Gallagher won’t guarantee Labor will cut more than it spends despite mounting pressure

Finance Minister Katy Gallagher has refused to guarantee Labor will cut more than it spends in the upcoming budget update, despite warning that mounting pressures are forcing the government to examine every program ahead of a likely interest rate rise.

With the Reserve Bank expected to lift interest rates on Tuesday amid stubborn inflation, Gallagher conceded the pressures on the Commonwealth budget were growing and confirmed an intense search for savings across government departments and programs.

She insisted government spending was not the main cause of inflation, which rose to 4.3 per cent in the 12 months to September, but acknowledged the Commonwealth had a responsibility to help contain price pressures.

“I’m not saying it’s too difficult,” she told ABC’s Insiders in response to questions about savings. “But I am saying that there should be some acknowledgment of the world in you know the world in which we are living and the pressures on the Commonwealth budget and they are real they are increasing.”

“If you go back to … the start of that, the Howard era, they were not dealing with AUKUS. They were not dealing with aged care, with all of the demographics we’re dealing with. They weren’t dealing with Medicare falling over.”

But she said no portfolio would be protected from examination as ministers prepared their spending proposals, including Labor’s generous tax concessions for electric vehicles and subsidies for household batteries, which have faced criticism for disproportionately benefiting wealthier Australians.

Federal debt is forecast to climb beyond $1.2 trillion by 2030 and cumulative budget deficits of $150.5 billion are projected over five years. Rising global borrowing costs threaten to add billions more to the government’s interest bill, further restricting its capacity to respond to mounting demands for spending, which has climbed to its highest share of the economy outside the pandemic in four decades.

Gallagher said her government faced bigger challenges than any other this century, identifying the National Disability Insurance Scheme, Medicare, aged care, defence and interest payments on government debt as the biggest sources of pressure.

Gallagher said she and Treasurer Jim Chalmers would hold a series of meetings over the coming weeks to identify cuts ahead of the mid-year budget update.

“The pressures on the budget are increasing, not decreasing,” Gallagher said. “We are living in a different world. The budget’s got to play a responsible role.”

But she defended Labor’s planned $250 working tax offset, due to take effect in July, saying the measure was already accounted for in budget forecasts despite persistent inflation.

Gallagher repeatedly declined to commit to delivering a net reduction in government spending, despite being pressed on whether the economy could afford further expenditure while inflation remained elevated.

“I don’t want to pre-empt the ERC process,” she said, referring to the powerful expenditure review committee of cabinet. “There is enormous effort being placed, particularly by Jim and myself, on the saving side.”

The finance minister’s comments follow reports in this masthead of tensions between Prime Minister Anthony Albanese and Chalmers over the scale of spending restraint required, with the treasurer publicly declaring he had accepted responsibility for the government’s economic difficulties.

Gallagher dismissed suggestions of a serious rift, describing the relationship between the two men as “very professional and respectful”.

But she acknowledged the competing demands of senior ministers and the difficult choices confronting the government.

“I’ve got a role as finance minister to say no to a lot of people,” she said. “Other ministers want to do more. I’ve got to find out: is there room to do that? More often than not, there’s not.”

Shadow Treasurer Tim Wilson said it was clear the Albanese government could not kick its spending addiction.

“For every $2 it saves, it goes on and spends an additional $3, and kicks on inflation and higher interest rates,” he said. “That’s why Australian’s mortgages cost more, and they’re paying more at the supermarket and getting less”.

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