Australia’s unemployment rate is currently tracking at a historically low 4.3% and the Reserve Bank of Australia’s (RBA) latest Statement of Monetary Policy forecasts that it will remain at around its current level until the end of 2027.
The primary reason why Australia’s unemployment rate is so low is because government spending has driven a record boom in non-market sector jobs, which are primarily funded by governments.
The non-market sector includes the traditional private sector, as well as education, health, and social assistance.
As illustrated below by Alex Joiner from IFM Investors, the non-market sector accounted for 78% of jobs created between Q1 2023 and Q2 2025:
In a similar vein, the following chart plots job growth by industry between May 2022 (when Labor was elected) and August 2025 (latest available data).
Of the total 1,155,000 jobs created over this period, 617,100 (53%) were in the non-market industries of healthcare, social assistance, education, and public administration and safety.
Australia’s labour force is growing by nearly 40,000 per month courtesy of historically high net overseas migration.
Therefore, if job creation slows down, then Australia’s unemployment rate will necessarily rise, other things being equal.
Federal and state governments are now embarking on austerity measures amid ballooning debt.
For example, the Finance Department has told cabinet ministers and public service department heads that it expects them to come up with spending cuts of up to 5% to their annual budgets.
The cuts are in response to a surge in public service wage costs and forecast projected budget deficits for the next decade, and it is understood that departments are already laying off non-permanent contractors.
In addition, departments are reducing their headcounts through natural attrition and a freeze on hiring for non-essential roles, while voluntary redundancies for permanent public servants are seen as being inevitable if cost-saving targets are to be met.
For example, Treasury plans to cut 250 jobs over two years, a 15% headcount reduction from its average staffing level of 1600 in 2024-25.
The CSIRO last week announced it would shed up to 350 positions, in addition to more than 800 roles it has cut over the past two years.
At the May federal election, Labor pledged to find $6.4 billion of savings in the public service across four years.
The federal government has also announced measures to slow the growth in the NDIS, which has been one of the largest drivers of federal spending and overall employment growth.
Last week, Canberra also told the states to rein in public hospital spending “to more sustainable levels”, if they want the Commonwealth to continue contributing 42.5% of public hospital costs.
The upshot is that cost-cutting measures by federal and state governments are likely to slow the growth in non-market sector jobs, removing one of the economy’s key supports.
With the labour force continuing to expand aggressively via immigration, this suggests that Australia’s unemployment rate will rise above the RBA’s optimistic forecasts.
