Cloud & AI adoption could save Australia AUD $13.5bn by 2035
New data by Microsoft and Mandala has revealed that accelerating cloud adoption in government could save the Australian Government AUD $3.4 billion over four years and AUD $13.5 billion by 2035.
Productivity potential
The report, titled "Unlocking the Productivity Dividend of Digital Government," examines the impacts of modernising legacy IT systems and moving to cloud and AI-enabled platforms. Findings show this digital shift could deliver an average saving of AUD $1.4 billion annually - equivalent to a 13% reduction in all government IT costs. Savings of this scale would typically only be achievable through major programme cuts or tax increases, emphasising the fiscal impact of digital transformation.
Key sources of savings cited in the report include reduced infrastructure and software costs of over AUD $10 billion, lower external IT labour costs estimated at AUD $2.1 billion, and increased productivity from internal IT staff amounting to AUD $1.3 billion. Depending on agency size, IT budgets could be reduced by up to 28% over the decade. Larger agencies are expected to see the greatest gains, while smaller departments are already adopting digital practices at a faster pace.
"Today, only 10 per cent of government IT spending is on public cloud, so agencies are relying on systems that can't actually support the AI tools and productivity improvements government needs. Accelerating cloud adoption would drive productivity gains that would unlock $1.4 billion every year. These changes would free staff to focus on higher-value work and transform how government delivers services to the public." – Tom McMahon, Partner at Mandala
The report points out that most Commonwealth entities continue to use legacy IT systems, representing over 70% of technology infrastructure. These systems are costly to maintain, vulnerable to cyber threats, and inhibit innovation. In contrast, cloud-based infrastructure supports secure and scalable public services, enables collaboration, and allows for pay-as-you-go models, avoiding unnecessary expenditure on excess capacity.
AI and digital government
According to the report, cloud technology is a prerequisite for deploying artificial intelligence (AI) at scale across government. Mandala estimates this could unlock an extra AUD $5 billion in productivity gains through AI by 2035, a 63% rise compared to current estimates if legacy networks remain in place.
The Australian Government trialled Microsoft 365 Copilot, with results showing participants saved approximately one hour daily on routine tasks such as document drafting and content summarising. Of those surveyed, 70% reported increased speed, 61% observed quality improvements, and 40% indicated time savings were reallocated to higher-value work such as planning and engagement.
Security and resilience
The report addresses the risks of legacy IT, highlighting increased vulnerability to cyber breaches. With 163 data breaches reported in 2024 - the second highest among industries - the transition to cloud systems could prevent AUD $178 million in breach-related costs over the next decade. Cloud platforms also limit IT downtime, with anticipated savings of AUD $82 million and the prevention of 2.9 million hours of lost productivity.
Environmental benefits are also identified. Accelerating cloud adoption could reduce government IT carbon emissions by 14% over ten years, equating to around 480 million kilograms of carbon dioxide - the equivalent output of roughly 205,000 cars per year.
Implementation challenges
The report notes that several obstacles hinder faster cloud uptake. Many agency procurement processes still favour capital expenditure models over ongoing operational funding. Additionally, a risk-averse organisational culture and gaps in digital skills slow the transition. Only one quarter of agencies currently provide digital transformation training to their staff, with larger organisations facing the most acute challenges due to the complexity of legacy systems and siloed data.
"The TCA supports the use of tech by government to improve the way data is managed and services are delivered. Making the most of the improvements and efficiencies offered through digital solutions is part and parcel of seizing the broader national opportunity tech provides." – Damian Kassabgi, CEO, Tech Council of Australia
Pathways for reform
The Mandala report sets out three primary recommendations to speed up cloud adoption. These include modernising procurement and funding by moving to operational expenditure models aligned to cloud consumption, strengthening governance leadership by empowering the Digital Transformation Agency to oversee national targets, and fostering closer partnerships between government and industry to facilitate training and minimise risk. The report references international models, such as the United Kingdom's Government Digital Service, as examples of effective, centralised governance supporting digital delivery.
"We can properly digitise government or keep burning money on outdated systems, it's that simple, and this report makes it too stark to ignore. Cloud and AI can lift service quality for all Australians, while at the same time lifting national productivity by cutting red tape. Our public sector can lead the digital race and we must act now or be left behind. Australia could be saving billions by simply getting up to speed on new technologies in our departments and agencies," – Bran Black, Chief Executive, Business Council of Australia
Microsoft and Mandala's report positions cloud and AI adoption as essential for national productivity, operational resilience, and public service delivery. The proposed reforms aim to help the public sector lead in digital transformation, thereby delivering significant monetary, security, and environmental benefits across the Australian economy.
