated goals include equitable full employment and ecological sustainability, rather than treating economic growth as the overriding objective.

Hail draws on Post-Keynesian economics, which gives uncertainty, money and demand a central role, and behavioural economics, which studies how people actually make decisions. His approach asks what economic institutions should achieve for people and the environment.

This perspective changes the meaning of affordability. A project may have workers and materials available yet damage an ecosystem or lock in high emissions. Being able to finance it does not make it a sound use of national capacity.

Consider a hypothetical choice between upgrading homes to reduce energy use and building infrastructure that increases long-term energy demand. Both require money and labour. Their effects on household costs, emissions and future resource needs differ. A serious appraisal must examine those effects rather than assume that any increase in measured production is beneficial.

Hail’s work therefore supports a demanding form of public responsibility. Monetary freedom needs to be accompanied by choices about the quality of development, its distribution and its environmental cost. An economy can produce more while leaving some communities worse off.

Resources can be scarce before the whole economy is fully employed

The phrase “provided resources are available” carries much of the argument’s weight. Available must mean suitable for the job, accessible at the required location and obtainable within a realistic timetable. A national unemployment figure cannot answer all those questions.

Mitchell addressed this directly in Real resource constraints and fiscal policy design, published in June 2018. He examined construction bottlenecks alongside unused labour elsewhere in Australia. His point was that shortages in particular sectors can emerge before the economy reaches full employment.

This matters for public spending choices. Simply increasing every infrastructure budget at once may intensify competition for scarce inputs. Targeted employment and carefully sequenced investment can have different effects. Mitchell’s analysis explicitly recognises that prices, bargaining and production conditions complicate any simple spending rule.

Consider a hypothetical public housing program in a Queensland town. If builders, serviced land and materials are ready, additional orders may support more homes. If electricians are already fully booked, extra money may initially increase bids for the same workers rather than accelerate completion.

The response should address the identified obstacle. A staged program could support apprenticeships, improve procurement and coordinate work with other projects. But training takes time, and a long-term capacity gain does not erase near-term pressure.

How government overseas purchases affect the Australian dollar

Australia’s monetary sovereignty does not give the Commonwealth the power to issue US dollars, euros or other foreign currencies. When a government contract requires payment in foreign currency, that currency must be obtained. Australia’s ability to issue its own dollar therefore needs to be considered alongside the exchange rate and the availability of overseas goods.

The Reserve Bank of Australia provides foreign exchange services to the Australian Government. It normally purchases foreign currency in the market to match the amounts it sells to the government. During stressed market conditions, it can draw on existing foreign currency holdings and replenish them later. The RBA says it conducts routine transactions in ways that minimise their impact on exchange rates.

Overseas purchases can put downward pressure on the dollar

When Australian dollars are sold to obtain foreign currency, they add to the supply of Australian dollars in the foreign exchange market. Other things being equal, additional selling can put downward pressure on the A$.

However, a government purchase does not automatically produce a noticeable fall. The exchange rate also responds to export earnings, investment flows, interest-rate differences and expectations about economic conditions. Those forces can offset or outweigh the effect of a particular purchase. The RBA’s explanation of exchange-rate drivers shows why imports must be considered within this wider picture.

This means a large overseas procurement program deserves careful assessment, but its headline price alone cannot tell us how far the dollar might move. The timing of payments and currency transactions also matters.

The currency written into the contract matters

Consider a hypothetical government purchase of medical equipment priced at US$100 million. If one Australian dollar buys US$0.70, the purchase costs about A$143 million. If the exchange rate falls to US$0.60 before payment, it costs about A$167 million, assuming the US-dollar price remains unchanged and no exchange-rate protection applies.

That is roughly A$24 million more for the same equipment. The example illustrates exposure to a changing exchange rate; it does not suggest that this purchase caused the dollar to fall.

A contract with a fixed Australian-dollar price offers the Australian buyer more certainty during the fixed-price period. The overseas supplier initially bears the currency risk, although that risk may influence the price it offers or future negotiations. RBA research finds that the currency used for invoicing matters for how exchange-rate movements reach Australian import prices.

A weaker dollar can affect households as well as government

A falling Australian dollar can increase the local cost of imported goods and production inputs. Those increases may flow into consumer prices, although the extent and timing depend on contracts, business margins and market conditions. A lower dollar can also improve the competitiveness of Australian exporters and businesses competing with imports. Its effects are uneven across the economy.

