SEPTEMBER 2025 Contents Executive summary 1. Australia can unlock significant productivity gains by acceleratingits leadership in digital government5 2.Faster cloud migration could save the Australian Government$1.4 billion a year and modernise its operations12 This document is intended for general informationalpurposes only. The analysis in this report wascommissioned by Microsoft and prepared by Mandala. Mandala is an economics research and advisory firm.Mandala specialises in combining cutting-edge data andadvanced analytical techniques to generate new insightsand fresh perspectives on the challenges facingbusinesses and governments. 3.Government and industry should work together to reduceregulatory barriers and accelerate digital government26 Views and opinions expressed in this documentare prepared in good faith and based on Mandala'sknowledge and understanding of its area of business,markets and technology. Opinions expressed herein aresubject to change without notice. No part of thisdocument may be reproduced in any manner without thewritten permission of Mandala. 4. Appendices 33 © SEPTEMBER 2025 Note: All dollar figures are Australian dollars unlessindicated otherwise. Executive summary (I/II) The Government could unlock $1.4 billion a yearin fiscal savings and productivity gains to 2035,through public cloud's efficient use of IT labourand infrastructure Australia has the opportunity to improve publicsector productivity by accelerating digitalgovernment, capitalising on its globalleadership in this area Australia has made strong progress in digital governmenttransformation and global leadership, but is now at risk offalling behind its peers and facing a widening gap with theprivate sector. Accelerated cloud adoption–and the role itplays enabling AI–presents a significant opportunity tofurther boost productivity and strengthen Australia’s digitalgovernment leadership. Accelerating cloud adoption by five years could save theAustralian Government $3.4 billion over the next four years,and $13.5 billion by 2035. Thisrepresents an average annualsaving of $1.4 billion over the decade,and a 13 per centreduction in total IT expenditure compared to a business-as-usual scenario–enough to fund half of the Government’sFuture Made in Australiacommitments. This is an opportunitynot just to save but to reinvest in higher-value outcomes. Public cloud is a foundational enabler of modern governmentservices, providing flexible, scalable computing resourcesthat support productivity gains and improved service delivery.However, over 70 per cent of agencies still rely on legacy IT.These systems are costly to maintain, pose significantcybersecurity vulnerabilities, and inhibit innovation acrossgovernment. These fiscal savings reflect productivity gains from moreefficient use of IT labour and infrastructure. Reducedinfrastructure and software costs account for over $10 billion,while lower external IT labour expenses account for $2 billion.IT staff generate an additional $1.3 billion in productivity gainsby shifting from routine maintenance to higher-valueactivities. This report focuses on the benefits of accelerating publiccloud adoption across the Australian Government. These efficiencies enable government agencies to reducetotal IT budgets by 7 to 28 per cent through 2035, with largeragencies delivering most of the savings. Executive summary (II/II) Cloud infrastructure unlocks additionalbenefits across security, productivity, andsustainability The Federal Government can consider three keyareas to drive digital transformation and realisethese benefits Faster cloud adoption can support an additional $5 billion inproductivity gains for the Australian Government by enablingwidespread use of AI tools. Success requires coordinated action across three key areas: 1.Modernise procurement frameworks, with more flexiblefinancing that supports consumption-based cloud modelsand expands procurement evaluation to assess innovation,security, and measurable business outcomes. The Australian Government's 2024 trial of Microsoft Copilotdemonstrated these benefits. Participants saved around onehour daily, with 40 per cent of the time saved reallocated tohigher-value activities, including strategic planning andservice improvement. 2.Strengthen governance mechanismsacross government,amplifying the mandate of the Digital TransformationAgency (DTA), setting clear goals for digitaltransformation, and establishing coordinated mechanismsbetween key committees. Additional benefits supported by cloud capabilities include: ▪Enhanced cybersecurity,preventing $178 million inpotential breach costs.▪Improved operational resilience,with 2.9 million hours of ITdowntime due to system outages avoided.▪Environmental sustainability,with a 14 per cent reductionin the government's carbon footprint–equivalent to takingover 205,000 cars off the road. 3.Establish industry partnerships, with co-investmentmodels that share transformati