Overview: A spike in military-related compensation tied to broader budget outcomes
The 2024-25 budget results show an underlying deficit of about $10 billion, a notable improvement from the $28 billion gap forecast before the election. Yet behind the headline numbers lies a significant drag on staffing costs in the public sector, driven largely by a surprise surge in workers’ compensation premiums and claims. In the final year of the current cycle, the government spent far more on employee expenses than forecast, complicating efforts to balance the books.
What drove the increase in public sector pay and benefits
Public sector wages and superannuation were higher than projected, with total employee and retirement expenses reaching $78.4 billion compared with the forecast of $65.1 billion. The lion’s share of the variance—roughly $11.4 billion—came from workers’ compensation. In raw terms, the government spent about $17.2 billion on workers’ compensation premiums and claims, well above the $5.8 billion forecast prior to the election.
Analysts note that the bulk of the increase appears linked to revaluations by the Australian government actuaries related to the military rehabilitation and compensation scheme. This scheme provides rehabilitation and compensation coverage for injuries and health conditions arising from service for Australian Defence Force members who served on or after July 1, 2004.
How military rehabilitation and veteran claims feed into the budget
The military compensation component is sprawling: it affects several line items and tables in budget documents, a point highlighted by the finance team when noting timing differences. In essence, when the military rehabilitation and compensation scheme revalues liabilities or adjusts estimates for veterans’ benefits, those movements ripple through the overall expense picture, sometimes creating larger near-term deficits even as policy aims are achieved in the longer term.
Finance Minister Katy Gallagher said that while some expenses rose due to timing, the military compensation scheme remains a central element of those movements. “The big moving part there is the military compensation scheme,” she said, underscoring that these costs echo through multiple budget lines.
Deficits, backlogs and ongoing commitments to veterans
Backlogs in veterans’ claims have been cited in previous official notes as contributors to budget pressures. In December 2024, the mid-year update flagged an extra $1.8 billion to be spent on payments to Defence veterans over a four-year window, reflecting a sustained commitment to veterans’ welfare even as fiscal targets are recalibrated.
Beyond the military compensation scheme, there is ongoing attention to how public sector pay rises are captured in forecasts. The government notes that some APS pay increases were already factored into forecasts, but the actual spending path can still surprise when labour costs and benefit liabilities move together with demographic and adjudicatory changes in veteran supports.
Implications for policy and the budget trajectory
The contrast between the improved headline deficit and the rising wage and compensation costs spotlights a central budget tension: how to fund critical veterans’ services and military rehabilitation while maintaining fiscal discipline. The government argues the deficit improvement shows room for strategic investments and reforms, but critics warn that shock spikes in compensation liabilities stress the machinery of budgeting and forecasting.
Going forward, the government is likely to focus on more precise actuarial assumptions, better alignment of back-office processes, and a clearer schedule for when retroactive or revaluation effects hit the ledger. The aim would be to dampen volatility in the deficit while preserving the integrity of veterans’ care and military rehabilitation programs.
What this means for taxpayers and service members
For taxpayers, the message is one of trade-offs: substantial commitments to veterans and military families are paired with the need for prudent spending controls in other areas. For serving personnel and veterans, the reforms and revaluations signal ongoing attention to care, compensation and rehabilitation—the backbone of Australia’s promise to those who served.
Looking ahead
As the budget cycle continues, officials will balance continued support for veterans with the obligation to keep public finances on a sustainable path. The role of military compensation costs will remain a key variable in forecasting, legislation, and the annual budget update process, influencing both policy design and the public-sector payroll landscape.
