Australia's Treasury is being pressed to explain whether cutting public spending could help reduce inflation. Deputy Opposition Leader Jane Hume has referred to modelling by the Reserve Bank of Australia (RBA) that suggests the economy could benefit from reduced government spending.
What happened
During a Senate Estimates Economics Legislation Committee hearing, Hume asked Treasury Secretary Jenny Wilkinson if she agreed with the RBA's assessment that lower government spending would generally reduce aggregate demand and ease inflationary pressures. Wilkinson argued that the impact of government spending on the economy is complex and depends on various factors, including the relationship between public and private demand and changes in the government's underlying cash balance.
Hume also questioned Wilkinson about whether the government had conducted any economic modelling to show how lower government spending could help reduce inflation. Wilkinson pointed to the multitude of factors that the government considers when making economic forecasts, including the projection of the underlying cash balance and the details of government spending.
Finance Minister Katy Gallagher noted that the government's approach to the economy has resulted in an improving underlying cash balance, which is reducing pressure on the economy. The federal government reported a total expenses of $812.1 billion in 2025-26, with an underlying cash deficit of $22.3 billion, which was $6 billion lower than forecast.
