Government consumption expenditure

IBISWorld expects government consumption expenditure to climb by 3.0% in 2025-26, to reach $638.1 billion. According to the 2025-26 Federal Budget, Health, Fuel and Energy and Defence expenditures are budgeted to be the fastest growing areas of spending throughout the year. Through the December 2025 quarter, government consumption expenditure has increased by 3.0% compared to 1HY 2024-25, driven by strong growth in national defence and state and local expenditures. Over the second half of 2025-26, government consumption expenditure is expected to face inflationary pressure from fuel price spikes following the escalation of the conflict between the United States and Iran, likely causing annual fuel and energy consumption expenditure to exceed the budgeted figure of $19.2 billion.

Government consumption expenditure expanded significantly between 2019-20 and 2021-22, largely due to pandemic-related public health expenses. Initially, expenditure growth was focused on establishing suitable infrastructure to contain the spread of COVID-19 and later transitioned to vaccine rollouts and investments towards improved at-home testing solutions. According to the ABS, the pandemic resulted in government consumption expenditure deviating from the long-run growth trajectory by $42 billion over the three-year period. Notably, income support packages aimed at keeping the economy afloat are not classified as government consumption expenditure. They are accounted for in GDP measurements only when households spend them and are therefore classified under household consumption expenditure. In 2022-23, total government expenditure growth slowed to 1.8%, as national defence spending declined for the first time since 2012-13. A significant rollback in government expenditure on pandemic-related expenditures also limited growth in overall consumption expenditure over the year.

Federal, state and local governments have all contributed to rising government consumption expenditure in recent years. The majority of government consumption spending occurs at the state and local levels. According to the ABS, the Federal Government only accounted for 47.1% of total government expenditure in 2024-25 (latest full-year data), with this share trending upwards through the first half of 2025-26. However, the Federal Government has reported an increased share of total expenditure over the past decade, rising from 40.4% in 2014-15, driven by strong growth in non-defence spending. Defence spending has been broadly stable as a share of total expenditure over the past two decades, ranging between 8-9%, with some year-on-year variations depending on the commencement and finalisation of defence projects. Although capital expenditure is not included in government consumption expenditure, the consumption of fixed capital is. In turn, there can be delays between increased capital expenditure on defence and rises in defence-related consumption expenditure. Overall, IBISWorld forecasts government consumption expenditure to rise at a compound annual rate of 3.9% through the end of 2025-26.