Highlights

  • Wilkinson told Senate Estimates real government spending grew 1.3% in the latest year, against a 2.9% median this century.
  • She attributed inflation mainly to global events and private investment, including AI and data-centre spending, not government spending.
  • Liberal Senator Jane Hume argued spending is high by historical standards, and Treasury offered no cumulative spending-versus-savings figure.
  • Chalmers promised further savings in MYEFO while pointing to legislated income tax cuts as cost-of-living relief.

Is Canberra spending too much, or is something else pushing prices up? On 28 October, Treasury Secretary Jenny Wilkinson gave the Senate Economics Legislation Committee her answer: real government spending grew just 1.3% in the latest year, against a median of 2.9% this century. Hours later the ABS reported annual inflation of 4.3%. The two data points now sit at the centre of a political fight that runs straight into next week's Reserve Bank decision.

What Wilkinson told the committee

Wilkinson appeared on Wednesday morning. She said inflation is being driven mainly by global events and private investment rather than government spending, citing AI and data-centre investment and the fallout from the Middle East war. She described household spending as "subdued", according to reports of the hearing, which are live accounts rather than an official record. Her precise wording awaits the official Hansard proof.

On where spending growth has come from, she pointed to the National Disability Insurance Scheme, health, defence and "the Fuel Tax Credit" across 2024-25 and 2025-26.

The Opposition's case

Liberal Senator Jane Hume argued at the hearing that spending is high by historical standards.

The distinction matters. A low growth rate in one year can sit beside a high level of spending, measured as a share of the economy, built up over earlier years. Wilkinson's figure compares growth rates, while Hume's argument concerns the level. Asked whether the government had spent more than it had saved, Wilkinson said Treasury did not have a cumulative figure, and the question went to its macroeconomic group. Treasurer Jim Chalmers cites "almost $180 billion in savings" since taking office, including more than $60 billion in this year's Budget, but those are government figures.

Real versus nominal growth

"Real" growth strips out price rises, so it can look very different from the dollar figures in the budget papers. Suppose a hypothetical category of spending rises from $100 billion to $105.7 billion in a year, which is 5.7% in nominal terms. If the prices of what the government buys rose 4.3% over the same period, real growth is about 1.3%, since 1.057 divided by 1.043 gives about 1.0134.

The inflation backdrop

The ABS put annual CPI inflation at 4.3% in the year to September, up from 4.0% in August, with trimmed mean inflation at 3.6%, still above the RBA's 2-3% target band. That suggests price pressure is not confined to fuel, which the ABS said is up 23.6% over the year. Electricity rose 12.8%, "largely due to the ending of Commonwealth electricity rebates", so some pressure reflects temporary support ending.

Chalmers echoed his department, putting private demand at four-fifths of the total, and said budgets "aren't the primary driver of prices in the economy".

Why it matters for tax and the budget

If the government accepts that spending needs restraint, savings may come from cutting programs, deferring spending or raising revenue. Chalmers has promised further savings in the Mid-Year Economic and Fiscal Outlook, usually released in December, and points to income tax cuts: the lowest marginal rate fell from 16% to 15% on 1 July 2026 and is scheduled to reach 14% from 1 July 2027.

Several tax bills are also before Parliament, including the Treasury Laws Amendment (Tax Reform No. 4) Bill 2026, introduced on 27 October. The government says that package builds on "$3.8 billion" in business and start-up tax relief. The RBA board meets on Monday 2 November, with its decision on Tuesday 3 November.