Australian federal spending has jumped 30% between 2021-22 and 2025-26 according to the parliamentary budget office. Even after adjusting for inflation, expenditure grew 5.5% in 2024-25 and 4.3% in 2025-26. Public expenditure as a share of GDP now sits at its highest since the early 1980s, excluding the pandemic spike. The opposition's framing of "out-of-control spending" is theatrically convenient, but the underlying numbers are real. Three structural drivers dominate: defence spending, responding to geopolitical pressure; the NDIS, where even a halved growth rate of 6% per year still doubles the pace of economic growth; and health expenditure, which ratcheted up during Covid and never came back down. Added to these are rising care economy costs, debt interest payments, and a more generous pharmaceutical benefits scheme. These are not discretionary line items a new government can simply cancel. The inflationary pressure matters because the budget is in deficit — nearly $10 billion in 2024-25, $22.3 billion in 2025-26, and a projected $31.5 billion this financial year. When a government runs deficits, it adds demand to the economy, making the Reserve Bank's inflation fight harder. Headline inflation hit 4.3% in the year to September, up from 4%, with underlying inflation at 3.7% — well above the RBA's 2.5% target. A fourth rate hike appears certain. The opposition's response is a $31 billion savings package over four years that targets climate subsidies, EV support, housing measures, and critical minerals programs — politically charged cuts that economists say won't shift the inflation dial. The package includes an assumption that slashing tobacco taxes by 80% would raise $7.9 billion by luring smokers from the black market — a claim dismissed by fiscal experts as "incredibly unlikely." Meanwhile, the Coalition's "tax-back guarantee" to index income tax thresholds to inflation carries a more credible cost estimate of $35 billion over four years, rising potentially to $44 billion in a single year within a decade. This would widen deficits, not close them. The government's position is scarcely more coherent. Treasurer Chalmers points to savings made and better-than-expected bottom lines, but has offered no credible path to surplus. Raising taxes would help beat inflation but is politically toxic. The December mid-year budget update looms as a test of whether the government has a fiscal strategy or merely a communications strategy. Economists interviewed offer a clearer diagnosis than either party. Stephen Bartos, former deputy finance secretary, would introduce a carbon tax, reform the petroleum resource rent tax so gas companies pay their fair share, tighten program eligibility, and continue cutting consultant spending. Stephen Smith of Deloitte Access Economics notes that the deeper problem is stagnant productivity, where tax and regulatory settings matter more than the headline spending number. Both dismiss the claim that high government spending inherently crowds out private activity — Sweden being the obvious counterexample. The honest reading is uncomfortable for both sides. Spending is structurally higher and will stay that way. The deficit is stimulatory at exactly the wrong time. Neither party's announced plans address the actual cost drivers. And underneath the fiscal argument sits the harder truth: Australia's productivity has stalled, meaning the economy cannot grow its way out of the bind. The fiscal question and the productivity question are the same question, and neither Canberra party is answering it.
