Overview: A costly year for public sector spending
The 2024-25 budget results show a surprisingly large spike in public sector employee expenses, driven largely by unexpected increases in workers’ compensation premiums and claims. While the overall deficit improved to a $10 billion underlying shortfall, down from forecasts of $28 billion before the election, the volatility in compensation costs has become a defining feature of the year’s finances.
What drove the spike in costs
In the final budget, total employee and superannuation expenses came in at $78.4 billion, versus the forecast $65.1 billion. The lion’s share of the discrepancy—$11.4 billion—was recorded in workers’ compensation. The government spent about $17.2 billion on workers’ compensation premiums and claims, well above the $5.8 billion it had forecast prior to the election.
The role of the military rehabilitation and compensation scheme
Analysts and officials attribute the bulk of the jump to revaluations by the Australian government actuaries related to the Military Rehabilitation and Compensation Scheme. Under the Military Rehabilitation and Compensation Act, Australian Defence Force members who served on or after July 1, 2004 are eligible for rehabilitation and compensation for injuries and health conditions connected to their service. The government argues that these provisions are essential for veterans’ care but acknowledge that the revaluations feed into some of the budget’s bigger, more persistent cost lines.
What the government is saying
Finance Minister Katy Gallagher pointed to “timing differences” in some budget items, emphasizing that the military compensation scheme is a significant driver of the changes observed in the spending tables. Treasurer Jim Chalmers echoed the sentiment that the year’s outcome includes both one-off factors and longer-term commitments. He framed the result as a notable improvement in the budget outlook within a single parliamentary term, even as critics argue the forecasts still underestimated ongoing costs.
Backlog relief and broader budget context
Clearing a backlog of veterans’ claims has long been identified as a driver of deficits. The latest mid-year update, released in December 2024, flagged an extra $1.8 billion to be spent on payments to Defence veterans over four years. That additional commitment sits alongside the broader surge in compensation-related expenses, illustrating how veterans’ support remains a central and contentious part of fiscal planning.
Implications for policy and future budgets
While the deficit headline improved, the underlying story is a reminder that compensation schemes—especially those tied to veterans’ rehabilitation—can inject volatility into annual budgets. Policymakers face the challenge of balancing fairness and predictable budgeting with the ethical obligation to support veterans and active service members. The public discourse now often centers on the appropriate pace of reforms to the act, how costs should be funded in a tight fiscal environment, and what “timing differences” mean for annual planning.
Bottom line
The $11.4 billion swing in workers’ compensation costs, propelled by military rehabilitation scheme revaluations, reshapes the narrative around the 2024-25 budget. As the government continues to work through claims backlogs and reform discussions, this episode underscores the enduring tension between obligation to veterans and the discipline of budget forecasting.
