Is government spending fuelling inflation? What's driving the federal budget, Labor's savings hunt, and the Coalition's $31 billion cuts plan

By The Rundowns News Desk · Published 1 November 2026

With a rate rise widely expected on Melbourne Cup Day, the fight in Canberra has shifted to a simple-sounding question: is the federal government's own spending making inflation worse? On Sunday, Finance Minister Katy Gallagher said every program is being examined for savings, but she wouldn't promise the mid-year budget update will cut more than it spends. Here's what's actually driving the budget, what each side is proposing, and what to watch.

What happened

Appearing on ABC's Insiders on Sunday 1 November, Gallagher said government spending is not the main cause of inflation, but acknowledged the Commonwealth has a role in containing price pressures (The Age, Capital Brief, ABC News).

• No net-savings guarantee. Pressed on whether the update would deliver a net reduction in spending, she said: "I don't want to pre-empt the ERC process", referring to cabinet's Expenditure Review Committee. "There is enormous effort being placed, particularly by Jim and myself, on the saving side."
• Weeks of savings meetings. She said she and Treasurer Jim Chalmers will hold a series of meetings over the coming weeks to find cuts before the mid-year update.
• Nothing quarantined. According to The Age, she said no portfolio would be protected from examination, including electric vehicle tax concessions and household battery subsidies, which critics say mostly benefit wealthier households.
• The $250 tax offset stays. She defended the planned $250 working tax offset due in July, saying it is already in the budget forecasts.

She also dismissed reports of a rift between Prime Minister Anthony Albanese and Chalmers over how much restraint is needed, calling their relationship "professional and respectful" (Capital Brief).

Is the government spending more?

Yes, and faster than usual. Both The Guardian and The Age report that federal spending as a share of the economy is at its highest in about four decades if you leave out the pandemic years.

• The Guardian, citing the Parliamentary Budget Office, reports total government expenses rose 30% between 2021-22 and 2025-26. After inflation, spending grew 5.5% in 2024-25 and 4.3% in 2025-26.
• The Guardian reports budget deficits of just under $10 billion in 2024-25 and $22.3 billion in 2025-26, with $31.5 billion expected this financial year. The Age reports cumulative deficits of $150.5 billion projected over five years, and federal debt forecast to pass $1.2 trillion by 2030.

What's driving it. The two sides of politics and the economists quoted broadly agree on the list:

• The NDIS. Former Finance deputy secretary Stephen Bartos told The Guardian that even halving the scheme's growth to 6% a year would be a "herculean task", and still twice as fast as the economy.
• Defence, including AUKUS, amid a tougher strategic environment.
• Health and Medicare, which Bartos says "ratcheted up considerably through Covid but never really came down", plus aged care and the wider care economy.
• Interest on the debt, which The Age notes could climb further as global borrowing costs rise.

Gallagher named the same list on Sunday: the NDIS, Medicare, aged care, defence and debt interest. Her argument is that these are pressures no government this century has faced at this scale. Deloitte Access Economics partner Stephen Smith told The Guardian much of the growth is "structural" and would have happened under either party, but that this "doesn't offer the government a blank cheque".

So is it adding to inflation?

Partly, but it's not the main story right now. The ABS reported inflation of 4.3% in the year to September, well above the RBA's 2–3% target band. The Guardian reports that fuel prices, up 24% over the year after the Iran war oil shock, accounted for about 1 percentage point of that through the transport category. Underlying inflation (trimmed mean) was 3.7%, so price pressure goes well beyond petrol.

Economists quoted by The Guardian make a distinction that's easy to miss: what matters for inflation is less the level of spending than the budget balance. A government that spends a lot but taxes just as much is roughly neutral. A government running deficits is adding demand to the economy. On that rule of thumb, the widening deficits support the argument that the budget is making the RBA's job harder. How much harder is genuinely disputed, and neither economist quoted saw evidence that high spending on its own makes the economy less dynamic.

What the Coalition is proposing

Opposition Leader Angus Taylor and shadow treasurer Tim Wilson released a $31.3 billion package of savings on 26 October, costed by the Parliamentary Budget Office and covering the four years from 2028-29 to 2031-32 (ABC News, AAP, Coalition release):

• $9.4 billion from climate programs, including the Net Zero Economy Agency, parts of ARENA, EV tax concessions, the home batteries program and Scope 3 emissions reporting.
• $7.3 billion from industry subsidies, including green hydrogen and aluminium incentives, critical minerals tax credits and the National Reconstruction Fund.
• $4.7 billion from housing schemes, including Help to Buy, the Housing Australia Future Fund and build-to-rent incentives.
• $2 billion from removing welfare and NDIS eligibility for permanent residents and other non-citizens.
• $7.9 billion from tobacco changes. The Guardian describes this as a plan to cut tobacco excise sharply to draw smokers back from the illicit market; Bartos called it "incredibly unlikely" to work.

The Coalition says the package more than pays for its "Tax Back Guarantee", which would index income tax brackets to inflation and replace the $250 offset. The ABC reports it's unlikely to cover the Coalition's other promises, such as scrapping Labor's tax changes and lifting defence spending. The Guardian reports that an independent estimate puts the indexation policy's cost well above the Coalition's figure. On Sunday Wilson said the government "for every $2 it saves, it goes on and spends an additional $3" (The Age). That's his characterisation, not an independent figure.

Why it matters for Victorian households

The RBA cash rate is 4.60% after four rises this year, and the board announces its next decision at 2:30pm AEDT on Tuesday 3 November. As independent economist Chris Richardson put it to The Guardian, "somebody somewhere has to be 'stopped' from spending money". So far that job has fallen to the RBA, through mortgage holders. If Canberra doesn't tighten the budget, more of the load stays on interest rates.

Several items on both sides' lists land directly on households: EV and home battery subsidies, Help to Buy for first-home buyers, and the $250 tax offset from July. Nothing has been cut yet. These are being examined (Labor) or proposed (Coalition). For a Victorian voter, this federal fight runs alongside the state election promises ahead of 28 November.

What's next

• Tuesday 3 November, 2:30pm AEDT: the RBA decision. Our RBA explainer covers what a 0.25-point rise means for repayments.
• Coming weeks: Expenditure Review Committee meetings, per Gallagher.
• December: the Mid-Year Economic and Fiscal Outlook (MYEFO), which The Guardian calls a particularly important milestone. It will show whether savings outweigh new spending.

We'll update this page after the RBA decision and when MYEFO is released.

General information only, not financial advice. Figures are from the dated sources linked; quotes from politicians and economists are their views.