Unlocking the productivity dividend of digital government

Australia has the opportunity to improve public sector productivity by accelerating digital government, capitalising on its global leadership in this area

Australia has made strong progress in digital government transformation and global leadership, but is now at risk of falling behind its peers and facing a widening gap with the private sector. Accelerated cloud adoption – and the role it plays enabling AI – presents a significant opportunity to further boost productivity and strengthen Australia’s digital government leadership.

Public cloud is a foundational enabler of modern government services, providing flexible, scalable computing resources that support productivity gains and improved service delivery. However, over 70 per cent of agencies still rely on legacy IT. These systems are costly to maintain, pose significant cybersecurity vulnerabilities, and inhibit innovation across government.

This report focuses on the benefits of accelerating public cloud adoption across the Australian Government.

The Government could unlock $1.4 billion a year in fiscal savings and productivity gains to 2035, through public cloud's efficient use of IT labour and infrastructure

Accelerating cloud adoption by five years could save the Australian Government $3.4 billion over the next four years, and $13.5 billion by 2035. This represents an average annual saving of $1.4 billion over the decade, and a 13 per cent reduction in total IT expenditure compared to a business-as-usual scenario – equivalent to more than half of the Government’s Future Made in Australia commitments. This is an opportunity not just to save but to reinvest in higher-value outcomes.

These fiscal savings reflect productivity gains from more efficient use of IT labour and infrastructure. Reduced infrastructure and software costs account for over $10 billion, while lower external IT labour expenses account for $2 billion. IT staff generate an additional $1.3 billion in productivity gains by shifting from routine maintenance to higher-value activities.

These efficiencies enable government agencies to reduce total IT budgets by 7 to 28 per cent through 2035, with larger agencies delivering most of the savings.

Cloud infrastructure unlocks additional benefits across security, productivity, and sustainability

Faster cloud adoption can support an additional $5 billion in productivity gains for the Australian Government by enabling widespread use of AI tools.

The Australian Government's 2024 trial of Microsoft Copilot demonstrated these benefits. Participants saved around one hour daily, with 40 per cent of the time saved reallocated to higher-value activities, including strategic planning and service improvement.

Additional benefits supported by cloud capabilities include:

• Enhanced cybersecurity, preventing $178 million in potential breach costs.
• Improved operational resilience, with 2.9 million hours of IT downtime due to system outages avoided.
• Environmental sustainability, with a 14 per cent reduction in the government's carbon footprint – equivalent to taking over 205,000 cars off the road.

The Federal Government can consider three key areas to drive digital transformation and realise these benefits

Success requires coordinated action across three key areas:

1. Modernise procurement frameworks, with more flexible financing that supports consumption-based cloud models and expands procurement evaluation to assess innovation, security, and measurable business outcomes.
2. Strengthen governance mechanisms across government, amplifying the mandate of the Digital Transformation Agency (DTA), setting clear goals for digital transformation, and establishing coordinated mechanisms between key committees.
3. Establish industry partnerships, with co-investment models that share transformation risks, build sovereign capabilities, and invest in skills across the Australian Public Service.

Leading examples from the US Technology Modernization Fund, the UK's Government Digital Service, and the NSW Government’s partnership with Microsoft demonstrate how coordinated approaches can drive transformation, support national capability development, and improve the delivery of government services.

Read the full report here.