Treasurer Jim Chalmers has confirmed that Australian government departments and agencies are being instructed to identify significant savings from lower-priority spending areas, with some budgets potentially facing reductions of up to 5%.
The announcement, made on Wednesday, comes as the Labor government prepares its fifth federal budget, though Chalmers strongly denied this would translate into widespread job losses across the public sector.
Savings Strategy and Political Fallout
Chalmers and Finance Minister Katy Gallagher have acknowledged reports from the Australian Financial Review revealing that cabinet ministers alongside department and agency leaders are participating in what Gallagher described as "an exercise in discipline" to address budget pressures.
However, the government has clarified it isn't implementing across-the-board reductions at this scale and will maintain the existing 1% annual efficiency dividend applied to all departments.
The Coalition opposition has seized upon the announcement, accusing Labor of breaking election promises. Opposition Leader Sussan Ley declared: "Labor promised this city that there wouldn't be any cuts. So are they backing away from the promise? Or have things got so bad since the election that they actually have to address savings as a matter of urgency?"
Redirecting Funds to Priority Areas
Chalmers explained that the savings initiative aims to identify lower-priority spending that could be redirected to more critical areas. "We are not asking departments to cut their staff or to cut their budgets by 5%," he told ABC radio.
He emphasised that this approach mirrors strategies used in preparing their previous four budgets, noting that approximately $100 billion in previous savings had already been redirected to support Medicare enhancements, including bulk billing increases and new urgent care clinics, alongside Labor's income tax cuts.
While not completely ruling out job reductions, Chalmers contrasted the government's approach with the Coalition's election pledge to cut 41,000 public service positions over five years, which was projected to save $17.2 billion.
Union and Political Reactions
Melissa Donnelly, national secretary of the Community and Public Sector Union, warned against significant cuts, reminding the government of its election commitment to rebuild public services rather than reduce them.
Donnelly pointed to substantial spending on private consulting firms and outsourced labour as alternative areas for savings, noting that Labor had been working to reduce expenditure in these areas since its 2022 election victory.
The Greens' public service spokesperson, Barbara Pocock, echoed this sentiment, arguing that "arbitrary cuts of the public sector will fuel renewed spending on big consultants and labour hire, at three times the cost. It makes no sense at all."
Before the last election, Labor had committed to finding over $6 billion in savings from the public service across the four-year forward estimates period, though the current measures appear to represent an intensification of that effort.
