Political Economy: The Market for Government Contracts and Influence

by Dan Andrews, Elyse Dwyer, Theo Gibbons, Matthew Maltman, Adam Triggs

The e61 Institute has published new research on the state of play in the government contract market, and how it may affect competition in the broader economy. The value of government contracts in Australia has more than quintupled over the past decade to $190 billion in 2022, making the government dominant force with the power to impact market dynamics.

This research note finds that governments may be harming competition in this burgeoning area of the economy as:

  • Government contracting disproportionately favours older firms, and this preference is increasing over time.
  • There may be barriers in the procurement process preventing newcomers from challenging incumbents.
  • Larger firms are claiming an increasing proportion of government contracts.

We also find that firms that contribute to political parties are more likely to secure government contracts and operate in heavily regulated industries. However, causality is difficult to establish and there may be other factors at play.

Our research shows that governments contracting decisions – including choosing larger, politically connected firms – have the potential to impact competition.