Labor and Coalition’s fiscal confrontation shows economic issues will dominate the Federal election

The Coalition has slammed the Treasurer’s “addiction to spending” after he accused them of targeting “Medicare, medicines and pensions” in an emerging election showdown over who can best handle the economy.

On the eve of the Mid-Year Economic and Fiscal Outlook (MYEFO) - which may be a defining financial blueprint if the election falls before the March budget – Treasurer Jim Chalmers set the parameters for a battle that will pit Labor’s cost-of-living support against opposition claims of fiscal recklessness.

At a press conference in Canberra, Dr Chalmers attacked the Coalition’s “economic insanity” that risked emptying household purses.

His comments followed the first salvo from shadow treasurer Angus Taylor on Tuesday morning that Labor had “lost control” of the Budget with ongoing wasteful spending.

“If Angus Taylor and Peter [Dutton] think that extra spending for Medicare and medicines and pensions indexation is wasteful spending, then they need to come clean this week to the Australian people and say, how much do they cut on Medicare and medicines and pensions?” Dr Chalmers hit back.

“Every single time that Angus Taylor says that this is wasteful spending, he needs to be asked, how much will he cut from Medicare and medicines and pensions indexation, because that’s what he really means.”

In exclusive comments to the Nightly, Mr Taylor accused the “desperate” Treasurer of speaking “complete rubbish and more spin.”

“The reality is, Jim Chalmers has an addiction to spending that has kept inflation and interest rates higher for longer,” he said.

“He is continuing to look for excuses and someone else to blame.

“First it was Vladmir Putin, then it was Donald Trump, on the weekend it was veterans, on Monday it was the Chinese and today it’s medicine and childcare,” Mr Taylor said.

“You cannot spend your way out of an inflation crisis.”

Anne Ruston, shadow health minister, accused the Labor Government of attempting to reheat its disgraced Mediscare campaign to cover up its own failures.

“The Coalition always has, and always will, invest in Medicare,” she said.

“In Government, the Coalition increased funding for Medicare year-on-year, from $18.6 billion under Labor in 2012–13 to more than $30 billion in 2021-22.”

On Monday, Dr Chalmers and Finance Minister Katy Gallagher revealed that the MYEFO, set for release on Wednesday, would include an additional $8.8 billion in “unavoidable spending”.

This spending encompasses increased investments in the Pharmaceutical Benefits Scheme, aged care, COVID-19 programs, and reforms to the National Disability Insurance Scheme.

A further $16.3 billion in automatic indexation adjustments — for welfare payments, pensions, and health services — will push total new spending commitments to $25.1 billion, reflecting higher inflation and rising demand for government services.

Against that, the Government said it had found $14.6 billion in savings and reprioritisations in areas like Defence.

Mr Taylor argued the Coalition had opposed more than $110 billion in new spending under Labor “because splashing cash around will only make the fight against inflation harder.”

He has not specified whether his government would make cuts to indexed payments and welfare programs.

“Spending is growing way faster than the economy, and the economy is in life support,” Mr Taylor said in further comments to the Nightly.

“We’ve been clear about our approach because we are committed to restoring fiscal discipline,” he said. “We have been upfront about the kind of spending we think is undisciplined or unhelpful while families are dealing with Labor’s cost of living crisis.”

The Coalition says it has taken “tough calls” to oppose billions in legislated spending on the National Reconstruction, Housing Australia Future and Future Made in Australia funds.

“Under Labor, there has been an additional $315 billion of spending,” said Mr Taylor. “That is $30,000 of additional spending for every Australian household.”

Accusing Labor of a lack of restraint during a time of high inflation will be a key pitch to voters - with the “$450 million failed Voice referendum”, grants to the CFMEU, and a $1 billion bet on a US-built quantum computer – all in the Coalition’s sights.

“Families are showing restraint, they have to. Labor lacks restraint because it’s not their money,” said Mr Taylor. “Along with boosting productivity, fiscal discipline is essential to bringing down inflation and restoring Australia’s standard of living.”

The Government has defended its spending increases as necessary to maintain essential services while managing rising demand.

Ms Gallagher said that much of the “unavoidable” spending resulted from programs left unfunded or inadequately budgeted by the previous government, with critical services facing “funding cliffs” that required urgent action.

“We’ve dealt with billions and billions of dollars in ongoing spending that was never provided for,” Ms Gallagher said, highlighting reforms to aged care, NDIS, and the COVID-19 vaccine supply agreement as key priorities.

Despite these pressures, Dr Chalmers emphasised that Labor had made substantial progress in stabilising the Budget.

“In our first year, we turned a $78 billion deficit into a $22 billion surplus,” he said, adding that “tens of billions of dollars” had been saved in interest repayments through responsible fiscal management.

While acknowledging the financial strain on households, Dr Chalmers tempered expectations of new cost-of-living relief in MYEFO, suggesting future measures would be considered in the lead-up to the March Budget.

“We are constantly looking for affordable, responsible ways that we can help people with the cost of living, and the appropriate time to budget for that is not usually in the mid-year budget update,” he said.

The MYEFO release comes amid mounting economic headwinds, including a slowing Chinese economy, rising welfare costs, and persistent inflation pressures.

Both sides are positioning for an election year battle over economic management, with Labor defending its spending as essential while the Coalition calls for tighter fiscal discipline.

Speaking in Adelaide shortly after the MYEFO briefing, Opposition Leader Peter Dutton would not be drawn into how a Coalition Budget would be different.

“We’ll make announcements in relation to our programs closer to the election. It’ll be dependent on the economic circumstances,” Mr Dutton said.

“There’s some spending which is necessary, but there’s a lot of spending which the Government has created, which is what has driven inflation.

“Labor always taxes and spends, and then when they run out of money they tax more and when they continue to spend, they drive up inflation and that’s part of the problem.”

In contrast, Dr Chalmers said during a cost-of-living crisis, citizens deserved to rely on government support.

“I think the Australian people have a right to expect a decent level of services, whether it’s aged care, Medicare, early childhood education, the care economy, more broadly,” he said.

“This is beginning to become an increasingly important part of our economy as our population ages in particular. That’s just the reality of the way that our country and how the demographics of our country is changing.”

Amid the charged political debate, recent polls suggest the Coalition is better at convincing voters of its economic message.

Leo Shanahan, a director of research and advisory firm Freshwater Strategy, said its most recent poll showed 73 per cent of voters cited the cost and standard of living as their chief issue of concern, followed by housing and accommodation and management of the economy.

The Coalition was getting through to the electorate more effectively, he said.

“If you look at those metrics in terms of who can best handle cost of living, who’s best to handle housing, who can best handle the economy, the Coalition’s winning on all three,” he said, noting a 23-point shift over the past two years towards the Coalition on the cost-of-living.

“The Coalition now lead Labor by 10 points on this crucial metric, having previously been trailing the Albanese Government by 13 points at the end of 2022,” said Mr Shanahan.

He said this reflected frustration with the Government’s attempts to alleviate cost-of-living pressures.

“Rightly or wrongly, people aren’t seeing an abatement to the cost-of-living crisis in terms of the cost of things in the supermarket, the cost of housing, power bills. It’s all very real and it’s not dissipating. Therefore, you’re more likely to look at alternatives,” he said.

“As a general standard, people tend to view Coalition governments as better managers of the economy, so that obviously helps when weighing up alternative governments.”

A Roy Morgan survey on Monday also showed a Coalition Government, with a slim majority, would now win a Federal Election, citing accusations of Labor’s slow response to the Melbourne synagogue arson attack, static interest rates and the view that nuclear power would lower energy costs as reasons for the improved performance.