Government will not promise net savings in budget update, despite inflation pressure

Finance Minister Katy Gallagher says growing pressures on the federal budget mean the government cannot promise it will find overall savings in its December update, even as Australians brace for another interest rate rise amid ongoing high inflation.

On Wednesday Treasurer Jim Chalmers also refused to commit to net savings in the mid-year budget update following a worse-than-expected inflation figure of 4.3 per cent over the year to September, which lifted expectations of another rate hike when the Reserve Bank meets on Tuesday.

The finance minister told ABC Insiders despite pressure being put on the government to rein in its spending, she would not pre-commit to overall savings.

"I can't, I don't want to pre-empt the [Expenditure Review Committee] process. We will go through that ... but there is enormous effort being placed, particularly by Jim and myself on the savings side," Senator Gallgher said.

"We are doing a lot of work on the savings side but I can’t get ahead of decisions that haven’t been made yet."

The minister rejected suggestions the pressure to find savings was causing tension inside cabinet, saying it was healthy for ministers to have "robust" debate and bring different perspectives.

Senator Gallagher added that the government's record in each of its previous budgets and mid-year updates had been to deliver overall improvements to the budget, and that in recent budgets its policy decisions had also found more savings than new spending.

The Reserve Bank's chief economist said last week that government spending remained a contributor to ongoing inflation, even if the government points to the war in Iran as the "primary driver".

The treasurer has previously warned that the cost of borrowing would add billions of dollars in additional costs to the budget, as long-term expectations that global interest rates would remain higher for longer were priced into bonds.

Senator Gallagher said other pressures on the budget were also growing, including in health and aged care.

She said the government's spending measures in those pressure areas were necessary to rescue a Medicare system "in freefall" and clear processing backlogs for veterans.

"If you go back to … the Howard era, you know, they were not dealing with AUKUS, they were not dealing with aged care," Senator Gallagher said. 

"They weren't dealing with Medicare falling over there, all of these pressures that are coming. So there has to be some acknowledgement of that. We are living in a different world."

The government maintains that the budget is helping to tackle inflation.

However ahead of his departure to Antigua and Barbuda for the Commonwealth Heads of Government Meeting, Prime Minister Anthony Albanese acknowledged that the Reserve Bank only had a single "blunt instrument" in the inflation fight.

The remaining levers to reduce demand in the economy rest with federal and state governments.

Opposition Leader Angus Taylor told radio station 2GB that the government could do more to avert further rate rises.

"The government can commit tomorrow to take pressure off interest rates and inflation, that would send a strong signal to the Reserve Bank [that] they don't need to raise," Mr Taylor said.

"But they won't do it."

The Reserve Bank's chief economist Sarah Hunter said last week that state and federal government spending was "definitely" contributing to demand pressures in the economy, before adding that it was not the RBA's place to advice government on its spending.

Frontbench minister Murray Watt told News24 demand growth in the economy tripled in the private sector last financial year, while government demand growth halved.

"The substantial portion of the growth in spending in the economy is happening in the private sector rather than in the public sector. Now, I'm not being critical of people who are spending money, going to restaurants, buying a car, whatever it is that they're they're spending money on. But that's where most of the spending [growth] is happening," Senator Watt said.

"And that, of course, is contributing to inflation, as is fuel prices."