What a government should do in the current conditions is increase taxation. No one would of course, because then you lose the election for being a communist, or some such nonsense. Increasing interest rates affects primarily mortgagees and indebted business owners, and among those groups affects recent home buyers hugely disproportionately than those who bought years ago. So, they affect very significantly a small fraction of the 30% of people who have a mortgage. Increasing tax would directly affect a greater number of people, each by a lesser amount than those affected by interest rates, while doing something to address the budget deficit (and long term debt) in the process. Too politically unpalatable for a government, so leave it to the apolitical RBA to hammer the select few instead.
