The open solution is QGIS and PostGIS. They are ridiculously capable. But I think the next battleground is actually access to data rather than the software. Esri have been building an open data repository that is becoming favoured by a lot of government organisations. They stream data to esri users and make people reliant on the cloud service. And add annoying intermediate steps for people wanting raw data suitable for loading into a real database.
The problem is that ArcGIS isn't just software; it's also data, data management/storage/interop, process automation, and so on.
There are other sources for the data, and a lot of the data is open, but the Python/R model doesn't translate directly because those sources have to be individually licensed and integrated. And once in a blue moon you'll need ArcGIS for the data anyways and now your whole FOSS investment is up in flames because you fork over the license to get the data anyways...
You can do a lot of what ArcGIS can do if you know the entire ecosystem and all the data sources and how to glue them all together. But that skillset approaches "Senior SWE", at which point the generic GIS major + an ArcGIS license is waaaaay cheaper.
In fact, ESRI could probably get away with drawing even more blood.
(don't get me wrong; I think OP is correct that esp gov't agencies should invest in FOSS solutions, and the amount of effort required for a full digital twin is definitely worth NOT doing on top of ESRI tech... but the value add of ArcGIS for most GIS applications is difficult to deny given the differential in labor costs you get by staying in the ESRI sandbox... there are literally hundreds of undergraduate degree programs that basically exist to churn out affordable ArcGIS techs... the same is not true for FOSS alternatives, where to get comparable expertise you literally need to hire something comparable to a Senior SWE; it's going to cost you waaay more than "fresh GIS major + $4K".)
I feel like (and I'm welcome to being corrected by any experts here) ESRI stuff is kind of like Adobe CC - the vast majority of people have absolutely no need for Photoshop/Premiere/... and could do everything they need just as easily with any one of the many open source or cheaper alternatives. Most people use it because that's what they learned on, which is because that's what most people used at the time (and also because of very "generous" education licenses, teacher training...)
The way I think about it, often the same people, certainly people with the similar skillsets are working on all these products, most of them just follow the money.
I think one big missing piece of the puzzle for governments to assess these products is a governance and risk model associated with these products. But software engineers generally don't give a crap about governance, so we need more people who do care about that to invest in OSS. I'm seeing some movement on this like the Github Sponsors initiative.
Is there a FLOSS GIS solution that could rival ArcGIS?