Election battle turns to spending, with BCA calling for cap and Labor hitting Dutton’s planned cuts

As the political debate turns to government spending, the questions loom: is it too high, and will Peter Dutton be able to get away with keeping his proposed cuts mostly under wraps?

On Tuesday the Business Council of Australia will launch its election ambit claims. In the following two days, about 30 CEOs from big companies will descend on Parliament house to argue their case to Treasurer Jim Chalmers, his opposition counterpart Angus Taylor, and some crossbenchers.

The BCA’s “election blueprint” calls for real expenditure growth to be capped at 2% a year, and the tax-to-GDP ratio to be capped at 23.9%.

The December mid-year budget update forecasts expenditure growth of 5.7% in 2024-25, more than 2 percentage points above the rate of inflation, forecast to be 2.75%. For later years it forecasts real expenditure growth in line with or below inflation.

The budget update projected a tax-to-GDP ratio of 23.4% in 2024-25, rising to 23.5 in 2025-26 and staying there for the rest of the forward estimates. The Coalition had a 23.9% cap which was abolished by Chalmers.

On spending the BCA says: “One way to fight inflation is to limit money pushed into our economy. Commonwealth Government spending is expected to increase to 26.5 per cent of GDP in 2024-25 and 27.2 per cent of GDP in 2025-26.

"Outside the pandemic period, this is the highest level of spending as a share of GDP since 1986-87. Having even more dollars chasing a limited supply of goods and services risks prolonging inflation and interest rates staying higher for longer.

"While this is not to suggest that we should not be taking government action to support our most vulnerable, we must have an overall whole-of-government aim to get spending under control.”

Among other “asks” on the BCA wish list are an investment allowance to encourage innovation, various measures to promote deregulation, action to remove bottlenecks for approval processes, and abolition of (or increase in) the R&D expenditure threshold.

Meanwhile Labor is seizing on Peter Dutton’s plans for major cuts to the public service, a familiar target for Coalition oppositions, and other cuts in government “waste”..

Dutton said on Sunday Labor had put 36,000 additional places into the public service. A Coalition government would not allow the public service “to balloon,” although it would protect “frontline” positions, he told the ABC.

Most of the Coalition’s spending cuts, however, would not be announced until after it was in government.

Dutton said he would not have a commission of audit, as the Abbott government did.

“Many of us have sat around the expenditure review committee. We know what we’re doing,” he said. “We’ve worked […] with many of the departmental heads that are there now, and I have no doubt that we’ll be able to find where Labor has put fat into the system that is not helping do anything but drive inflation.”

The Minister for the Public Service, Katy Gallagher, said Dutton was “so arrogant […] that he’s decided he doesn’t have to tell anyone about where [his cuts are] coming from until after the election.

"He has said he will cut 36,000 Canberra-based public servants.[…] We know that will have impacts right around the country,” she said on Monday.

“It will have impacts on anyone who wants to use Centrelink, anyone who wants to get their payments sorted, anyone who’s after compensation – for example, veterans. All of that is at risk under Peter Dutton’s plan. And he’s so arrogant and reckless that he’s openly saying he will do this, but he’s not actually going to tell you how he does it until he’s in government.

"He needs to come clean on that today. He needs to come clean on where these cuts are coming from and how he’s going to do them.”