At least $16 billion was spent on aiding various industries in 2020/21, a $4 billion increase on the previous year, a report by the Productivity Commission has found.
That figure does not include JobKeeper and several other emergency relief measures, introduced by the former Morrison government, which are estimated to have collectively cost about $92 billion.
About $2.4 billion, or 15 per cent of the total budgetary assistance in 2020/21, went towards targeted pandemic-related programs, with the transport, construction and arts and recreation sectors the major beneficiaries.
The primary production and manufacturing sectors received a "disproportionately large" amount of help relative to the net value of their output.
Productivity Commission deputy chair Alex Robson says with unemployment at its lowest rate in almost 50 years and inflation soaring, the Albanese government must ensure assistance to industry is "efficient and effective".
"During the early stages of the pandemic, government assistance to Australian businesses and households rose. Many needed support at that time," he said on Friday.
"The challenge is to roll back this assistance as conditions improve, to avoid overheating the economy."
Dr Robson said while COVID-19 assistance was being progressively wound back, Australia faced a challenging environment amid a resurgence in global protectionism and the need for businesses to transition to net-zero emissions.
He said industry assistance, while often motivated by a desire to address market failures, encouraged "rent-seeking behaviour", which undermined innovation and productivity growth.
"The task now is to make sure every dollar of assistance is efficient, effective and remains absolutely necessary," Dr Robson said.
"This includes making sure we aren't creating trade barriers through costly and obsolete tariffs."
The commission's annual review of trade and assistance also found that while Australia had largely eliminated "nuisance" tariffs of between zero and five per cent, businesses still faced significant compliance costs when importing goods.
These costs were generally passed along the supply chain to consumers.
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