The contribution from government spending to Australia's GDP growth, in one chart

(Joe Woolhead / Getty Images)
  • ANZ says government spending will continue to be a strong contributor to Australian GDP growth through to 2020.
  • Part of that will be driven by a surge in government investment, as big infrastructure projects ramp up.
  • Government consumption spending will also rise over the next three years as the National Disability Insurance Scheme is rolled out.

  • Government spending continues to to play an integral role in boosting Australia’s near-term growth prospects.

    The economics team at ANZ say that will come as no surprise to Sydney and Melbourne dwellers, where big infrastructure projects “are highly visible — if not trip-overable”.

    But government spending isn’t being driven solely by the surge in infrastructure spending, as the big east coast capital scramble to catch up with population growth.

    “The disability sector has also started growing, and will swell in the coming three years as the Commonwealth and states pump billions into the National Disability Insurance Scheme (NDIS),” ANZ said.

    The net result is that government spending and investment has contributed at least 1% to GDP growth in each of the last three years (GDP growth has averaged around 2.5% in that time).

    That followed three years of smaller contributions, when both the Commonwealth and state governments put a focus on cost-cuts.

    And as the chart below shows, ANZ expects that to remain the case for the next 12 months:

    Source: ANZ Bank

    “We see the public sector continuing to expand at an increasing rate in 2018-19,” ANZ said.

    Then contributions from government investment will be slightly less stimulatory in 2019/20, as major projects including the NBN begin to phase out.

    However, ANZ expects government consumption — which itself accounts for around one fifth of GDP — will continue to grow.

    Core components of government consumption include items such as the pharmaceutical benefits scheme, defence employee compensation, government consultants and public universities.

    ANZ expects spending to rise by around 5% per annum in nominal terms.

    That’s slightly above consensus government forecasts of 4.25% for 2018/19, but governments have a tendency to undershoot forecasts because it improves their fiscal projections.

    There are also three elections coming up, which usually act as a catalyst to boost spending.

    “Pressures on governments to spend will remain high against the backdrop of the new NDIS and a growing population with an increasing propensity to spend on services which are fully or partly government funded,” ANZ said.

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