Capital expenditure by the public sector

IBISWorld forecasts public sector capital expenditure to fall by 1.2% in 2025-26 to $143.6 billion. A reduction in federal and state government capital expenditure is anticipated to drive this trend. A raft of mega-projects, like the Western Sydney International Airport build, have passed their peak construction phase or ended, like the Local Roads and Community Infrastructure, which ended in June 2025. As large, high-value projects wind down, they remove substantial spending injections, lowering overall capital expenditure by the public sector.

After pandemic delays through 2021-22, the governments brought forwards and delivered a backlog of capital works, supported by very low interest rates and a large national infrastructure pipeline. States accelerated transport and social infrastructure, while the Commonwealth continued co-funding major roads and rail and progressed Western Sydney Airport and related links. The Federal Government committed an additional $1.5 billion to the Local Roads and Community Program, with the total commitment rising to $3 billion in 2022-23. In addition, the government is investing an additional $3.1 billion in the Melbourne Intermodal Terminal Package.

Elevated inflation, workforce shortages and supply constraints in 2023-24 prompted a shift in the 10-year project pipeline towards deliverability, leading to several projects being rephased rather than cancelled. At the same time, investment in energy-transition infrastructure, like grid upgrades, storage and firming, continued to rise, while state governments maintained health and education programs under stricter cost controls.

The 2025-26 Budget maintains the refocused 10-year road and rail pipeline, supported by new multi-year funding commitments. It allocates up to $4.5 billion for housing-enabling initiatives through the Housing Support Program and the New Homes Bonus and commits a further $10.6 billion over four years and $57.6 billion over the decade to Defence. Defence investment is now shifting from planning to early delivery, particularly for enabling infrastructure and industry capacity linked to AUKUS and guided-weapons manufacturing. Overall, IBISWorld forecasts public-sector capital expenditure to grow at a compound annual rate of 3.7% over the five years to 2025-26.