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August 11, 2025
The Albanese government faces billions of dollars in public sector funding cliffs, which bureaucrats warn threaten service delivery, government initiatives and thousands of jobs.
Key departments including health, climate and energy, social services and attorney-general's sounded the alarm in their incoming briefs to ministers, warning of budget cuts as large as 50 per cent in coming years and asking where they should plan to cut workers.
The Australian Financial Review in January reported that Labor had not budgeted for up to $7.4 billion in increased public service wage costs caused by a hiring boom and a big pay deal for about 185,000 workers.
They also come ahead of Treasurer Jim Chalmers' reform roundtable, during which fixing the budget's structural deficit will be a central discussion topic.
Debate ahead of the meeting has been dominated by demands to increase taxes to cover the ballooning government spending forecast to drive gross debt to $1.2 trillion by 2028-29.
But with Prime Minister Anthony Albanese ruling out tax changes for now, spending cuts will be the only way to address the structural deficit in the short term. News p5
Budget faces billions of dollars of 'funding cliffs' The reform agenda
Economic Reform Roundtable August 19-21 Ronald Mizen Political correspondent The Albanese government faces billions of dollars in public sector funding cliffs which bureaucrats warn threaten service delivery, government initiatives and thousands of jobs.
Key government departments including health, climate and energy, social services and attorney-general's, sounded the alarm in their incoming briefs to ministers, warning of budget cuts as large as 50 per cent in coming years and asking where they should plan to cut workers.
The revelations come after The Australian Financial Review in January reported that Labor had not budgeted for up to $7.4 billion in increased public service wage costs caused by a hiring boom and a big pay deal for about 185,000 workers.
They also come ahead of Treasurer Jim Chalmers' Economic Reform Roundtable starting on August 19, during which fixing the budget's structural deficit will be a central discussion topic.
Debate ahead of the roundtable has been dominated by demands to increase taxes to cover the ballooning government spending forecast to drive gross debt to $1.2 trillion by 2028-29. But with Prime Minister Anthony Albanese ruling out tax changes before the 2028 election, cuts to spending will be the only way to address the structural deficit in the short term.
The worst of the looming budget shortfalls take effect from 2026-27 when funding will expire for at least 100 programs, and probably dozens more.
One government source, who spoke on condition of anonymity because they were not authorised to speak on the topic, said the cabinet's expenditure review committee had extended funds for many non-ongoing programs only until 2025-26, which kept costs lower over the four-year forward estimates before the May 3 federal election.
The Health Department warned of looming ''funding cliffs'' with its budget forecast to decline from $1.69 billion in 2024-25 to $893 million by 2027-28. The biggest annual fall $575 millionwas forecast for 2026-27.
''Over forward estimates portfoliolevel departmental funding down by 38 per cent by 2028-29 driven by terminating measures for reforms,'' the brief to Health Minister Mark Butler said, adding that it had 100 measures due to expire by June 30 next year, ''the majority of which include service delivery and will require consideration''.
Energy Minister Chris Bowen's department forecast its funding would halve from $357 million in 2025-26 to $180 million by 2028-29. This would come over the same time frame that Labor seeks to ramp up efforts to hit 82 per cent renewables electricity generation by 2030, a policy that underpins its bid to reduce emissions by 43 per cent on 2005 levels by the same date.
The fall ''mainly reflects the impact of terminating measures,'' the incoming government brief said.
It is not uncommon for budgets to fall over the four-year forward estimates, particularly ahead of federal elections as treasurers try to portray the books in a positive light. But Chalmers and Finance Minister Katy Gallagher have been consistently critical of the coalition for operating in this manner and leaving programs unfunded.
''This obviously was a feature of the former government's budgeting, where they sought to reduce costs or make it look like the budget was in better shape than it actually was,'' Chalmers told reporters in December.
Chris Richardson, a former Treasury and Deloitte economist who has spent years observing the budget process, said all governments acted in the same way ahead of elections.
''They all do it because there's always the thought that we may not win the upcoming election, and we'll deal with it down the track,'' Richardson said, adding that there would always be arguments about whether the figures published were realistic.
''To some extent in the budget there's always a promise to go on a diet, but it's just that an even bigger diet has been promised, and it has come after a binge. The change in gear between eating lots and eating little is massive, and it's no wonder it keeps coming up in the incoming government briefs.'' Gallagher did not respond to a request for comment.
But Coalition finance spokesman James Paterson accused Chalmers of building a budget on quicksand. ''They rely on an absurd number of terminating measures the government would never allow to lapse and public service cuts Labor explicitly campaigned against,'' Paterson said.
The Financial Review in January revealed Labor had not budgeted for as much as $7.4 billion in increased public service wages costs caused by a hiring boom and a big pay deal for about 185,000 workers.
That forecast runs contrary to Labor's push to cut consulting spending and in-source more work, and also the Australian Public Service's enterprise bargaining agreement with public servants, in which it agreed to raise wages by 11.2 per cent over the three years to March next year.
The deal, signed in November 2023, will automatically cause public sector wages to rise until 2026-27, when a new agreement will need to be signed.
In its post-election review, the Parliamentary Budget Office forecast a 3 per cent fall in the public service wage bill combined with a 10 per cent increase in wages would mean 22,500 positions need to be axed for departments to stay within budget.
In Tanya Plibersek's Social Services Department, officials expected to have to cut 441 of 3418 positions, or 13 per cent of the workforce, this year due to a $47 million funding reduction to $583 million over the next year.
''It is important the department understands your priorities clearly, so our resources are allocated appropriately as we reduce the size of the workforce,'' department officials advised Plibersek in the brief.
Social Services forecasts its budget will then fall further to $417 million by 2028-29, resulting in overall headcount reduction to 2228. Similar to Health and the Attorney-General's Department, the biggest fall in funding $151 million is forecast to come in 2026-27, the year in which Social Services forecasts it will cut a further 656 staff.
Attorney-General Michelle Rowland's department warned that 32 programs were due to expire by 2028-29, resulting in an $81.2 million or 26.6 per cent funding cut. Programs set to lose funding included elements of the National Strategy to Prevent and Respond to Child Sexual Abuse 2021-2030 and the High-Risk Terrorist Offenders Scheme, designed to manage people convicted of terrorism offences who are deemed to pose an unacceptable risk to the community once their jail term ends.
A spokesperson for Plibersek pointed to a 38 per cent increase in funding for DSS since Labor took office in 2022, while a spokesperson for the Health Department said there were no plans for redundancies.
A spokesperson for Bowen said the 50 per cent budget reduction in his department was ''simply the result of a number of time-limited programs coming to their natural conclusion''.
''This doesn't mean we're reducing our commitment to climate and energy policy,'' he said. ''In fact, record levels of investment are continuing to flow through major programs like Rewiring the Nation, [Australian Renewable Energy Agency] and the [Clean Energy Finance Corporation].'' A spokesperson for Rowland said the government remained committed to appropriately funding front-line legal services.