'No area exempt': Nothing off limits as Labor hunts for savings ahead of RBA meeting

Saying no area of government spending is exempt means Labor will not automatically shield any department, program or policy from possible savings. Each area can be reviewed as the government tries to improve the budget position. The approach matters because public spending is high while inflation remains above the Reserve Bank’s target band.

Finance Minister Katy Gallagher said, “I would not say that any area is exempt.” She also said the government was doing substantial work on the saving side. That does not mean every program will be cut. It means ministers must justify spending and consider reductions, changes or tighter eligibility where savings are possible.

The pressure is likely to intensify before December’s mid-year budget update. Government spending reached 26.9 per cent of GDP in 2025/26, its highest share in four decades outside the pandemic. Labor must balance savings against other goals, including renewable energy and cost-of-living support.

Labor is facing pressure from both the size of government spending and the speed of price increases. Federal spending reached 26.9 per cent of GDP in 2025/26. That was the highest proportion in four decades outside the COVID-19 pandemic. Inflation is also well above the Reserve Bank’s 2–3 per cent target band.

The headline annual inflation rate was 4.3 per cent in the year to September. The Reserve Bank’s preferred quarterly trimmed-mean measure rose 1 per cent, beating its 0.8 per cent forecast. These figures suggest price pressures were stronger than expected rather than quickly fading.

The combination creates a difficult policy problem. Cutting spending could help demonstrate budget discipline, but programs may support households or long-term priorities. Meanwhile, persistent inflation has increased expectations of another interest-rate rise, which would add pressure to borrowers and the wider economy. Some inflation pressures, including the Middle East oil shock, are outside Canberra’s control.

The government is being urged to reduce spending because prices are rising faster than the Reserve Bank wants, while federal spending takes a large share of national output. Inflation came in hotter than expected in the year to September. Critics therefore argue that tighter government spending could show restraint and reduce demand pressures.

The figures explain the concern. Annual headline inflation reached 4.3 per cent. The quarterly trimmed mean, the Reserve Bank’s preferred measure, was 1 per cent against its 0.8 per cent forecast. Federal spending was 26.9 per cent of GDP in 2025/26, excluding the pandemic years when spending was unusually elevated.

December’s mid-year budget update provides an opportunity to announce savings. The government cannot directly control every price pressure. The article highlights the Middle East oil shock and ballooning artificial-intelligence investment. Still, Labor is being asked to tighten its belt where it can, while preserving programs linked to cost-of-living and energy goals.

The cash rate is the Reserve Bank’s main interest-rate setting for influencing economic conditions. It affects the cost of funding in financial markets and flows through to many household and business loans. When inflation is too high, the Reserve Bank can raise the rate to restrain demand and help bring price growth back toward its target.

The latest figures increased pressure for action. The quarterly trimmed mean rose 1 per cent in September, above the Reserve Bank’s 0.8 per cent forecast. Annual headline inflation reached 4.3 per cent. Both results were stronger than hoped, and inflation was tracking outside the bank’s 2–3 per cent target band.

As a result, expectations grew that the Reserve Bank would raise the cash rate on Melbourne Cup day. The article says this could take the rate to its highest level in 18 years. The decision reflects persistent inflation, although some pressures, such as the Middle East oil shock, are largely outside government control.

When the cash rate rises, borrowing generally becomes more expensive. Mortgage holders can face higher repayments, while businesses may pay more to finance investment and day-to-day operations. The article directly warns that another increase would pour more pain on borrowers.

Higher repayments leave households with less money for groceries, services and discretionary purchases. Businesses may delay investment or hiring because finance costs are higher. These effects reduce demand across the economy. They can also place extra pressure on households already dealing with fast-rising prices, although the article does not quantify the size of those effects.

The Reserve Bank uses this mechanism to help slow inflation. Weaker demand can reduce pressure on prices, but it can also slow economic growth. The latest inflation figures increased expectations of a rise to the highest cash rate in 18 years. That would make the government’s spending and cost-of-living decisions more difficult.

Labor is defending electric-vehicle tax breaks and home-battery subsidies because it sees them as tools for broader policy goals. Gallagher says they support the renewable-energy transition and the electrification of the economy. She also says some evidence shows the programs help people in outer-city and regional areas reduce energy bills.

The programs have become much more expensive as demand exceeded expectations. The home-battery scheme is now forecast to cost $7.2 billion over four years, more than three times its original estimate. High-income earners’ uptake has led critics to call the measures middle-class welfare and demand means-testing.

Labor has responded by capping the value of eligible electric vehicles and tightening the battery rebate program. Even so, the cost remains high. The government must now weigh savings against environmental and energy objectives. The schemes may face further scrutiny as Labor searches every spending area for budget reductions.

These forces are connected through demand. When government spending rises, it can support households, services and investment, but strong overall demand can add to price pressure when supply is limited. Inflation then becomes a concern for the Reserve Bank, which can raise the cash rate to cool borrowing and spending. This relationship is a general economic explanation; the article does not measure the government’s direct contribution to inflation.

The article gives a clear snapshot of the tension. Spending reached 26.9 per cent of GDP in 2025/26, while annual inflation reached 4.3 per cent. The trimmed mean was 1 per cent in September, above the RBA’s 0.8 per cent forecast. Those figures increased expectations of a rate rise.

Higher rates can reduce household and business demand, helping inflation but potentially slowing growth. That can make borrowers worse off and weaken investment. Labor is therefore searching for savings while defending programs for renewable energy and lower bills. The challenge is balancing price stability, growth, budget discipline and targeted support.