Australia’s taxpayers finance a workforce of roughly 3.7 million people, about 40 per cent larger than the 2.6 million people counted in official public-sector statistics, according to new research examining who actually works for government, what they cost and what artificial intelligence is likely to change.
The study, the ninth report in The Balance Sheet research series, follows public money through all three levels of government, the contractor workforce and the publicly funded care sector. It also tests two longstanding claims about the public sector, that it is bloated and that it is under-resourced, against the available evidence, concluding that the answer depends on where you look.
One of the report’s central findings is that the public-service wage bill accounts for a much smaller share of government spending than many assume. Of every $100 of consolidated government expenditure, about $27 goes to public employees across all levels of government, while only $5.40 pays the entire Commonwealth workforce, including the Australian Defence Force. Around $17.70 goes to state employees, largely nurses, teachers and police, who make up most of Australia’s public workforce. As the report notes, “Anyone proposing to fix a budget by cutting public servants is negotiating with $5.40 of the Commonwealth’s $100.”
The workforce itself is dominated by frontline services. Nine in ten public-sector jobs are in health, education, public administration and public safety, while almost two-thirds of all additional public workers between 2019 and 2022 were employed in health. The report concludes that recent growth was driven primarily by nurses and pandemic-era administration rather than an expansion of policy roles.
Of every $100 of consolidated government expenditure, about $27 goes to public employees across all levels of government, while only $5.40 pays the entire Commonwealth workforce, including the Australian Defence Force
It also challenges the perception that Canberra has been the main driver of public-sector growth. The Commonwealth’s civilian workforce, at about 325,000 employees, remains smaller than it was in 1990, its share of public employment has fallen from 23 per cent to under 15 per cent, and about 70 per cent of Commonwealth employees work outside the ACT. Since 2019, the states have accounted for roughly seven out of every eight additional public-sector workers. The report notes, however, that the Commonwealth was the fastest-growing level of government in the latest financial year, with its wage bill rising 9.5 per cent.
The study also argues that headline employment figures exaggerate recent growth. A change in the Australian Bureau of Statistics’ methodology in 2022 means simple comparisons overstate the increase in public employment by roughly double. Adjusted for the series break, the report estimates public employment has grown by about 13 per cent since 2019, rather than 27 per cent.
Its signature finding centres on what it describes as the “invisible state”. Over the past two decades, disability services, aged care and childcare have increasingly shifted to privately operated organisations funded by government. The result is a workforce of about 1.1 million people, including around 350,000 in the NDIS, 456,000 in aged care and 268,000 in early childhood education, who are privately employed but publicly financed. “The workforce follows the money, and the money never left,” the report states.
On that broader measure, Australia’s direct public workforce, which represents 15.7 per cent of total employment compared with the OECD average of 18.4 per cent, would instead sit in the mid-20 per cent range once publicly funded private workers are included. International comparisons, the report argues, are therefore “largely comparing classification choices”.
Over the past two decades, disability services, aged care and childcare have increasingly shifted to privately operated organisations funded by government. The result is a workforce of about 1.1 million people, including around 350,000 in the NDIS, 456,000 in aged care and 268,000 in early childhood education, who are privately employed but publicly financed
The paper also examines public-sector pay, finding that the widely cited wage gap narrows substantially once workers in comparable occupations are compared. While raw earnings appear 11 to 16 per cent higher than in the private sector, the matched premium falls to about 5 per cent. That advantage is concentrated among lower-paid occupations and becomes a disadvantage for senior specialists, helping explain ongoing shortages of engineers, cyber-security specialists and other highly skilled professionals.
On artificial intelligence, the report finds evidence of change rather than contraction. A public-sector trial involving 7,600 staff recorded time savings of up to an hour a day on drafting and search tasks but no measurable improvement in productivity. Jobs and Skills Australia estimates that about 79 per cent of workers face a low risk of automation, with the greatest exposure among clerical processing roles. The report also argues that the robodebt royal commission has entrenched human accountability as a legal safeguard, making widespread automated government decision-making unlikely in the foreseeable future.
Looking ahead, the report concludes that Australia’s public workforce is likely to become less administrative and more human. AI, it argues, is more likely to reshape the composition of government than reduce its overall size.
Under three workforce scenarios extending to 2045, public employment ranges from 13.5 per cent to 18.5 per cent of the workforce. In every case, administrative processing declines while care-related roles expand. Under the report’s central scenario, nearly half of the next 100 publicly funded workers would be employed in health and care, followed by education, defence, policing and cyber security, with only six positions allocated to general administration.
The report points to a projected nursing shortfall of about 70,000 by 2035, more than 7,000 current police vacancies, and a care workforce expected to roughly double by mid-century
The shortages identified are overwhelmingly in frontline services. The report points to a projected nursing shortfall of about 70,000 by 2035, more than 7,000 current police vacancies, and a care workforce expected to roughly double by mid-century. Clerical employment, by contrast, is projected to shrink relative to the volume of work performed.
As with previous papers in the series, the report presents competing interpretations of the evidence, assigns confidence ratings to its findings and identifies gaps in the available data. Among the largest is the absence of consistent measures showing whether Australia’s public workforce has become more productive over time.
“The real question is no longer how many people government employs, but whether it can measure what those people produce,” the report concludes. “Australia has built roughly the public sector it needs. It cannot yet demonstrate what that sector produces, and until it can, every headcount argument is a proxy war.”
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