Government will not tell splurging states how to spend money, Gallagher says

Finance Minister Katy Gallagher has acknowledged public spending was partly fuelling inflation, but is downplaying the federal government’s role.

Finance Minister Katy Gallagher has acknowledged public spending was partly fuelling inflation, but downplayed the federal government’s role.

Earlier this week, Reserve Bank Governor Michele Bullock said state and territory governments made up the bulk of public spending, but noted it was “not the main game.”

Asked if the federal government was urging states and territories to be more frugal, Senator Gallagher told reporters her job was to “really focus on the federal budget.”

“I mean, the Treasurer and I don’t really tell other administrations, other governments, how to do their job,” she said.

“But our focus is really on making sure that our budget wasn’t inflationary, but that it helped people with cost of living at the same time.”

Senator Gallagher pointed to the RBA governor’s caveat that governments splashing cash “wasn’t the most important factor.”

The minister also sought to minimise the Albanese government’s role, saying that new federal government spending was a drop in the ocean.

”From our point of view, in what is a $2.7 trillion economy, the net new spending in this budget this year was about $11bn in the Commonwealth,” she said.

“And that is because we are particularly mindful of the need to be prudent in our decision making, but also make sure that we can deliver services and provide cost of living relief, but not in a way that makes the Reserve Bank’s job harder.”

‘Public demand is not the main game at the moment,’ RBA Governor Michele Bullock told a parliamentary committee on Friday. Picture: NewsWire / Martin Ollman

The Albanese Government has faced a wave of criticism from the Coalition over its economic management following the RBA’s decision to hold rates at 4.35 per cent, with the opposition bandying about claims public spending was fuelling inflation and that there was a rift between the RBA and the Treasury.

But when pressed on government spending by a parliamentary committee on Friday, Ms Bullock said home building, household consumption and trade were of greater concern.

“Public demand is not the main game at the moment,” Ms Bullock said.

“The uncertainties around consumption, the uncertainties around residential construction, the uncertainties around trade … these are the things that can be critical to the evolution of the economy, inflation over the next couple of years.”