Since the change of government in 2013, annual expenditure on labour contractors for 18 of the largest workplaces has ballooned from $318 million to more than $730 million as the Coalition imposed staffing caps and shed public servants.

Defence's spending on contractors hired through recruitment agencies last year was the highest among major agencies, growing to $155 million from $23 million in 2012-13 as its staff headcount fell by nearly 4000 to 18,400.

The giant Human Services Department more than doubled its spending for on-hire labour contractors to $71.3 million from $31.1 million as its workforce shrank by nearly 2000 public servants.

Social Services doubled its yearly on-hire labour spending from $50 million to $99 million in the last five years while cuts to Health Department staff have coincided with a growing bill for contracted labour, reaching $115 million last year.

Agencies have revealed their spending on contracted labour to a parliamentary inquiry, which is investigating the Coalition government's use of contractors after a 2017 audit report showed its moves to cut 15,000 public service jobs coincided with a doubling in spending on consultants.

While the Auditor-General uncovered a growing spend on consultancy contracts for "specialised or professional skills", agencies have also detailed their growing use of contracted labour unrelated to consultancy work and commonly used for IT, engineering, recruitment and business administration.

Most agencies reported their spending on "on-hire" labour contractors found through recruitment agencies, while Home Affairs, Finance and Social Services did not break down their contracts into those hired through external providers and those contracted directly. Many departments spent further on contractors directly hired for short-term needs.

The Tax Office tripled its annual spending on labour hire through recruitment agencies, growing from $15 million to $44 million in the five years to 2017, a period which saw its workforce shrink by 4200.

It told the inquiry labour hire supported the agency during workload peaks, supported staff in temporary projects and brought in specialised skills in short supply.

Agriculture's spending for on-hire labour contractors more than tripled, reaching $43 million last year, while the Department of Industry, Innovation and Science ($28 million), the Bureau of Meteorology ($24 million) and Education ($21 million) were among other agencies that drew most on contracted labour.

Home Affairs, which absorbed the former Immigration department in December, said it poured $37 million into temporary personnel services last year.

Defence, one of the largest departments in the Australian Public Service, said some branches used contractors after its workforce was downsized and reshaped following an agency review and the Defence white paper.

"It is important to note that the technical and specialised skills Defence is now seeking are also being sought by both the private and public sector generally which is creating significant competition in the market," it told the inquiry.

Defence, whose former secretary Dennis Richardson grew frustrated with its growing contractor spending after deep staffing cuts, said a new plan would force it to make more "deliberate decisions" about the department's workforce needs, and reduce spending on contracted labour.

The Community and Public Sector Union, which has long opposed the government's growing use of contractors, said its average staffing level cap was driving labour hire and outsourcing.

"The practical effect of the ASL cap is that while agencies have the funding, including new program funding, to hire additional staff, the cap is forcing them to avoid any direct employment of additional staff and instead engage casuals, hire contractors and use labour hire to do work that would normally be performed by permanent APS employees," it said.

ANU Crawford School of Public Policy director Helen Sullivan said agencies using contractors for non-specialist work that could be done by public servants would not get value for money.

"You're also not growing the capacity of your organisation because all of those skills grow outside the agency," she said.

"It doesn't necessarily give you people who have any attachment to the organisation and a sense of what the organisation's values are, which means they can actually be less effective at work."

The Centre for Policy Development, chaired by former Department of the Prime Minister and Cabinet secretary Terry Moran, told the inquiry that public sector capabilities eroded or given up through outsourcing were also likely to have inflated the spend on consultants and contractors.

"Once lost or forgotten, these capabilities and competencies are costly to replace," it said.

The inquiry will hold a public hearing on March 23 in Canberra.