‘We Are Living in a Different World’: Albanese Government Refuses to Promise Budget Savings as Inflation Hits 4.3 Per Cent and Mortgage Holders Brace for Another Rate Hike
- Finance Minister Katy Gallagher has refused to guarantee December’s budget update will find more savings than new spending, just days before the Reserve Bank decides on rates.
- Inflation has jumped to 4.3 per cent over the year to September, worse than expected, pushing a Tuesday rate rise from possible to likely.
- The Reserve Bank’s own chief economist has said government spending is “definitely” adding to demand pressures, undercutting Labor’s claim that the war in Iran is the main culprit.
- Opposition Leader Angus Taylor says the government could spare households another hike by committing to restraint immediately.
Millions of Australian households are waiting nervously for Tuesday afternoon.
For families already stretched by repayments, grocery bills and fuel costs, the Reserve Bank’s next decision could mean hundreds of dollars more each month. The one group able to ease that pressure is not yet promising to do so.
Finance Minister Katy Gallagher has declined to commit the Albanese government to delivering net savings in its mid-year budget update, despite growing calls from economists, the Opposition and anxious voters for Canberra to rein in its spending.
Appearing on ABC’s Insiders on Sunday, the senator said demands on the federal budget were intensifying and that key decisions for the Mid-Year Economic and Fiscal Outlook, due in December, had not yet been made.
She said she would not get ahead of the Expenditure Review Committee, the powerful cabinet group that decides what is funded and what is cut. She stressed, however, that she and Treasurer Jim Chalmers were putting enormous effort into finding savings.
Her comments followed Dr Chalmers’ own refusal on Wednesday to make the same pledge.
That came hours after figures showed inflation had climbed to 4.3 per cent in the year to September, a result that sharply raised expectations of a rate rise when the Reserve Bank of Australia board meets on Tuesday.
Senator Gallagher dismissed suggestions that the hunt for savings was causing friction around the cabinet table. She described the internal debate as “robust” and said it was healthy for ministers to bring different views.
She also pointed to the government’s record, saying every previous budget and mid-year update under Labor had improved the bottom line, and that recent policy decisions had saved more than they spent.
The pressure on Labor has not appeared overnight.
For much of the past year the government has argued that external shocks, particularly the war in Iran and its effect on global energy markets, are the main forces behind stubborn price rises.
Dr Chalmers has urged Australians to keep “perspective” and has repeatedly pointed to factors beyond Canberra’s control.
That argument became harder to sustain last week.
RBA chief economist Sarah Hunter said state and federal government spending was “definitely” contributing to demand in the economy, while noting it was not the central bank’s role to tell governments how to spend.
The Treasurer has also warned that borrowing costs are becoming a serious threat to the budget.
As bond markets price in global interest rates staying higher for longer, he has said servicing the national debt will add billions of dollars in extra costs.
Senator Gallagher listed further pressures, including health and aged care. She defended spending in those areas as necessary to rescue a Medicare system she described as “in freefall” and to clear processing backlogs for veterans.
She drew a sharp contrast with the Howard era, arguing that earlier governments had not faced the costs of AUKUS, a strained aged care sector or a faltering Medicare.
Those pressures needed to be acknowledged, she said, because Australia was now “living in a different world”.
Analysis: What This Means for Australia
The stakes go well beyond Canberra’s internal politics.
Before leaving for the Commonwealth Heads of Government Meeting in Antigua and Barbuda, Prime Minister Anthony Albanese conceded that the Reserve Bank has only one “blunt instrument” in its fight against inflation.
That is the cash rate.
The other levers for cooling demand belong to federal and state governments.
If Canberra keeps spending while the RBA keeps lifting rates, the two are effectively pulling in opposite directions, and households paying off a mortgage absorb the cost.
The burden is uneven.
Younger borrowers who bought at the peak of the housing crisis, renters facing landlords passing on higher costs, and small businesses carrying variable-rate loans are all exposed.
Every rate rise reduces discretionary spending, slows hiring and threatens the cafes, tradies and retailers that sustain local economies.
There is also a national security dimension. Senator Gallagher’s mention of AUKUS is a reminder that defence commitments represent a large, long-term call on the budget that cannot easily be trimmed.
As borrowing costs rise, funding submarines, Medicare and aged care at the same time becomes far more difficult.
The social consequences could be severe. A Medicare system in crisis, aged care queues and veterans waiting on claims are not abstract line items.
They affect vulnerable Australians who rely on government support. Cutting there risks a public backlash, while failing to cut risks prolonging the inflation hurting those same people.
Opposition Leader Angus Taylor seized on the dilemma.
He told Sydney radio station 2GB the government could commit immediately to easing pressure on rates and inflation, which he argued would signal to the Reserve Bank that another rise was unnecessary.
Labor has pushed back. Frontbencher Murray Watt told News24 that demand growth in the private sector had tripled last financial year while government demand growth had halved.
He said most of the growth in spending was coming from consumers and businesses, adding that this was contributing to inflation alongside fuel prices.
Economic observers say the debate leaves the government in an uncomfortable position.
Pointing to private spending may be accurate, they note, but it does little to reassure a central bank that has publicly flagged public demand as part of the problem.
Budget analysts warn that December’s update will be judged less by its rhetoric than by its numbers. A document that fails to show clear restraint, they suggest, could strengthen the case for the Reserve Bank to keep tightening into next year.
Industry observers believe business confidence is also on the line. Firms planning investment and hiring want a clear signal that governments and the central bank are working together, not at cross purposes.
Some fiscal commentators argue that Labor’s record of past budget improvements counts for little if the current trajectory is moving the wrong way. Others say the government has a point about structural pressures in health, aged care and defence that no amount of trimming will remove.
For now, the government is holding firm. The Expenditure Review Committee will meet, ministers will argue, and the numbers will land in December.
Australians with a mortgage will learn their fate much sooner, when the Reserve Bank announces its decision on Tuesday.