It is well-known that government expenditure in Australia has grown apace in recent years. This paper presents the key facts about public expenditure growth in recent years and discusses its contribution to inflation.

It examines the trends in public final demand which is expenditure on goods and services by all public sector entities, whether they be federal, state or local, or in the general government or government corporation sectors. It is ‘final’ in the sense that it feeds directly into GDP and is not an intermediate expense on components of a final product.

There are signs of a structural realignment of the economy in favour of a larger public sector, which is crowding out the private sector. Even if inflation eases back to the target, this structural realignment will raise concerns about the implications for future taxation, public debt and productivity growth.