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It's funny how even mainstream economists basically understand this, but keep doing it anyway because they understand how severe the ramifications would be of omitting it.
I recall Rothbard arguing that, if anything, government spending should be subtracted, rather than added.
1000 percent
Government spending is taxation which is legal plunder
An interesting note on this is that they are actually consistent in how regular crime is treated.
They don't subtract the monetary value of stolen goods, because they assume the thief gains just as much utility as the rightful owner would have, which is exactly the same assumption they're making with government spending.
But there is a zero sum effect with crime. One person benefits at the expense of the victim. It’s not a voluntary transaction
They count the spending in different places in these two cases, but it's the same idea.
You spend X on something that gets stolen. X counts towards GDP.
The government steals Y from you and spends it themselves. Y counts towards GDP.
It's conceptually the same mistake. X and Y weren't acquired voluntarily by their ultimate consumer, so we can't say that the consumption was worth X or Y.
Government spending should not be counted for economic activity