Quite apart from the fact that most of the parliamentary press gallery didn't know what NAIRU was (it's the unemployment rate below which inflation is supposed to start to pick up), it was simply an early opposition "gotcha" effort at the new treasurer. Loading Fast forward to today and NAIRU, and the debate around it, is central to what the Reserve Bank is up to with its 2019 interest cuts and also to a case of denial within the federal Treasury. The mid-year budget update released by Josh Frydenberg contained a string of downgraded economic forecasts – wages, growth, unemployment, jobs, household consumption. Whatever the marker, Treasury reckoned they would be worse than what it predicted back in April. The forecasts, particularly around wages, growth and jobs, are key elements to whether the government delivers a budget surplus this financial year and if it has the cash to afford its second stage of tax cuts off in 2022.

This is where NAIRU comes in. On page 28 of the update, Treasury makes clear it still believes that inflation will start to lift once the jobless rate falls below 5 per cent. It's the same position it took in the April budget. The only problem, as one budget insider noted, is that this view "is demonstrably wrong". The Reserve Bank clearly thinks it is. In May, governor Philip Lowe – signalling the first of a string of interest rate cuts – said he believed unemployment could go lower than 5 per cent. "My judgment of the accumulating evidence is that the Australian economy can support an unemployment rate of below 5 per cent without raising inflation concerns," Lowe said. "This would be consistent with the experience overseas, with many other advanced economies sustaining lower rates of unemployment than previously thought possible without leading to a noticeable uplift in inflation." The bank believes we won't see a real lift in inflation until the jobless rate falls below at least 4.5 per cent. Some believe it could be closer to 4 per cent if you take into account the 1.2 million Australians who are under-employed. That inflation will be driven by a lift in wages growth which, like smoke-free air in Sydney, is increasingly unlikely. That's why the RBA reckons low wages growth is the "new norm" unless the country can drive down the jobless rate. The overseas experience referenced by Lowe is clear. In Britain, the jobless rate is 3.8 per cent while inflation is at 1.5 per cent. In the US, 3.5 per cent unemployment is converting into wages growth of 3.1 per cent and inflation at 2.1 per cent. And across the Tasman, New Zealand has unemployment at 4.2 per cent and inflation is just 1.5 per cent.

Loading Yet Treasury, in the face of both the Reserve Bank's opinion and the facts on full display across the rest of the world, has covered its eyes and blocked its ears to the evidence that NAIRU ain't what it used to be. Gollum-like, a 5 per cent NAIRU is its "precious" even as the rest of Middle Earth has moved on. It needs to believe inflation, and wages, start to lift if the jobless rate gets below 5 per cent because so many of its other economic forecasts depend on that occurring. Much has been made of both the RBA and Treasury getting wage forecasts wrong over the past seven years. They've also got their inflation forecasts wrong. At least the RBA is now admitting inflation is going to be lower for longer. As will wages growth.