Government promises fresh spending cuts before Christmas as Aussies warned coming months will ‘feel like a recession’

The Federal Government has promised to unveil fresh spending cuts before Christmas as it faces mounting pressure to rein in inflation and ease the cost-of living burden on Australian households.

Housing Minister Clare O’Neil confirmed the government was working on a new savings package, which is expected to be announced as part of its December economic update.

WATCH THE VIDEO ABOVE: Rate hikes to make 2026 feel like recession

It comes after the Reserve Bank lifted interest rates to an 18-year high of 4.85 per cent, with Governor Michele Bullock warning the economic conditions could make 2027 particularly difficult for Australians.

“It is going to make people feel like it’s a recession because they feel poorer, their spending can’t grow very quickly because their incomes aren’t growing very quickly,” Bullock said.

Government confirms fresh savings package

On Sunrise, O’Neil acknowledged families were growing increasingly frustrated and exhausted after years of financial pressure.

“This is a really tough moment for the country and I know families right around Australia are feeling frustrated and, frankly, exhausted after years of watching their family budget and this is absolutely the last thing that they needed to hear,” she said.

O’Neil pointed to a combination of international and domestic pressures driving inflation.

“We’ve had this massive war in Iran which is driving up the price of everything,” she said.

“We’ve got an AI boom happening that is taking all of the resources of the economy and using it to build data centres and other things, heating up the economy.

“Then we’ve got those domestic pressures as well which means, when our country does start to grow a bit, what we see is, instead of that growth being shared, inflation is starting to go up again.”

She said the government had three priorities as it worked to address the country’s economic challenges: reducing government spending, providing cost-of-living relief without adding to inflation, and improving productivity.

“The first is we need to bring back government spending. That’s a clear part of the answer here,” she said.

“At the moment we’re working on a budget which will help us do that coming into the back end of this year.”

O’Neil confirmed further savings measures would be announced before Christmas as the government works through its next round of spending decisions.

“Every six months, we have a mini budget that goes in around December. So, we will make some announcements then about a savings package that the Treasurer has already talked about and the government is working through this at the moment,” she said.

Savings must be handled ‘really carefully’

However, she warned of the need to avoid affecting essential services relied on by Australian families.

“This has got to be done really carefully,” she said.

“Our government pays for Medicare so, when you get sick, you can go to the hospital and get the care you need. It helps pay for aged care places if you’ve got an elderly parent.

“We’ve got to be really thoughtful about how we do this. It’s not a simple exercise.”

Coalition accuses Labor of economic mismanagement

Nationals Senate Leader Bridget McKenzie hit out at the government, accusing it of failing to take responsibility for Australia’s economic position.

She said the government’s repeated references to international pressures, including the war in the Middle East, were distracting from domestic economic problems.

“At the end of the day, empathetic statements don’t help fix this problem that the Labor Party created. Making the tough decisions in a budget does,” McKenzie told Sunrise on Wednesday.

“The Labor Party’s economic incompetence has been revealed, and they need to not spend more than they save. That is what will actually fix this problem.”

O’Neil defended the government’s record, saying it had delivered two budget surpluses and cut $180 billion in excess spending.