Imports can nevertheless be valuable. Equipment and technology purchased overseas may help expand Australia’s productive capacity or relieve a domestic shortage. The practical question is whether the benefits justify the costs and risks, including ongoing dependence on overseas parts, maintenance or supplies.

SJA’s view is that major procurement decisions should explain their foreign-currency exposure, payment timetable and realistic domestic alternatives. Local production may improve resilience where the necessary skills and capacity exist, but it should also be assessed for cost, quality and delivery time.

Monetary sovereignty gives Australia substantial capacity to finance public purposes. It does not guarantee an unchanged exchange rate or unlimited purchasing power overseas. Recognising that limit strengthens the case for careful planning and transparent decisions about what the nation buys.

Taxes and inflation still matter

Taxation remains essential in an MMT account. Hail’s explanation presents taxes as a way of limiting total spending pressure, alongside other public purposes. Reducing private spending can create room for public use of resources. That does not require spending and taxation to match dollar for dollar in every year.

For practical policy, the design matters. A measure that reduces spending in a crowded sector may have different effects from one that cuts the disposable income of households already struggling to afford essentials. Distribution is part of economic management, not a separate concern to consider later.

Fiscal policy means government spending and taxation. Monetary policy concerns central-bank settings, including interest rates. The RBA’s current framework seeks price stability and full employment, with inflation targeted at 2–3 per cent. Its own explanation acknowledges that the maximum sustainable level of employment cannot be observed directly and requires judgement.

This creates a real challenge for any alternative approach. Governments would need reliable information, transparent decisions and an ability to adjust programs when conditions change. Neither supporters of MMT nor defenders of the current framework should pretend that economic management can be made free of uncertainty.

Inflation also needs a diagnosis. A shortage of imported fuel requires a different response from excessive demand across the economy. The public deserves an explanation of how a proposed measure addresses the cause, how quickly it may work and who will bear its costs.

What the pandemic demonstrated and what it did not

The pandemic showed that Australian monetary institutions could act on a large scale. The RBA’s review of its bond purchase program records purchases of $281 billion in Commonwealth, state and territory bonds between November 2020 and February 2022 under that program.

The purchases occurred in secondary markets, meaning the RBA bought bonds already issued. It created settlement balances held by banks to pay for them. This was a monetary-policy operation intended to lower borrowing costs and support recovery; it was not the formal adoption of MMT or a direct budget appropriation.

The review also explains the financial consequences of paying variable interest on those settlement balances while receiving fixed returns on purchased bonds. Creating central-bank money did not remove every cost or policy trade-off.

For public debate, the lesson is that monetary arrangements offer more flexibility than a household analogy suggests. The experience does not establish that every proposed spending increase would be harmless. Each proposal still needs to be assessed against the conditions in which it would operate.

A more useful test of public spending

SJA’s editorial view is that governments should make the real reasons for spending decisions easier to examine. A dollar costing is necessary for administration and scrutiny. It should sit alongside a public account of capacity, expected benefits and delivery risks.

A practical assessment should answer five questions:

• What need would the program meet, and how would success be measured?
• Which workers, skills, materials and infrastructure would it require?
• Would it use idle capacity, build future capacity or compete with existing uses?
• What inflation, import and environmental risks would arise, and how would they be managed?
• Who would benefit, who would face costs, and what evidence would trigger a change of course?

These questions do not require everyone to agree with MMT. They make a spending proposal easier to challenge or support on its merits. They also expose the difference between announcing a budget and delivering a service.

Better reporting could follow the same approach. When a government rejects a proposal as unaffordable, journalists could ask which specific constraint is binding. When advocates promise a major expansion, journalists could ask for the workforce and delivery plan.

Readers can use these questions in correspondence with representatives, public consultations and community discussions. Evidence about local shortages and unmet needs can improve the debate. So can acknowledging when a proposed timetable is unrealistic.

Conclusion

Resistance to MMT has several sources. Published criticism shows real disagreement about inflation and policy design. Australian institutions operate under financing arrangements that MMT challenges. Political convenience is a plausible part of the explanation, but claims about deliberate concealment require evidence.

Mitchell and Hail make important contributions by directing attention to employment, productive capacity and ecological limits. Their work deserves serious engagement without turning every disputed proposition into a settled fact.

