5 Fastest-Growing Budget Strains Australia Must Tame in 2025

People visit the Christmas display windows at David Jones in the central business district (CBD) in Sydney, Australia on Dec. 6, 2024. Lisa Maree Williams/Getty Images

Australia’s Mid‑Year Economic and Fiscal Outlook (MYEFO) revealed a widening gap between government spending and the amount of revenue coming in.

The combined deficit over the next four years is projected to reach $143.9 billion (US$89.57 billion), about $21.8 billion worse compared to prior forecasts.

This is all pouring into Australia’s overall debt, which is slated to pass the $1 trillion mark in the 2025-26 financial year (pdf), accounting for 36 percent of GDP.

Finance Minister Katy Gallagher has maintained the government is controlling spending.

“We’ve got some big pressures coming on to the budget. We’ve been talking about that those for a while: aged care, health care, NDIS, defence, and paying interest on the government’s debt. And I think we’ve made progress in all of those areas,” she told ABC Radio National in December.

“We’ve put in reforms the NDIS, we’ve put in reforms to aged care, and both of those are showing improvements in MYEFO,” Gallagher said.

The MYEFO showed an overall 5.7 percent uptick in spending, with signs economic growth is unlikely to catch up.

Below are the five fastest growing budget pressures that voters should be aware of and that the Australian government will need to get under control in the next 10 years.

5. Medical Benefits

Payments related to the Medical Benefits Program—including services like the universal healthcare service Medicare, which covers health and hospital services—will increase by 5 percent each year from 2024-25 to 2034-35.

In 2024-25, taxpayers will contribute an extra $292.2 million, and $1.2 billion over the next four years to 2027–28.

Budget update documents say there has been a “higher than expected demand for medical services.”

The Medicare logo is seen in Sydney, Australia, on May 23, 2016. Brendon Thorne/Getty Images

4. Hospital Funding

More Australians are relying on public hospitals for care, according to the Australian government, with funding set to ratchet up over 6 percent each year for the next decade.

It is believed contributing factors include Australians dropping their private health insurance, an ageing population, increase chronic and mental illness, inadequate GP access, and a global shortage of healthcare workers.

The Commonwealth’s contribution to the states and territories towards public hospital funding was estimated to be $28.4 billion in 2023–24, but much like the above Medical Benefits, the government says it had not anticipated the higher demand.

In the five years from 2025 to 2030, $13.2 billion of extra funds will flow into the hospital system.

3. Defence

The oft-talked about Defence Department accounts for the country’s third highest area of spending growth, with $55.687 billion slated for 2024-25.

Defence spending is expected to increase by an additional $50 billion into the next decade.

Costs mentioned in the Mid Year update include $545.5 million over two years to continue supporting Ukraine in the Russia-Ukraine war.

The government will also provide $600 million to extend and expand the Continuation Bonus for members of the Australian Defence Force (ADF) to stay in the military, as well as funding to the ADF’s Operational Reserves by an additional 1,000 personnel.

Members of the Australian Defence Forces (ADF) march during an Anzac Day parade in Brisbane, Australia on April 25, 2022. Dan Peled/Getty Images

Defence Minister Richard Miles said the government “has done an extraordinary amount of work to make sure that defence can live within their funding envelope.”

“We’ve lowered the debt burden and reduced the interest on that debt in the order of $70 billion.

“Each budget update and budgets are a set of decisions and balances, but on the structural side of the budget, I don’t think you would have found a government that’s done more to try and address those big structural spends than we’ve done in the last two years.”

2. NDIS

The National Disability Insurance Scheme has emerged as the second fastest area of government spending, and is expected to grow 8.2 percent per year instead of the 9.2 percent outlined in the federal budget.

Spending on the service has already blown out to $44.3 billion in the 2023-24 financial year—about $2.4 billion more than anticipated.

The National Disability Insurance Scheme NDIS logo is seen at the head office in Canberra, June 22, 2022. AAP Image/Mick Tsikas

The most recent MYEFO documents said the government was trying to deal with “growing pressures” on the network, but pledged funding to go to “those who need it most.”

The National Disability Insurance Agency, the overseeing body of the NDIS, will be provided with $280 million in the 2025-26 financial year to help fund the transition of ssparticipants to a new planning framework.

The government says it will continue to address growing pressures on the NDIS, and moderate growth in expenditure to ensure its sustainability.

1. Interest on Debt Repayments

Despite costing less overall compared to the previous spending areas, Australia’s interest payments on its debt are growing at the fastest rate, at 10.9 percent per year until 2034-25.

This is higher than the estimated 9.9 percent growth rate in the federal budget.

Australia has already paid $22.5 billion in just interest repayments from 2023-24.

A stock photo of a money box with an Australian one hundred dollar note printed on it in Sydney, Australia on Dec. 21, 2024. AAP Image/Bianca De Marchi

Calls for Faster Economic Growth

The latest MYEFO has spurred the Productivity Commission Deputy Chair Alex Robson calling for policies to spur faster economic growth.

“The data underscores the point that reinvigorating productivity is a national priority,” he said.

“Productivity is key to the health of the economy.

“Even small changes that make the economy more dynamic and efficient can deliver big economic dividends and add up to major improvements in real wages and living standards over time.”