Economists have warned that Labor may be forced to lift spending limits for agencies ahead of the mid-year budget update as federal government departments face pressure to absorb million-dollar blowouts in public sector wage rises.

The $841 million overspend on public sector wages for 14 departments in 2024-25 could contribute to higher government spending – already forecast to reach 27 per cent of gross domestic product in 2025-26 – if Labor increases departmental spending allowances to ease pressure to cut costs.