Treasury secretary Jenny Wilkinson admits government spending adds to demand in economy at a time of inflation

Treasury secretary Jenny Wilkinson has admitted government spending adds to demand in the economy during a time of high inflation.

The admission was made after 13 minutes of questioning from Liberal deputy leader Jane Hume during Wednesday morning’s Senate Budget estimates hearing, and two hours before the Australian Bureau of Statistics revealed inflation had soared to 4.3 per cent in September, marking the highest level since March during the early days of the Iran war.

“No one’s denying that government spending contributes, is part of demand in the economy,” Ms Wilkinson told the Canberra hearing.

“No one’s denying that. That’s clearly the case.”

Senator Hume had asked her if she agreed with Reserve Bank chief economist Sarah Hunter’s observation to Sixty Minutes that “government spending is definitely part of the picture”.

Later on, Senator Hume raised her voice at Finance Minister Katy Gallagher.

“Do the Budget papers show that this government has spent more than it has saved? It’s a really simple question.”

Senator Gallagher insisted on answering after committee chair Lisa Darmanin tried to steer the question to Ms Wilkinson.

“I am allowed to answer questions here and I hadn’t finished on the spending that we have done because ... I have sat here since nine o’clock, in all due respect Senator Hume,” she said.

Ms Wilkinson had earlier emphasised the Budget deficit for 2025-26, at $22.3 billion in Treasury’s final Budget outcome, would be $6b smaller than the $28.3b forecast in the May Budget.

“When I look at what has happened to fiscal policy over this period, the underlying cash balance in ‘25-6 and ‘26-7 have both fallen reasonably substantially from where they were predicted to be so when I think about the expected level of the deficit in ‘25-6 and ‘26-27 . . . if I think back to the end of ‘24, let’s compare what fiscal policy has done over the period since the end of ‘24 or the beginning of ‘25,” she said.

“Over that period, the underlying cash balance has come in quite substantially, by almost a per cent of GDP.”

Senator Hume replied: “That’s not due to a reduction in expenditure, that’s due to an increase in revenue.”

Federal Government spending made up 26.9 per cent of gross domestic product in 2025-26, which outside COVID was the highest in almost four decades.

“Secretary, spending is at its highest level in 40 years outside of the pandemic, surely you can agree that that is true,” Senator Hume said.

Ms Wilkinson replied: “Senator, what I’m saying is that if you’re trying to think about the net impact of government is, on demand in the economy, you have to look at what the change in the underlying cash balance has done.”

The most senior public servant under Treasurer Jim Chalmers made an appearance ahead of Reserve Bank of Australia governor Michele Bullock.