Australia’s opposition leader has intensified criticism of government spending, claiming it is driving a cost-of-living crisis. This accusation gained traction following data released Wednesday showing inflation climbed to 4.3% in the year ending in September, up from 4% the previous month, with underlying inflation reaching 3.7% quarterly. Rising petrol and diesel prices contributed substantially to these figures, both measures exceeding the Reserve Bank’s 2.5% target and prompting expectations of a fourth interest rate increase.
Government expenditure has indeed expanded significantly in recent years. Total federal spending increased 30% between 2021-22 and 2025-26, according to the parliamentary budget office, with real spending growth of 5.5% in 2024-25 and 4.3% in 2025-26. Public spending now represents its highest share of the economy since the early 1980s, excluding pandemic-related outlays. Primary drivers include defense spending amid geopolitical tensions, the national disability insurance scheme, and health expenditures that expanded during the pandemic and have remained elevated. Additional pressures stem from care economy spending and growing interest payments on national debt.
However, economists caution against attributing inflation solely to spending levels. The relevant factor, according to economic analysis, involves the budget position rather than spending magnitude alone. The government is currently running deficits—nearly $10 billion in 2024-25, $22.3 billion in 2025-26, and a projected $31.5 billion in the current financial year—which can stimulate demand and contribute to inflationary pressure. Some analysts note that rising fuel costs have disproportionately affected recent inflation figures and question whether spending would face equivalent scrutiny under different economic conditions.
Experts also dispute the theory that high government spending necessarily impairs economic dynamism or inflation outcomes, citing international examples and noting a lack of empirical evidence for such crowding-out effects. The opposition Coalition has proposed a $31 billion savings package over four years, including cuts to climate programs, electric vehicle subsidies, and NDIS payments to non-citizens, alongside a controversial plan to reduce tobacco taxes significantly.
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