In inflation battle, Taylor gambles on retreat from climate policy

October 26, 2026 — 6:57pm

The Coalition has vowed to dismantle Australia’s climate policies to fight inflation, risking the green transition as Finance Minister Katy Gallagher backs Treasurer Jim Chalmers’ argument that Labor’s spending on health and defence responds to the needs of contemporary society.

Opposition Leader Angus Taylor upped the stakes in the economic fight on Monday, releasing early Coalition budget costings to demonstrate his commitment to fighting inflation.

Markets are pricing in this year’s fifth rate rise on Melbourne Cup Day after the RBA’s chief economist Sarah Hunter told 60 Minutes the bank was “not quite” done with tackling inflation. She also said government spending was “definitely” contributing to inflationary pressures alongside the war in Iran and oil prices.

Taylor seized on Chalmers’ remarks, made on this masthead’s Inside Politics podcast, that he would not yield to calls to cap spending. Chalmers argued that opponents should nominate where they would cut.

“This treasurer and prime minister have run out of ideas,” Taylor told reporters in Canberra, in a bid to sell a plan to lower spending by $31 billion to fund his tax cuts.

The opposition plans to relaunch its so-called “tax back guarantee”, designed to reduce bracket creep by indexing tax brackets to inflation, after it failed to cut through in Taylor’s budget-in-reply speech.

The guarantee is estimated to cost about $20 billion over four years, and then substantially more after that.

The $31 billion in savings Taylor proposes includes $7.3 billion by cutting subsidies for firms and tax credits for critical minerals, $4.7 billion by scrapping Labor’s housing schemes and $2 billion by blocking NDIS and welfare payments for permanent residents.

The largest element is a $9.4 billion plan to ditch or shrink agencies designed to help meet emissions reductions targets, as well as dumping popular home battery programs and tax breaks for EV purchases. The Coalition – which abandoned the net zero emissions target last year – also plans to kill off the main emissions reduction policy, known as the safeguard mechanism.

Only the Clean Energy Finance Corporation, which acts like a green bank, would survive the climate cull. The rationale underpinning the plans to ditch green energy rests on the assumption, born out by some polls, that voters are less concerned with climate issues.

Liberal senator Andrew McLachlan warned the party was siding with polluters and abandoning the transition, rather than simply moderating Labor’s rollout.

“It is a sad day for the Liberal Party that [it] has now repudiated its once proud policy tradition of a commitment to a healthy environment,” the outspoken party moderate said, noting Australia’s Pacific allies’ keen interest in climate change.

“The Coalition policy suite is now solely focused on encouraging pollution.”

The government said the Coalition was still $110 billion in the red when tallying up unfunded promises to boost defence spending, unwind negative gearing and CGT reforms, and make deep cuts to migration.

Gallagher told this masthead that calls for spending cuts did not “confront the reality of what the Commonwealth budget now funds”.

She said that spending on disability had grown by 2 percentage points of GDP since then-prime minister John Howard left office as the NDIS was rolled out. Over 80 per cent of spending goes to social security and welfare, defence, payments to states and Medicare, she said.

“In fact, if you excluded disability assistance from the calculation of spending as a share of GDP, government spending in the current financial year would be lower than it was under prime ministers Howard, Abbott and Morrison,” she said.

“Many of these program areas are demand-driven and increases (or decreases) occur without a decision of government.”

Heavy spending on grants and automatic payments hasn’t been seriously examined since the Abbott government’s commission of audit, which informed then treasurer Joe Hockey’s controversial 2014 budget. Many of the tougher proposals then were abandoned.

Prime Minister Anthony Albanese used question time to say Australia’s budget deficit was smaller than any nation in the G7. He suggested Labor had not gone too hard on spending to protect jobs.

Chalmers added: “Global volatility coming from the Middle East is making our domestic economic challenges harder.”

However, leading economists said it was Chalmers’ job to find appropriate spending cuts.

UNSW economist Richard Holden said: “If you want to be the natural party of government, then you’ve got to tell us what your plan is here.”

Independent economist Chris Richardson said Labor could immediately reduce its share of funding for federal-state infrastructure projects, as mega projects added to cost pressures. The Victorian Suburban Rail Loop is costing the federal budget billions even though the prime minister’s support for the project is not shared by several senior ministers.

Richardson also said cutting “pork barrelling” grants for community projects would not make a big financial difference but could send a strong signal Labor is willing to take hard decisions.

KPMG chief economist Brendan Rynne said successive governments had expanded the scope of public spending over time.

“My suspicion is that we’ve had years of build-up of programs and activities by the government which tend to remain without being assessed against a simple, fundamental test,” he said.

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