Employment numbers released this month reveal up to 37 per cent of the workforce in Commonwealth agencies are labour hire workers, as agencies turn to the private sector for staff to meet growing workloads.

Labor and the main public sector union say the government's spend on labour hire is wasteful and would be better invested in employing public servants.

But Finance Minister Simon Birmingham says labour hire has an important place, including for projects that are one-off and time sensitive, like those seen during the COVID-19 pandemic.

The figures, released to the Senate, coincide with government decisions in last week's budget to grow the public service and surpass a ceiling on in-house staffing levels it had maintained for several years, as Senator Birmingham admitted it was more "efficient and effective" to employ ongoing public service staff than contractors in some areas of spending.

Agencies tasked with delivering and monitoring some of the largest and most sensitive public programs are among those relying on labour hire workforces numbering well into the hundreds.

The Department of Veterans' Affairs has 1000 labour hire staff, about 37 per cent of its total headcount, as it responds to claims from ex-services personnel and tries to reduce wait times. It entered into $142 million worth of contracts for labour hire in the six months to December.

The National Disability Insurance Agency, where a quarter of staff are labour hire, entered $73.7 million worth of contracts supplying the workers in the last six months of 2020. At the NDIS Quality and Safeguards Commission, where labour hire workers comprise a third of the workforce, the figure was $6 million.

Among other agencies entering big-spending labour hire contracts in the six months to December were the Department of Education, Skills and Employment ($64.7 million), the weather bureau ($51.8 million), the Department of Social Services ($31.9 million), the Department of Finance ($31.5 million) and the Digital Transformation Agency ($14.7 million). Each agency reported large amounts of privately-employed staff sourced from external firms.

Labor's public service spokeswoman Katy Gallagher said the government had failed to adequately staff the public service by keeping its staffing cap, a policy that was eroding capability in government.

"This ridiculous policy has resulted in the loss of thousands of secure jobs and has led to the flagrant waste of taxpayer funds on expensive labour hire firms," she said.

"A public service gutted of capability and expertise is one that cannot properly meet the needs of the Australian community that it exists to serve.

"Departments still need to do the work but they can't do that under this government's staffing policy."

Community and Public Sector Union national secretary Melissa Donnelly said the hollowing out of public sector capacity had led to dangerous wait times facing veterans accessing support, constant backlogs suffered by NDIA participants, and wait times and unanswered calls at Centrelink.

Labour hire contracts were more expensive and less efficient - a point Senator Birmingham had conceded, Ms Donnelly said.

"The government has admitted it has a problem, but has stopped short in taking any action to address the real capability issues of its public service," she said.

"While CPSU members are glad the government has acknowledged the mess its ideologically fuelled attack on the public sector has made, the proof will be in what if any actions the government takes to fix the mess it has created."

Ms Donnelly said the budget failed to provide secure employment to labour hire workers in the Australian Public Service.

"If the government transferred all labour hire workers to secure APS positions today, it would walk away with huge savings it could reinvest in more staff to address the backlogs and wait times."

Last Tuesday's budget showed the government would end years of limiting public service staffing to 2006-07 levels, and would expand its ranks by about 5000 jobs next year. However, it will keep portfolio-level caps on public servant numbers.

In an about-turn for the Coalition, Senator Birmingham the next day acknowledged some agencies had been using large numbers of contractors for prolonged periods of time and within some portfolios the government would embrace ongoing public servants instead.

"The government has accepted after careful case-by-case assessments, including in some areas of new investment such as aged care and veterans, that it is more efficient and effective to use ongoing staff," he said.

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Senator Birmingham on Sunday said it was always the government's expectation that workforce decisions provide the best outcomes for taxpayers while allowing agencies to most efficiently and effectively respond to operational requirements.

Labour hire patterns fluctuated each year for different agencies, depending on operational pressures, he said.

"Labour hire has an important place in many areas of work, including for major transformational efforts as well as for roles that are seasonal, projects that are one-off and time sensitive, like those seen during the COVID-19 pandemic," he said.

"The budget process allows for the government to routinely scrutinise staff allocations to ensure they are optimal in the present environment, and to ensure any new pressures can best be met by reprioritising existing staff or by engaging new staff.

"For example, this budget includes measured and targeted increases in ongoing staff in areas where there has been new investments and where there will be elevated pressures such as aged care and veterans' affairs."

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