Don't forget that with a Windoze upgrade will probably require a hardware upgrade too, which is more costly than the WinXP upgrade itself.
As almost all manufacturing in the Western world has been outsourced guess which country is poised to reek the benefits of any massive hardware rollout. Worse still, the existing hardware although old still works fine (provided you are not running the latest bloatware from MS like SCOM).
The smarter choice for the government (and the tax payer) would be to flick their WinXP over to Linux. There are plenty of terminal services, emulation, virtual solutions around on the Linux platform to allow access to legacy Windows systems if required.
Alternatively government could set up their own private cloud like GoogleDocs in which case only a browser is required, but this could be a bit early days for that approach, at least they could start planning towards it.