Treasury officials have pointed to the federal budget’s improving balance amid questions from the opposition about the Labor government’s spending and its impact on inflation.
Questions were raised by Deputy Opposition Leader Jane Hume during a Senate Estimates Economics Legislation Committee hearing on Oct. 28.
Hume cited a letter from the Reserve Bank of Australia (RBA) to the House Economics Committee in September, which stated that lower government spending would generally reduce aggregate demand, easing inflation.
“Can I ask if you agree with the RBA, that in general, lower government spending would reduce aggregate demand and tend to reduce inflationary pressures?” Hume asked Treasury Secretary Jenny Wilkinson.
But Wilkinson argued that assessing the impact of government spending on the economy required considering the relationship between public and private demand, as well as changes in the government’s underlying cash balance.
“So it does matter what the spending is on, but it also matters what the aggregate fiscal position is,” she said.
Hume further questioned Wilkinson as to whether the government had conducted any economic modelling to show how lower government spending could help ease inflation—something the RBA had done.
But Wilkinson again pointed to a multitude of factors that the government had to consider.
“In every budget update, we take the projection of the underlying cash balance and the details of government spending, and we incorporate those in our macroeconomic forecasts,” she said.
When pressed further by Hume, Wilkinson said it was not a question that could be answered in a “general” sense.
Finance Minister Katy Gallagher then pointed to the government’s approach to the economy, saying every budget presented a better underlying cash balance (UCB).
“But if you look in aggregate at the impact of the UCB, you will see that our decisions and the savings is reducing pressure because we are improving the bottom line,” she said.
The federal government reported total expenses of $812.1 billion in 2025–26, while its underlying cash deficit was $22.3 billion, according to the Final Budget Outcome.
The deficit was $6 billion lower than forecast, with higher-than-expected receipts and lower-than-expected cash payments contributing to its improvement.
