Green’s Dictionary of Slang

spag n.2

[abbr. SE spaghetti, a staple Italian food]

1. (Aus.) an Italian; also as adj.

[Aus] ‘Whisper All Aussie Dict.’ in Kings Cross Whisper (Sydney) xxxix 4/5: spag: An Italian.
[Aus]B. Humphries Traveller’s Tool 75: Grappa ala Ruta. Spag-talk for ‘groping for a root’.
[Aus]M.B. ‘Chopper’ Read Chopper 4 180: Abos, spooks, coons, slopes, chows, dagos, spags, spics, greasers and wogs – and whatever other third world gin jockey or porch monkey that came along.

2. see spaghetti western under spaghetti n.

In compounds

spag bar (n.)

(Aus. teen) a coffee bar (often owned by an Italian).

[Aus](con. 1960s-70s) T. Taylor Top Fellas 60/1: Coffee bars [...] known in sharp parlance as wog shops, spag bars or chat n’ spews.
spag fag (n.) [fag n.4 (1); play on fag-hag n.2 ]

(gay) one who prefers Italian partners.

Diary of a Confirmed Bachelor 4 Jan. 🌐 So if you want to talk like Julian and Sandy (‘Vada the omie palone ajax, the number with the dolly lallies and nanti riah.’) or if you want to know what a spag-fag is then grab yourself a copy.