Australia’s public debate would improve if claims of unaffordability came with a clear account of the obstacle. Citizens could then judge whether it should be accepted, managed or changed. A country should be able to discuss meeting human needs without confusing a shortage of dollars with a shortage of the things those dollars are meant to obtain.

Frequently Asked Questions

Does a federal deficit prove that spending is excessive?

No. A deficit records the gap between government spending and revenue over a period. Assessing whether spending is excessive also requires evidence about inflation, capacity, other spending in the economy and the program’s results. A deficit alone cannot settle those questions.

Would accepting MMT remove the need for government bonds?

It would change the debate about their purpose. MMT questions their necessity as a financing constraint on a currency issuer. Under Australia’s current arrangements, the AOFM uses bonds to meet the government’s financing needs. Any change would need to address cash management, financial markets and monetary policy.

Can state governments use the same spending powers?

No. Australian states and territories use the Australian dollar but do not issue it. They face different financing constraints. Commonwealth grants can support state-delivered services, but this does not turn state governments into currency issuers.

Is the Job Guarantee simply work for the dole?

Mitchell’s proposal is a standing offer of paid employment at a set wage. It should be assessed as an employment program, including its pay, rights, accessibility and effects on existing jobs. Those details distinguish a genuine job offer from requiring activity as a condition of receiving benefits.

Can someone support public investment without accepting MMT?

Yes. People can support housing, healthcare or climate investment using different economic frameworks. Agreement about a proposal does not require agreement about every monetary theory. The strongest discussion tests its expected benefits, resource needs and risks openly.

Join the discussion

What evidence would help you judge whether a proposed public service in your community is genuinely beyond Australia’s capacity or has been given too low a priority?

Share your experiences, evidence and views, including respectful disagreement, alternative interpretations or corrections. Explore SJA’s Monetary Sovereignty resources, share this article and consider contributing to a public consultation or local discussion about economic reform.

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Authoritative Sources

Sources are linked at the relevant claims above. Foundational works are identified by their original dates; current institutional webpages were checked for this update. Mitchell and Hail are cited for their own arguments, while official sources establish Australia’s existing arrangements.

1. Steven Hail. Explainer: what is modern monetary theory?. 31 January 2017; republished by Economic Reform Australia.
2. Reserve Bank of Australia. What is Money?. Undated; accessed 28 October 2026.
3. Australian Office of Financial Management. About. Undated; accessed 28 October 2026.
4. Reserve Bank of Australia. About Monetary Policy. Undated current webpage; accessed 28 October 2026.
5. Parliamentary Library. Social Security and Other Legislation Amendment (Miscellaneous Measures) Bill 2023. Bills Digest, 2023–24; discussion of constitutional spending powers.
6. Shireen Morris and Matthew Crocker. Australian monetary sovereignty: origins, evolution and implications for federal spending. Review of Political Economy; online 15 July 2026. University publication record and abstract.
7. Gregory Mankiw. A Skeptic’s Guide to Modern Monetary Theory. 12 December 2019 manuscript, prepared for the January 2020 American Economic Association meeting.
8. Philip Lowe, Reserve Bank of Australia. Transcript of Question & Answer Session The Year Ahead. 3 February 2021.
9. Gareth Hutchens, ABC News. Modern Monetary Theory: How MMT is challenging the economic establishment. 17 July 2020; updated 18 March 2021.
10. Gareth Hutchens, ABC News. What should we make of the new Modern Monetary Theory documentary?. 10 March 2024.
11. ABC Radio National, Big Ideas. The Deficit Myth with Stephanie Kelton — what to ask when governments can’t afford to fix things.. 27 March 2024; presented by Natasha Mitchell.
12. William Mitchell. One should become more radical as one grows older. 3 January 2010.
13. William Mitchell. Full Employment via a Job Guarantee. Undated overview; cites Mitchell’s 1998 employment buffer stock research.
14. Steven Hail. Economics for Sustainable Prosperity. Palgrave Macmillan, 2018; publisher’s overview and contents consulted.
15. William Mitchell. Real resource constraints and fiscal policy design. 21 June 2018.
16. Reserve Bank of Australia. The Transmission of Monetary Policy. Undated explainer; accessed 28 October 2026.
17. Reserve Bank of Australia. Review of the Bond Purchase Program. 2022 review

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