Talking tough on spending and immigration is the easy part for the Coalition

Within milliseconds of the Reserve Bank announcing three weeks ago it was increasing interest rates, conservative politicians and economists blamed it on excessive government spending.

But is that true and, if so, where should spending be cut?

The Mid-year Economic and Fiscal Outlook released late last year estimated real spending growth for the 2025-26 financial year at 4.5 per cent, down on the previous year’s 5.5 per cent but certainly up on the pre-pandemic spending growth of the previous Coalition government.

But the budget deficit – which tells us how stimulatory the budget is – is a little over 1 per cent of GDP – smaller than the average of the pre-pandemic Coalition years.

This doesn’t sound like runaway spending. But nor is it reason to be complacent.

The federal government is working with the states to curb growth in spending on the NDIS, especially for children with mild disabilities.

The NDIS story is a repetition of what typically happens with big new spending programs.

In the lead-up to the 1987 election, following the Hawke government’s introduction of Medicare, opposition leader John Howard promised to “take a scalpel to Medicare”. It was one of the reasons the Coalition lost that election.

Subsequent Labor reviews have trimmed excesses from Medicare. But Tony Abbott – health minister under Howard – knew the danger of promising cuts to Medicare, claiming repeatedly in parliament that the Liberal Party was “the best friend Medicare ever had”.

Ahead of the 2013 election, Abbott promised “no cuts to health” but his first budget as prime minister cut hospital funding by $50 billion and introduced a Medicare co-payment. Just to remind voters of the Coalition’s hostility to Medicare, Anthony Albanese displayed a Medicare card on every day of the 2025 election campaign.

As Australians live longer, government spending on aged care is growing rapidly.

It is a safe bet, however, that a Liberal government will not seek to cut back on residential aged care, with baby boomers forming the core of its support base.

The ageing of Australia’s population is a key reason for our immigration program – to freshen up the nation’s age profile. So much so that then treasurer, Peter Costello, introduced a baby bonus in 2004, urging couples to have “one baby for mum, one for dad and one for the country”.

The Abbott government abolished the baby bonus in 2014, having questioned its effectiveness in increasing the fertility rate.

Our fertility rate is now well below replacement levels, such that without immigration Australia’s population would be both ageing and shrinking.

Our immigration program prioritises younger, working-age migrants over aged parents of migrants – about 85 per cent of our migrants are 45 years and younger.

Those arguing that our immigration program is too big might reflect on the age profile of Australians if it was cut back. It would increase the age dependency ratio, a problem emphasised in every Intergenerational Report since 2002 of too few young people earning the incomes and paying the taxes to support retired Australians.

The final big spending growth area is defence. Whether or not you support AUKUS, if it weren’t to happen we would need to fund alternative defence equipment.

The Liberal Party and the conservative commentariat is unlikely to demand cuts in defence spending.

The Albanese government will need to be vigilant in identifying savings in government spending and in limiting new spending. But federal government spending growth was not the driver of the Reserve Bank’s decision to increase interest rates in early February, a point made by RBA governor Michele Bullock at a recent parliamentary hearing.

If the Coalition insists on campaigning on cutting government spending, it will need to nominate where – Medicare, aged care, education, defence?

If it campaigns on cutting migration numbers, which are already falling, it will need to explain increased shortages of nurses, aged-care workers and other young people providing essential services.

Further, if the Coalition were to support the views of many conservative voters that only those of the Judeo-Christian tradition should be admitted into Australia, it would need to explain to the Indian and Chinese communities why they are not welcome.

They had a pretty good go at that through Jacinta Price on Australian Indians during the last election campaign.

Tough-sounding rhetoric is the easy part for the Coalition. Detailing its cuts to spending and immigration is a lot harder.