Did you just have a tight Christmas? Blame Labor’s reckless spending spree

Pay packets are not going as far as they used to and we now find ourselves in an individual recession, courtesy of nearly two years of negative per capita economic growth, writes Saxon Davidson.

Like a disappointed parent at Christmas dinner, MYEFO delivered some home truths to Jim Chalmers he has been seeking to avoid during his time as federal Treasurer.

With forecast deficits of $143 billion across the forward estimates, and federal government debt set to soar to $1.16 trillion in 2026, Chalmers’ self-styled image as a reformist, economic visionary has been well and truly erased.

Australians are doing it tough this summer. Pay packets are not going as far as they used to and we now find ourselves in an individual recession, courtesy of nearly two years of negative per capita economic growth.

On top of this, the debt pile that has been run up by consecutive governments will be left to our children, and their children, to pay back.

There are three key reasons why mainstream Australians have arrived at this economic cliff edge – reckless government spending, a collapse in private sector investment, and an out-of-control migration program.

Treasurer Jim Chalmers delivers his post-budget address at the National Press Club.

Institute of Public Affairs’ research shows that federal government spending under the Albanese government has averaged over $70 billion per quarter. This is 50 per cent higher than the quarterly average between 2013 and 2020.

On top of all this government spending, post-pandemic, there has been an explosion in the number of public servants employed around Australia. Between August 2022 and August 2024, 82.1 per cent of new persons employed were in the public sector. Whereas, between August 2014 and August 2022, 76.5 per cent of new persons employed were in the private sector.

Canberra does great off the public employment surge. The rest of us? Not so much. Photo: Getty

The post-pandemic explosion in public sector employment is a worrying sign for the true health of Australia’s economy and the private sector. This expansion, coupled with unprecedented levels of government spending – both fuelled by debt – is dragging Australia’s economy down.

There has been a profound shift in the foundations of the Australian economy. Today there is an unprecedented over-reliance on taxpayer and debt funded government spending, which is now the largest share of the economy and the biggest contributor to economic growth.

This is unsustainable. Since the election of the Albanese government, private sector investment and net exports as a proportion of overall economic growth has collapsed to just 6 per cent, while government spending, at all levels, contributes to an utterly unsustainable 55 per cent to overall economic growth, higher than any government on record. The remaining percentage is contributed by household expenditure, which is lower now than what it was under the Howard and Rudd/Gillard/Rudd governments.

This is what leads the Treasurer to claim that without the current levels of government spending, Australia would be in an economy wide recession. What that claim really reveals is the federal government’s lack of an economic plan to lift living standards beyond its current reliance on government spending, which only addresses the symptoms of living standard decline, and fuels long term inflation.

Only the private sector can drive meaningful and sustained economic growth. Yet, in the post-pandemic period the private sector is being crushed by ever-growing bureaucracy and regulation. Now more than ever, it is critical that federal and state governments cut spending and red tape, as well as putting policies in place which deliver sustainable economic growth based on increased productivity.

Exacerbating the inflationary effects of reckless government spending has been Australia’s out-of-control migration program. For the last two years, the Albanese government has taken in a record number of migrants, which has been completely unplanned for. This program has fuelled a perfect storm of high inflation, declining living standards, and ever-higher house prices and rents.

Relying on government spending and unplanned mass migration to grow the overall economic pie is of no benefit to everyday Australians if the slice of the pie they receive shrinks at the same time.

Far from an era of fiscal responsibility, MYEFO confirms Jim Chalmers’ budgets have been driving debt, deficits, and inflation, all while living standards nose-dive and interest rates remain elevated.

If an election were held today, the Albanese government would be the only federal government on record to oversee an absolute decline in GDP per capita over the course of its term in office.

We cannot simply spend our way to long-term, sustained economic prosperity. Without a fundamental change in economic policy, Australia will continue to experience unprecedented debt levels and personal recession.

This debt will have to be serviced and paid-off by future generations, which will weaken the nation’s ability to deliver infrastructure and the basic services the community expects for decades to come.

Saxon Davidson is a Research Fellow at the Institute of Public Affairs