Ruqayyah Snyder
Australia's government spending has grown faster than its GDP, with social security, welfare, and health accounting for over half of the growth in total spending from 2002 to 2013. The cost-of-living crisis has impacted Australians' spending habits, with consumers becoming more discerning and spending less on discretionary items like clothing, liquor, and furniture. However, food retailers continue to be a significant area of spending, along with pharmaceutical goods. Australia's economic growth has been linked to mining operations and government stimulus spending, such as the JobKeeper programme during the COVID-19 pandemic.
| Characteristics | Values |
|---|---|
| Spending growth rate | 3.8% annually from 2002-03 to 2012-13 |
| GDP growth rate | 3.0% annually from 2002-03 to 2012-13 |
| Largest contributors to spending growth | Social security and welfare, health |
| Social security and welfare spending contributors | Age Pension, Disability Support Pension (DSP), Family Tax Benefit, Aged Care |
| Health spending contributors | Medicare Benefits Schedule, payments to states and territories for public hospital services |
| Public debt interest spending growth | 5% |
| Defence spending growth | 5% |
| Aged care spending growth | 4% |
| Family Tax Benefit spending growth | 4% |
| Australians' biggest spending sectors | Food and liquor, pharmaceutical goods |
| Australian household spending change | -0.3% month-on-month in March 2025 |
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What You'll Learn
Welfare and social security
Welfare expenditure in Australia covers cash payments and spending on welfare services, excluding administration expenses. In 2021-22, the Australian, state, and territory governments spent $212.4 billion on welfare, which was $18.6 billion less in real terms than in 2020-21 as many pandemic response measures ceased. Before the pandemic, welfare spending in Australia had been growing, with growth rates of 12.7% and 11.1% in 2019-20 and 2020-21, respectively.
For a long time, "Social Security and Welfare" has been the largest single component of Commonwealth Government spending in Australia. In 2017-18, it was estimated at 35.3% of total expenses. Social security and welfare spending, along with health, were the largest contributors to spending growth from 2002-03 to 2012-13, accounting for over half of the growth in total spending. Social security and welfare spending alone contributed one-third of the spending growth.
Some of the major programs contributing to overall spending growth during this period included the Age Pension, the Disability Support Pension (DSP), Family Tax Benefit, and Aged Care. The DSP contributed 5% of total spending growth due to increases in the pension rate and the number of recipients. Aged care also contributed over 4% of total growth due to increased government-subsidized aged care places and higher care costs. Family Tax Benefit accounted for almost 4% of total spending growth due to increased benefit levels.
During the COVID-19 pandemic, the Australian government implemented several economic measures to support affected individuals. These included one-off economic support payments (ESPs) and three additional ESPs to recipients of social security, veteran payments, family tax benefits, and pensioner concession card or Commonwealth senior health card holders during 2020-21 and 2021-22.
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Health
The Australian government funded approximately $178.7 billion of the total health expenditure (70.8%), while non-government sources, including individuals and private health insurers, funded the remaining $73.8 billion (29.2%). This health expenditure includes primary health care, such as unreferred medical services, dental services, community health, public health, and medications.
Over the decade from 2002-03 to 2012-13, health spending contributed about 19% of total spending growth. This increase in health expenditure was mainly due to higher spending on the Medicare Benefits Schedule and increased payments to states and territories for public hospital services under the National Health Reform payment.
Australia is a member of the Organisation for Economic Co-operation and Development (OECD), which collects and reports data on health expenditure among its member countries. The OECD uses the System of Health Accounts (SHA) 2011 framework to capture health expenditure data, focusing on the consumption, provision, and financing of healthcare.
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Defence
The 2023 Defence Strategic Review (DSR) establishes the future strategic direction for the Department of Defence and the ADF, identifying immediate priorities. However, there is a disconnect between the DSR and the 2023-24 defence budget, with a significant gap between the rhetoric of the DSR and the budget itself. The timing of the DSR meant that it reached the staff compiling the defence budget very late in the annual process.
