Labor dodges questions on hidden public service costs

Wednesday 11 February 2026

Noah Yim

The Australian

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Finance Minister Katy Gallagher has repeatedly dodged questions about how the government plans to fund the rising wages of public servants amid warnings of a budget cliff if it does not plan on cutting headcount.

Senator Gallagher also ­admitted that higher-than-­expected inflation would mean indexed government payments – such as welfare – would have to be upgraded from the previous budget.

“What are the implications of a higher inflation for expenditure in the budget?” opposition finance spokesman James Paterson asked Senator Gallagher on Tuesday.

“Higher inflation will feed into the indexation arrangements on the payment side of the budget,” Senator Gallagher replied.

This comes amid concern about government spending – currently at a 40-year high as a percentage of GDP outside the Covid pandemic – and its contribution to rising inflation.

“So it implies that spending will be higher than otherwise all else being at core,” Senator Paterson said.

“Well, that ignores other decisions that might be taken,” Senator Gallagher replied. “We’ve already said we’ll have a savings package in the budget.”

Senator Paterson grilled Senator Gallagher on budget documents that appear to hide the expected cost of public servant wage growth given the forecasts essentially flatlined over the next four years despite a massive rally in the past few years and locked-in wage growth.

The Parliamentary Budget Office has estimated the government would have to cut 22,500 public servants to avoid a funding cliff.

“If the government doesn’t reduce the (average staffing level) … they will have to find new funding or reduce wages,” Senator Paterson said.

“If you don’t plan to reduce the ASL, how will you pay for these people’s wages and provisions?”

Senator Gallagher dodged the question.

“Well, you’ll see all the decisions of the government in the budget in May,” she said.

She confirmed she did not intend to shrink the size of the public service, which has grown by 31 per cent – from 140,861 to 184,442 – between mid-2022 when the Albanese government was elected and at last count in the middle of 2025.

Senator Paterson kept pressing the question and Senator Gallagher continued to evade the question.

“Do you have a plan to make up for that shortfall or will you have to let people go?” Senator Paterson asked.

“Any updates to the budget will be provided in the budget in May,” Senator Gallagher said.