Podcast Summary: Is government spending really driving inflation?

Podcast: The Morning Edition
Episode Date: February 12, 2026
Host: Jacqueline Maley (A), with Shane Reich (B), Chief Economics Correspondent, and Natasia Chrysanthos (C), Chief Political Reporter

Overview: Main Theme and Purpose

This episode tackles a heated question in Australian politics and economics: Is federal government spending responsible for driving inflation and, by extension, rising interest rates? Host Jacqueline Maley is joined by Shane Reich and Natasia Chrysanthos, who recently investigated the federal budget's "blowouts" and the relationship between government outlays, inflation, and political narratives. The discussion looks at where spending has increased, the causes, and whether this is influencing inflation—or whether private sector activity is to blame. The episode also touches on looming fiscal reform, notably possible changes to capital gains tax, and what’s at stake politically as the May budget approaches.

Key Discussion Points and Insights

The Political Blame Game and Government Spending

• The opposition claims that Labor government spending is fueling inflation and thus leading to higher interest rates, which is unpopular among mortgage holders (02:37).
• Government defends itself by stressing private sector spending’s role; Treasurer Jim Chalmers highlights consumer and business demand rather than public spending (03:03).
• Both sides, and the Reserve Bank, are scrutinized for the accuracy of their budget forecasts and spending assumptions (04:18).

Quantifying the Budget Blowout

• The team compared forecasts from the Morrison-Frydenberg (Coalition) government with actual and projected spending under Labor:
  • "According to the December forecast... the government will spend about $787 billion this financial year, $100 billion more than Frydenberg predicted, $58 billion more than what Chalmers expected, and $9 billion more than forecast in March last year." (04:29)
• Some of this is due to undercounted, delayed, or unavoidable costs—e.g., veterans’ compensation—rather than conscious new largesse (05:17).

Major Cost Drivers: Where Spending Has Surged

NDIS (National Disability Insurance Scheme)

• NDIS costs have skyrocketed:
  • "$52 billion this financial year—43% more than was forecast four years ago." (06:56)
• Root issues:
  • More people are using the scheme than anticipated.
  • It's "very loose," demand-driven, and suffers from inadequate checks (07:23, 08:03).
  • “We had it grow at 20% a year for the last few years...it’s just under 10% now.” (08:03)
• There are state/federal mismatches—responsibility for some disability supports fell to federal NDIS rather than remaining state-based (08:01).

Childcare and Health

• Childcare spending is up 53% over four years ($16.2 billion this year) due to:
  • Expanding subsidies
  • Wage rises for childcare workers (09:28)
  • Public policy choice to support incomes in lower-paid, predominantly female industries
• Health:
  • New investments in Medicare, including urgent care clinics and an $8.5 billion boost to rebates (10:34)
  • Medicines cheaper via lower co-payments
  • State-level hospital funding deal: "$25 billion extra over five years" (10:44)
• The demographic reality of an aging population also weighs heavily on health budgets (11:42).

Equity and Policy Design

• Health funding increases are linked to bulk billing and targeted at those most in need:
  • “This government subsidy is ensuring that a vulnerable person...doesn’t pay out of pocket and can see a GP.” (13:35)
• Childcare, by contrast, is more likely to inflate fees unless better regulated.

So, Is Government Spending Fueling Inflation?

• No simple answer. The RBA and economists say:
  • Private sector accounts for about 75% of spending (14:08).
  • Recent inflation surprises have come from robust private sector demand, not government (14:53).
  • Government spending is “about what we thought it was going to be.” (14:53)
• But the political pressure remains: "Ultimately, governments are always blamed for inflation. And that feeds into interest rates." (18:30)

The Politics Ahead: Vulnerabilities & Fiscal Reform

• Labor is politically exposed to claims of being a "big-spending, big-taxing" government as May budget approaches (16:35).
• There’s increasing talk about tax reform, specifically capital gains tax (CGT) changes, especially as it relates to property (18:30, 20:09).
• Government might bundle CGT tweaks with broader tax cuts to offset or neutralize opposition attacks (22:33, 23:02).
• Smaller, targeted tax cuts—“not worth a milkshake and a sandwich”—are unlikely to meaningfully increase inflation (23:33).

Notable Quotes and Memorable Moments

• On political framing:
  • “It’s part of a political attempt, basically from the coalition, to blame Labor for the interest rate rise, essentially, which is hurting mortgagees across the country.”
    — Jacqueline Maley (02:37)
• On blowouts in budget forecasting:
  • “There was accounting trickery in Josh Frydenberg’s last budget that basically made the forward estimates seem much lower than actually they were always going to be...”
    — Jacqueline Maley (06:02)
• On NDIS as a runaway cost:
  • “It’s a very loose scheme...and you have all these structural issues with the NDIS.”
    — Natasia Chrysanthos (07:23)
• On the private sector and inflation:
  • “The private sector accounts for about 3/4 of all spending. Michelle Bullock actually made the point saying, we’ve looked at it, government spending is about what we thought it was going to be. Private sector is what surprised us.”
    — Shane Reich (14:53)
• On politics vs. policy:
  • “No, and I don’t mean to criticise because we value nuance and uncertainty in this podcast. We sit and we have space for it. Stop it. We do.”
    — Jacqueline Maley (16:35)
• On the government's vulnerability:
  • “Ultimately, governments are always blamed for inflation.”
    — Shane Reich (18:30)
• On capital gains tax reform:
  • “There are five or six different options that are being examined...You could write a tiny story about all the different options, but there are a large number of options that are going on.”
    — Shane Reich (20:09, 20:48)
• On tax cut impacts:
  • “The tax cut that’s coming is...not worth a milkshake and a sandwich. It is that small.”
    — Shane Reich (23:33)
• On bundling tax and CGT reform:
  • “Basically, the government would put through a suite of reforms and they would chuck them all into the same legislation…So if the coalition was going to vote against the CGT changes, they would also have to vote against...a tax cut for ordinary Australians.”
    — Jacqueline Maley (24:43)

Timestamps for Key Segments

| Timestamp | Segment | |------------|--------------------------------------------------------------| | 00:02 | Introduction & episode focus | | 01:37 | The debate over government spending and inflation | | 03:45 | How the team analyzed projected vs. real government spending | | 06:02 | Accounting tricks and real drivers of increased spending | | 06:56 | The NDIS "blowout" explained | | 09:28 | Childcare costs and wage rises | | 10:34 | Health spending, urgent care clinics, Medicare | | 13:53 | Is public spending driving inflation? | | 14:53 | RBA’s explanation: it’s private sector demand | | 16:35 | Political vulnerability for Labor | | 18:30 | “Governments are always blamed for inflation” | | 20:09 | What’s next: possible capital gains tax reform | | 23:33 | Will tax cuts fuel inflation? | | 24:43 | Tying tax cuts to CGT reform for political cover | | 25:05 | Closing reflections |

Conclusion

This episode offers a nuanced take on the hype around government spending and inflation. The data suggests spending is up—in part due to under-forecasted legacy programs and policy choices like higher wage subsidies in health and childcare—but the central bank and their data point to private sector activity as the real driver of current inflation. Politically, however, Labor is on the defensive and preparing for tough fiscal debates, including possible tax reforms, and will have to balance public expectations, economic risks, and persistent opposition attacks as budget season approaches.

For more details and to read the team’s investigative reporting, check The Age and Sydney Morning Herald online.