Labor is celebrating a successful year but tough budget choices lie ahead

Labor MPs could have been forgiven for using this week's final caucus meeting of the year to pop some champagne corks, dance on the tables, and dream of bold reforms.

It's been a wildly successful political year for Labor by any measure, producing a huge parliamentary majority and leaving the opposition demoralised and divided.

But there was a concerted effort at this end-of-year meeting to keep celebrations in check and manage expectations.

In his address to the crowded room of Labor faces, Anthony Albanese invoked the memory of Gough Whitlam and this month's 50th anniversary of the dismissal.

"There are always forces that never regard Labor governments as legitimate," the prime minister observed, before reminding anyone who needed reminding that his approach is very different to the crash-or-crash-through Labor legend.

"If we are orderly, stable and clear, we will be established as the natural party of government," Albanese told his team, who have heard versions of this message since Labor's re-election in May.

Appetite for reform

The level of the prime minister's reform appetite has been discussed and debated since roughly 9pm on election night in May, when Labor's massive win became clear. 

It's a debate that's come into sharper focus as the parliamentary year wraps up, inflation ticks higher, and minds turn to what exactly the government plans to do in 2026.

At a headline rate of 3.8 per cent and an underlying rate of 3.3 per cent, inflation is now higher than the Reserve Bank's target zone, and well above the government's comfort zone, particularly with some economists floating the prospect of another interest rate hike.

The treasurer seized on the far happier figure showing inflation remaining flat for the month of October, but acknowledged the annual figure was "higher than we'd like". An understatement to be sure.

It forces the government back into the uncomfortable, yet all too familiar position of trying to help households with cost-of-living relief without pouring more fuel on an inflation problem.

The immediate question for treasurer Jim Chalmers is whether to extend energy rebates, currently due to expire at the end of the year.

State governments have already begun removing their rebates, one of the reasons why electricity costs are now 37 per cent higher than a year ago.

The treasurer will make a call in the next three weeks on what to do about his rebate, ahead of the mid-year budget update.

Remove it and watch power prices jump even higher. Keep it and put even more strain on the budget while delaying the inevitable point at which this tap must be turned off.

A hefty wages bill

At the same time, the treasurer and finance minister are trying to find ways to rein in the Commonwealth public service wages bill, which rose by a hefty 9.5 per cent last financial year and 10 per cent the year before as both staff numbers and wages grew.

Chalmers dismisses talk of a blanket 5 per cent staff cut across all department but warns "some savings" will come in next month's budget update, with the "main game" in May. Given Labor railed against the Coalition's plans for public service cuts at the election, this won't be politically easy.

If room is to be found for more energy rebates, let alone the prime minister's vision for "universal" childcare support or any other new spending measures, the savings will need to be substantial.

If hoped for savings to the NDIS aren't realised because the states won't come to the party on "foundational supports", that task becomes even more difficult.

The May budget is now looming as the critical juncture. Will the government embark on serious budget repair or tax reform? Or leave this until a likely third term?

Beyond the May budget, reform advocates within the parliament fear it will be too late to announce, explain, implement and bed-down any serious reform before the next election rolls around.

'Orderly, stable and clear'

The government has enjoyed extraordinary political success this year and hasn't exactly had its feet up since the election seven months ago.

Today, it's determined to finish the parliamentary year by cutting a deal with either the Coalition or the Greens on environmental approval laws. It's hoped this will boost productivity by speeding up decisions on everything from renewable energy to critical minerals and housing.

On the diplomatic front, the prime minister has been navigating a highly volatile global landscape far better than many expected. He won praise from Donald Trump, stabilised relations with China, and struck new security deals with Indonesia and Papua New Guinea.

Being an "orderly, stable and clear" government has worked to his advantage, as a contrast to both chaotic events abroad and a struggling opposition at home.

But tackling cost of living remains unfinished business. Repairing the structural budget deficit isn't getting any easier. There are no pain-free solutions, even for an orderly government riding high.

David Speers is national political lead and host of Insiders, which airs on ABC TV at 9am on Sunday or on iview.