Chalmers promises to be 'helpful' on inflation but rejects blame for rate hike

Treasurer Jim Chalmers has again denied his budget is the cause of persistent inflation, after the Reserve Bank raised interest rates for the fifth time this year.

Facing political pressure over the level of government spending, the treasurer seized on the bank's assessment that public sector demand was "weaker than expected" in early 2026, the period when inflation began its resurgence.

"Public demand growth has eased quite substantially at a time when private demand has tripled," he said. 

"Our budgets are not what's putting upward pressure on inflation, but we can play a helpful role and that's what we intend to do."

Mr Chalmers has promised fresh savings in next month's mid-year budget update, but could not say whether the savings would be enough to outweigh new spending, a feat the Albanese government has not managed in any of the five years it has overseen.

"We take responsibility for our part of the fight against inflation," he said. 

"We're helping with the cost of living at the same time as we manage the budget responsibly."

Reserve Bank Governor Michele Bullock maintained her longstanding practice of avoiding direct comment on the government's budget, saying overall demand, combining public and private, remained too high across the economy.

"It's up to the government, the elected officials, to decide what they want to do with the budget," she said. 

"Independence is a two-way street. I don't tell them what to do with fiscal policy. They don't tell me what to do with interest rates."

Public demand eases, but question marks over role of NDIS

Ms Bullock said the decision on rates, which was not unanimous, was motivated by the ongoing consequences of the Middle East and domestic factors. 

The main domestic driver, though not the sole one, has been artificial intelligence investment.

The bank's updated forecasts predict business investment will grow by 12 per cent this year and public demand by just 2.1 per cent. 

The "weaker" public result was partly due to "the ending of some temporary cost-of-living measures", a staff note explained.

Also cited was a "moderation" in spending on defence, disability and aged care. 

The largest single category of savings by far under the Albanese government has been to the National Disability Insurance Scheme (NDIS), with $36 billion saved over four years in the May budget alone.

But fresh doubts have been raised over whether that saving can be achieved, after the publication of preliminary findings from the Australian Government Actuary that the $36 billion figure was subject to "considerable uncertainty".

Though cautioning that he did not have "sufficient detail" to draw a firm conclusion about the costings, actuary Guy Thorburn noted several risks, including an assumption of the numbers of children with autism entering the scheme not yet borne out by reality.

The government has not been specific about where further savings will be found in the budget.

Finance Minister Katy Gallagher said she was "looking across government" for ways to cut back, but that these would be "difficult decisions".

"We have to respond to the economic circumstances we face … [But] we're also mindful of the fact we need to support people through this as well," she said.

"I hear a lot of calls for cuts to government spending, I don't hear as many specifics about where."

Shadow Treasurer Tim Wilson said the government had a "spending addiction" and was fuelling inflation. 

"[It] will never pull in its belt, but it keeps telling Australians to pull in theirs. It stokes inflation, taxes inflation and spends inflation," he said.

While public demand is growing much slower than private demand in the Reserve Bank's forecasts, the bank does expect it to grow faster than the economy overall.

The Coalition has proposed $31 billion in spending cuts, including scrapping the subsidy for home batteries and the tax discount for electric vehicles. But the total figure is less than the cost of other new policies the Coalition has proposed.