The Australian Government could unlock $A1.4 billion in annual productivity gains and cost savings by accelerating its migration to public cloud infrastructure, according to new research from consulting firm Mandala Partners, commissioned by Microsoft.

Their report reveals 71% of Commonwealth agencies still rely on legacy IT systems, and found that only 10% of total government IT procurement expenditure currently goes toward public cloud services, with smaller agencies leading adoption due to greater flexibility and less complex IT environments.

Accelerating cloud adoption by five years could deliver $A13.5 billion in total savings by 2035, representing a 13% reduction in IT expenditure compared to business-as-usual scenarios. The analysis shows government agencies could reduce their total IT budgets by between 7% and 28% over the decade through 2035, with larger agencies delivering the majority of savings.

The research identifies significant cybersecurity vulnerabilities in current infrastructure, with the Australian Government recording 163 data breaches in 2024 – the second highest of any sector.

One legacy IT product still in use across government agencies has accumulated 1,653 known Common Vulnerabilities and Exposures in just five years since reaching end-of-life, with almost 30% categorised as severe.

Cloud migration could prevent an estimated 70 cyber incidents over the next decade, potentially saving $A178 million in breach-related costs through advanced security capabilities including automated threat detection, realtime monitoring, and AI-enhanced protection systems.

AI and Automation Drive Productivity Gains

The report highlights substantial productivity benefits from cloud-enabled AI adoption, with an additional $A5 billion in productivity gains possible through widespread deployment of AI tools. The Australian Government's 2024 trial of Microsoft Copilot demonstrated these benefits, with participants saving up to one hour daily and 40% of saved time reallocated to higher-value activities including strategic planning and service improvement.

Cloud infrastructure would also support a 14% reduction in the government's carbon footprint and prevent 2.9 million hours of IT downtime through improved system reliability and automated failover mechanisms.

The research identifies structural, cultural, and capability barriers preventing faster cloud adoption. Key challenges include budget frameworks that favour traditional short-term capital expenditure over operational expenditure models, risk-averse cultures that prioritise the status quo, and skills gaps with only 25% of agencies offering transformational learning programs for digital capabilities.

The report recommends three key intervention areas: modernising procurement frameworks to support consumption-based cloud models, strengthening whole-of-government governance and coordination, and establishing strategic industry partnerships with co-investment models to share transformation risks.

Australia Risks Digital Leadership Position

The findings come as Australia has fallen from 2nd to 8th place in the UN E-Government Development Index since 2018, with countries like Denmark, Singapore, and the UK advancing through comprehensive cloud-first strategies. Australia currently ranks 10th in the Oxford Insights Government AI-Readiness Index, behind leading digital government nations.

On-premise infrastructure can be up to 10 times more costly than equivalent public cloud configurations, according to the analysis, which examined total cost of ownership including both capital and operational expenses.

The research suggests that faster cloud migration could deliver savings equivalent to more than half of the Australian Government's $A22.7 billion Future Made in Australia commitments, while simultaneously improving service delivery and enabling next-generation digital services.

The full report is available here.