S&P Warns High Government Spending Threatens Australia's Fiscal Health

S&P Global Ratings warned that near-record high government spending threatens the long-term fiscal health of Australia. Federal government payments reached 26.9% of GDP in the 2025/26 financial year, marking the highest level in 40 years outside of the COVID-19 pandemic. While current tax revenues support these levels, analysts caution that structural spending increases in social security, aged care, and defence could become problematic if unemployment rises or commodity prices fall.

S&P Global Ratings noted that this spending level complicates efforts by the Reserve Bank of Australia to curb inflation. Reserve Bank Governor Michele Bullock attributed price growth to stagnant productivity and domestic capacity pressures. In response, Treasurer Jim Chalmers argued that private final demand growth has tripled while public demand growth has halved, suggesting other factors are driving the trend.

Simultaneously, the Australian Institute of Company Directors called for a national conversation on risk levels to address economic stagnation. The organization reported that reducing regulatory burdens to levels seen in the 2000s could boost the economy by $20 billion annually.