Government will not promise net savings in budget update, despite inflation pressure

Finance Minister Katy Gallagher and Treasurer Jim Chalmers have declined to confirm that the government's December budget update will yield more savings than new spending, as inflationary pressures mount. The mid-year economic and fiscal outlook will be released in December. Gallagher stated that growing budget pressures mean the government cannot guarantee overall savings in the update, even as Australians anticipate another interest rate increase amid high inflation.

Chalmers also refused to commit to net savings in the mid-year budget update following an inflation figure of 4.3% for the year to September, which raised expectations of another rate hike at the upcoming Reserve Bank meeting. Gallagher emphasized that the government is making significant efforts to find savings but cannot pre-empt the Expenditure Review Committee process.

She highlighted the government's previous record of delivering overall budget improvements, attributing savings to policy decisions. The Reserve Bank's chief economist noted that government spending contributes to inflation, despite the government pointing to the Iran war as the primary driver. The treasurer warned that borrowing costs would add billions to the budget as higher global interest rates are priced into bonds.

Gallagher acknowledged additional budget pressures, including in health and aged care, stating that government spending measures in these areas are necessary to rescue a struggling Medicare system and clear veteran processing backlogs. Opposition Leader Angus Taylor urged the government to take action to avert further rate hikes.

The Reserve Bank's chief economist pointed out that government spending is contributing to demand pressures in the economy, with government demand growth halving last financial year.