Budget insights for suppliers to the Australian government
By guest author, Connor Pearce
“Ambitious” but “responsible” – primed for reform but steady as she goes. Treasurer Jim Chalmers has delivered the 2026 federal budget, and it may be the most significant in years.
But beneath the headlines the budget contains significant signposts for how the federal government plans to engage with suppliers and contractors across all portfolios. Here we dig into the budget in four key areas to surface the insights businesses need now; and across the forward estimates as well as the unexpected opportunities hidden in the budget papers.
Defence Budget Insights
One of the few portfolios that can be relied upon to see increased spending, this year even Defence wasn’t immune from the expenditure review committee’s red pen. While overall spending will increase by $53 billion, much of that comes from the sell-off of surplus land and a reprioritisation of programs.
As outlined with the release of the Integrated Investment Programme in April, spending will be focused on uncrewed aerial and naval systems, with the government spending big on drones, including the Ghost Bat and Ghost Shark platforms.
While these are at the more pricey end of the drone marketplace, the Defence is also looking to Australian suppliers – particularly for cheaper drones and to build the military’s stockpile of missiles and missile interceptors – as global demand for these weapons heats up.
Management Consultancy Services
Government departments will continue to need to find savings from spending on consultants and outsourced labour hire, with the budget to include $64B in savings and reprioritisations, including $2.7B less on labour hire and non-wage public service spending.
Even Defence, which once served as the rivers of gold for consultancy contracts, has not been immune, committing to some of the largest spending cuts in dollar figures, falling from a massive $133.1B in 2021 to $41.1M last year, according to Tendertrace figures.
However, other departments have seen increases in spending on consultants, with the Department of Climate Change, Energy Environment and Water and the Department of Industry Science and resources increasing their consultancy spend by 167% and 62% respectively, according to Tendertrace, highlighting the ability of specialised and adaptive players to survive, even if spending on the big four declined.
Finance Minister Katy Gallagher has further found an additional $2.7B in savings this year by extending spending cuts on outsourced labour hire, as well as travel, hospitality and property expenses to 2029-30. This brings the total cut in expenditure to $14.8B since 2022-23.
In future years, however, with the public service also pushed to reduce headcount, there may be short-term opportunities available for well-placed talent to fill the gap.
IT and AI Budget Insights
An area where the government will continue to turn to outside specialists is in IT and AI services.
In the lead up to the budget, the Treasurer flagged further investment in the federal government’s digital identification system myID, with the Australian Taxation Office currently in the market (Tendertrace link to notice) for “Biometric verification capability” as part of further upgrades to the existing myGov platform, expected to cost $26.5M over the next three years.
The budget papers specifically outline projects including:
- $19.8M on Services Australia’s long-term ICT architecture strategy, including planning, feasibility assessment and proof-of-concept activities
- Critical ICT system remediation for Home Affairs, with the total amount not for publication.
Suppliers able to provide Australians with the ability to access digital government services securely could be in line for significant opportunities in future.
In addition, enterprise AI solutions to unlock housing and energy projects will be in demand, with the budget including a $105.9M commitment over four years to develop an AI tool to guide proponents and share environmental data, as highlighted in the Treasurer’s speech.
”“We’re seizing the vast opportunities from AI with grants to commercialise AI innovations and making government more efficient.”
The Hon Dr Jim Chalmers MP, Treasurer
Health and Aged Care
Another area that has been in focus for savings measures, Minister Mark Butler’s cuts to the NDIS are expected to deliver an additional $15B over the next four years as eligibility requirements are tightened and there is further focus on removing fraudulent providers from the system.
Implementing these and other changes Labour has sought to introduce to the flagship policy since coming to office have required the public service to turn to outside support, with calendar year 2025 seeing an uptick in spending on temporary personnel services connected to the NDIS, according to Tendertrace analysis.
Downstream of these reforms, however, will be more money flowing to the states for the “foundational supports” programs designed to provide services to children and young people that do not require the full NDIS package. This could see future state budgets returning to commissioning disability service providers, which had been less the case since the introduction of the NDIS.
Where to from here?
As Treasurer Jim Chalmers warns of a more challenging time ahead and urges the public sector to find savings where possible, well-placed and prepared suppliers in key sectors will be able to leverage opportunities in policy priority areas.
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