Labor defends public spending as pressure mounts after rate rise

Housing Minister Clare O’Neil has slammed criticism of Labor’s fiscal policy as “outrageous” as the government scrambles to defend itself from political attacks following the RBA’s interest rates hike.

The Albanese government is facing further pressure on its handling of the economy after the RBA on Tuesday increased the official cash rate because of sticky inflation.

For the first time in two years on Tuesday, the Reserve Bank lifted the official cash rate by 25 basis points to 3.85 per cent following its first meeting of 2026.

Speaking to Seven’s Sunrise, Ms O’Neil rejected claims made by Nationals senator Bridget McKenzie, who branded Labor as having “failed to make the tough decisions” to cut government spending and hurting Australian households as a result.

“That is an outrageous comment from someone who’s in a political party that’s coming to Canberra every week not even thinking about the people they represent here, but instead playing ridiculous parlour games, focusing on careers and ambitions,” Ms O’Neil said on Wednesday, referencing the dramatic split in the Coalition.

Ms O’Neil earlier claimed there was no need to reassess Labor’s cost of living relief measures, after being pressed on whether it was not adequately capturing Australians in need.

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Senior Labor figures, including Treasurer Jim Chalmers, have cited the high inflation figures inherited from the Morrison government, when grilled on Labor’s management of the economy.

On Wednesday, Sussan Ley had a two-word response to questions about what Labor should be doing differently: “Stop spending.”

“And when you’ve got respected economists all saying there are no fiscal guardrails on this government … when you’ve got corporate Australia almost demanding a $50 billion cut to spending, it is everywhere in terms of what the government has been told about what it needs to do,” she told the ABC.

Finance Minister Katy Gallagher claimed on Wednesday morning that it was difficult for the government to find cuts amid high pressure on areas such defence, healthcare, and aged care. She maintained it was “mindful” of public spending and said the government had made responsible decisions.

“We’ve found $114 billion in savings - I know it rolls off the tongue, but that is much more that any government that I can recall ever has,” Ms Gallagher said.

The RBA’s decision to increase interest rates on Tuesday was unanimous, hinting there may be more hikes as its latest forecasts point to inflation being unlikely to fall before sometime in 2027.

RBA governor Michele Bullock said she realised Australian households would be disappointed by the rate decision, but said it was the right decision overall to get inflation back to the 2-3 per cent target.

Ms Bullock also said she would not call on the government to rein in spending to end the stickiness of the inflation.

“That’s not my business,” she said, emphasising the RBA’s independence from government.

The Liberal Party and Nationals have been targeting Mr Chalmers and government spending for keeping inflation higher than it should be.

“Treasurer, when will you start living by your own words and take responsibility?” Shadow Treasurer Ted O’Brien said in question time on Tuesday.

Mr Chalmers hit back, defending government spending and its role in the rate rise.

“The statement released by the independent Reserve Bank explaining the decision that they have taken today does not mention government spending at all,” he said.

He said the government was focused on easing the cost-of-living pressures on Australians.