Government spending reaches 40-year high as RBA hikes rates
Federal government payments hit 26.9% of GDP in 2025-2026, the highest in 40 years outside the COVID emergency.
Australia's federal government spending reached 26.9% of gross domestic product this financial year, surpassing levels not seen since before the 2020 pandemic. Ratings agency S&P Global warns the problem is not immediate.
At 24.1% of GDP, tax revenue is at its highest level on record, except for 2004-2005 and 2005-2006, so the bills are being covered for now. The spending is structural in nature.
Defence, aged care, social security, and interest payments are all expected to stay elevated long term. If commodity prices fall or unemployment spikes, the tax windfalls will dry up.
Meanwhile, the Reserve Bank is raising interest rates to fight inflation while the government continues to spend. This means both policies are less effective than they could be.
- 26.9% of GDP
- Government spending
- 24.1% of GDP
- Tax revenue
- 40 years
- Highest spending outside
- S&P Global
- Agency rating
Why it mattersIf economic luck runs out, Australia could face a fiscal crunch; coordinated policy would help fight inflation faster and protect living standards.
AustraliaAustralians could face higher taxes or lower services if spending is not brought into line before revenue sources weaken.
✓ Claims checked against the source and corrected before publish. checked 1 h ago
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