Budget cuts could be on the way as Albanese government eyes off ’sensible savings’

As inflation continues to cause chaos in the economy, key ministers are dancing around whether the upcoming budget could include cuts.

Inflationary pressure, growing structural deficits and “booby traps” have left the federal government searching for “sensible savings” ahead of the upcoming budget.

Finance Minister Katy Gallagher refused to label the decisions being weighed up by the government’s razor gang as budget cuts when asked on Thursday.

“The pressures coming towards the budget are increasing, not decreasing,” she told ABC Radio.

“So that requires us to have a look at current expenditure, where it is, what the priorities are, where some of that can be reprioritised into these new and emerging pressures.

“But also, there are areas where we can make sensible savings.

“I’m not going to pretend it's easy, it is not easy.”

Finance Minister Katy Gallagher would not say if the upcoming budget would include cuts. Picture: NCA NewsWire / Gary Ramage

The government is due to hand down its second budget in May. Treasurer Jim Chalmers on Wednesday said the government would “look for opportunities to trim spending more substantially”.

Ahead of the October budget, Labor found more than $20bn in savings and banked a majority of the additional revenue brought in by high commodity prices.

Senator Gallagher said the pair were “determined” to deliver a restrained budget but lashed the former government for leaving behind policy potholes.

“We’ve got a whole range of booby traps that were left by the former government for us that we are working through now,” Senator Gallagher added.

“You know, this list of terminating pressures or programs that aren’t terminating for a start, which certainly dressed up how the budget balance looked over time.”

Inflation is continuing to cause chaos in the economy.

While Australia is expected to have passed the inflation peak, the government does not want to flame pressures by ramping up spending.

Inflation reached a three-decade high of 7.8 per cent in December, well above the Reserve Bank’s 2 and 3 per cent target rate.

The central bank has since handed down 10 consecutive hikes since May, raising the official cash rate to an 11-year high of 3.6 per cent this week, in a bid to curb skyrocketing inflation.

Governor Philip Lowe suggested a pause in the tightening cycle could be on the horizon should the upcoming jobs and inflation data be favourable.

“They’re going to continue to look as the data comes in, and they make their decisions accordingly. So, I don’t think that’s necessarily a surprise,” Senator Gallagher said.

National accounts figures, released last week, revealed the Australian economy grew just 0.5 per cent in the final three months of 2022.

It was well below what economists had predicted, spiking concerns there was a real risk the economy could contract this year.

Senator Gallagher noted it was clear interest rate rises had impacted the economy.

“We make sure that our decisions are working hand-in-hand with monetary policy to ensure that we’re doing the job that we need to do. Part of our responsibility, and that’s feeding into decisions, obviously, that we’re taking in this budget,” she said.