The nuclear-powered submarine program, announced in March 2023, is of unprecedented complexity for any government project. Defence is expected to provide additional funds for new programs responding to the DSR, such as long-range strike capabilities or the hardening of northern Australian bases, by obtaining savings from other programs.
While funding continues to move faster than the predicted annual rate of inflation, there is a need to clarify the capability implications of the DSR and accurately reflect these in the budget. Australia must invest in defence capabilities that are commensurate with the challenges of the strategic environment.
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Aged care
The target population for aged care services includes individuals aged 65 and above, as well as Aboriginal and Torres Strait Islander (First Nations) people aged 50-64. Spending per person in this demographic group increased by 14% during the same period, from $5,354 to $6,097. It is worth noting that most individuals utilizing aged care services contribute to the cost based on their financial situation.
Government spending on aged care varies across different states and territories. In the 2023 fiscal year, South Australia had the highest spending per person in residential care ($3,896), followed by Victoria ($3,643). South Australia also led in spending for home care and support ($2,192), with Queensland in second place ($2,067). The Northern Territory had the lowest spending rates in these categories, with $1,758 for residential care and $1,358 for home care and support.
The Australian government has provided additional support to aged care providers impacted by the COVID-19 pandemic. This support included the Aged Care Outbreak Management Supplement and the 2023 COVID-19 Aged Care Support Program Grant, assisting providers in managing the financial burden of COVID-19 outbreaks.
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Food retail
Australians continue to spend a significant amount of their money on food retail. Despite a general slowdown in spending across the country due to cost-of-living pressures, inflation, increased demand, and soaring interest rates, food retail remains a priority for consumers. This trend is reflected in the data from the Australian Bureau of Statistics, which shows that while spending in other sectors has flatlined or declined, food retail continues to attract consumers.
The impact of the cost-of-living crisis has led Australians to become more discerning about their purchases, with many seeking discounts and bargains before spending their money. However, food retail remains a necessity, and Australians are still allocating a substantial portion of their budget to this category. This is evident in the steady year-on-year growth in Australia's food retail revenue, with the industry generating over 168 billion Australian dollars in 2023.
The food retail landscape in Australia is diverse, encompassing both online grocery shopping and physical supermarkets. The rise of online grocery retail has been notable, with an increasing number of Australians opting for the convenience of purchasing groceries from the comfort of their homes. This shift towards online shopping was accelerated by the COVID-19 pandemic, which changed daily routines and encouraged many to explore online shopping for the first time.
While online grocery retail has gained traction, supermarkets continue to play a significant role in the food retail industry. Higher food inflation has contributed to reported sales growth for supermarkets. Additionally, the industry has witnessed a normalization of dining out, leading to stronger growth for cafes and restaurants and a slight decline in supermarket sales.
The dynamics of the food retail market in Australia are influenced by various factors, including price inflation, rising wage costs, and the reallocation of consumer spending. Retail inflation is projected to reach 4% or more, presenting both opportunities and risks to revenue. Wage cost growth is also expected to impact the industry, with higher staff turnover and training costs posing challenges. Despite these challenges, the food retail industry in Australia remains robust, reflecting the essential nature of food purchases in the lives of Australians.
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Frequently asked questions
From 2002-03 to 2012-13, the largest contributors to the growth of Australian government spending were social security and welfare, and health, which together accounted for over half of the growth in total spending.
Social security and welfare spending includes spending on the Age Pension, the Disability Support Pension (DSP), Family Tax Benefit, and Aged Care.
Health spending includes spending on the Medicare Benefits Schedule, and increased payments to the States and Territories for public hospital services under the National Health Reform payment.
In 2022-23, Australia spent an estimated $252.5 billion on health goods and services, which was around $9,597 per person.
Australia has one of the most pronounced vertical fiscal imbalances globally, with states and territories collecting only 18% of governmental revenues but responsible for nearly 50% of the spending areas. This centralisation of revenue collection has influenced state policy in areas beyond the scope of its constitutional powers, such as spending on education, health and policing.
