The Finance Minister is warning savings will have to be made in the budget to pay for measures that are becoming more expensive, including aged care, defence and the NDIS.
The federal government is preparing its first budget, to be handed down next month, which is expected to include policies to ease cost of living pressures on Australians.
Finance Minister Katy Gallagher said the budget would include "longer-term investments" to soften cost of living pressures, including cheaper energy.
But Senator Gallagher warned the government could not "pretend there is a magic wand we can wave and these pressures will be relieved overnight".
"The budget is in such a difficult position and all of the kind of challenges — aged care, increased defence spending, the NDIS, servicing the debt that we have inherited — these are all programs that are growing very fast and we have to make room to manage them," Senator Gallagher said.
"Some of those difficult decisions are how we reprioritise, how we make savings, and how we make room for all of the good ideas that people are coming forward with."
Prime Minister Anthony Albanese said the government would today introduce legislation to lower the cost of medications listed on the Pharmaceutical Benefits Scheme, one of Labor's election commitments.
The changes would reduce the maximum price of a PBS-listed medication from $42.50 to $30 from the start of next year.
Deputy Liberal leader Sussan Ley said it was welcome relief, but a "drop in the ocean" compared to the increased cost of living facing Australians.
"The government said they wouldn't leave anyone behind. Anthony Albanese said that time after time, but today, this week, they're acknowledging that that's exactly what's happening," Ms Ley said.
"And cost of living has to be their number one priority."
Greens call for Reserve Bank head to roll
Following another 0.5 per cent hike in interest rates announced by the Reserve Bank yesterday, Greens senator Nick McKim said its governor Phillip Lowe should be sacked.
Senator McKim said Mr Lowe's forecasts, which suggested the Reserve Bank would not begin to increase interest rates until 2024, "effectively induced a lot of Australians into taking on massive debt levels".
"[People borrowed] significant amounts of money to purchase a house or a property in the expectation that he would stick to his word and not put interest rates up until 2024," Senator McKim said.
"They're going up through the roof now. This is going to send some households to the wall and there has to be some accountability in the system."
Senator McKim also called on the government to introduce serious cost of living measures, instead of "playing around the edges", including a two-year rent freeze, and a temporary pause on further interest rate hikes, as more are expected.
Nationals senator Matt Canavan backed Senator McKim's call.
"The Reserve Bank failed. There is no doubt about that," he said.
"I think this RBA governor should have gone when he promised to not raise rates until 2024 and now he‘s broken that promise five times."
Assistant Treasurer Stephen Jones said "there was no doubt" businesses and households had made big decisions based on Dr Lowe's forecasts, but the "pot shots" were not helpful.
"The Reserve Bank and the Reserve Bank Governor are not beyond rebuke, it's a free country … but I think in the immediate term we've got an inflation crisis to deal with," he said.
The Finance Minister said the government had faith in the Reserve Bank.
