Prime Minister Anthony Albanese has demanded ministers find savings and delay spending to avoid adding fuel to the inflation fire ahead of a budget that insiders say will be pitched as a belt-tightening exercise.
After months of Coalition arguments that near-record high public spending is keeping prices elevated, this masthead has spoken to 10 members of the ministry, granted anonymity to discuss inner workings, who say Labor’s razor gang is applying a heightened level of rigour to the May budget.
A cash injection needed to fulfil Labor’s promises to fix the crumbling aged care system may not be available all at once due to the squeeze, reflecting the difficulty of catering for an ageing population while funding projects such as AUKUS. The e61 Institute think-tank warned last week about a shift away from means-tested services to a European-style non-means tested welfare system that was straining the budget.
Labor is also considering applying its new lower growth rate for the NDIS of between 5-6 per cent, or even slightly lower, into budget forecasts to reap savings in the $52 billion program that senior ministers fear will not be able to exist in the long run if it is not trimmed.
The normal budget request that any spending is offset by savings is being enforced more strictly by Treasurer Jim Chalmers and Finance Minister Katy Gallagher, and the Expenditure Review Committee is pushing ministers to find ways to focus on their biggest expenses, not just nips and tucks.
Several sources said Albanese had made clear in a cabinet meeting in January that ministers needed to wind back spending after last year’s focus on delivering expensive election promises.
One minister said: “There won’t be any nice-to-haves. I think everyone agrees internally this is politically and economically the right time to pare back… It will probably be pitched by Jim [Chalmers] as ‘this is the tough budget the times require’.”
Another government source said the budget process was “intense – it’s line-by-line”, and that Chalmers was examining how to turn around the flat rate of productivity, while also looking at tax changes such as winding back the capital gains tax discount.
Opposition Leader Angus Taylor and shadow treasurer Tim Wilson are likely to portray Labor’s focus on restraint as too little too late as they aim to re-energise the Coalition’s agenda on economic management.
Rising inflation and the prospect of more rate hikes have set up a political contest on budget management after Labor last year boasted it had turned the corner on inflation. Chalmers pressured the opposition into opposing income tax cuts when Taylor was shadow treasurer, diminishing the party’s fiscal credentials.
A spokesman for the treasurer said: “We don’t comment on discussions in cabinet or its committees. We have found savings in every budget and budget update since coming to office and the treasurer has said publicly there’ll be a focus on savings and spending restraint in the budget in May.”
The restraint extends across all portfolios, from defence to intelligence to infrastructure, and the cabinet is also trying to defer spending so that money is not being injected into the economy as inflation remains stubbornly high and interest rates threaten to rise again this year.
Some ministers have grumbled about their spending requests getting knocked back by the ERC, but Albanese has been firm in private that new spending would come once ministers met the expectations he set for them after the election in letters outlining their portfolio goals.
The government has faced consistent calls from the opposition and some economists to take heat out of the economy by reducing its spending level from 26.9 per cent of GDP, the highest since the mid-1980s outside the pandemic.
Others, including the Grattan Institute, have made the point that a large proportion of the new outlays are dedicated to services for older people and for those with disabilities, meaning major spending cuts are not as straightforward as suggested by more hawkish fiscal thinkers.
Health Minister Mark Butler’s goal of crunching the NDIS yearly growth rate down to 5-6 per cent, down from 8 per cent, was ratified at a national cabinet meeting last month, giving Labor the option of putting it in budget forecasts. Some in the government want even lower growth forecasts, closer to 4 per cent, as Butler works to create a new state-based model to care for children with mild developmental problems.
The government has claimed that it has saved $114 billion in recent years, a significant amount after two surpluses and three Coalition governments that did not deliver a surplus. But one minister and one Labor backbencher, speaking on the condition of anonymity, said the government had not been disciplined enough and relied on tens of billions in surprise revenue boosts to generate surpluses.
Independent economist Saul Eslake said Chalmers and Gallagher had been fortunate that the pre-election budget delivered by the Morrison government was ultra-conservative in revenue forecasts.
“Hence in Labor’s first two budgets they did well to ‘bank’ over 80 per cent of the ‘windfall’ revenue gains from upward revisions to those forecasts, enabling them to produce budget surpluses,” he said.
“However the fiscal discipline started to slip in the 2024-25 budget, when only 52 per cent of windfall gains were banked, and it disappeared entirely in the pre-election 2025-26 budget.”
Eslake said it was a mistake for Labor to “abandon” concrete fiscal rules and continued a trend of previous governments to move away from means-tested services towards a more European-style universal system. Crucially, he said, Australia’s consumption tax, the GST, was about half the rate of those in Europe, meaning Australia did not have the revenue needed to run such generous services.
Cut through the noise of federal politics with news, views and expert analysis. Subscribers can sign up to our weekly Inside Politics newsletter.
Paul Sakkal is chief political correspondent. He previously covered Victorian politics and has won Walkley and Quill awards. Reach him securely on Signal @paulsakkal.14Connect via X or email.