Article by Michael Read, courtesy of The Australian Financial Review.
The total cost of public servant wages grew faster than it has in 15 years last financial year to $232 billion, fuelling economists’ warnings that government spending is helping to keep interest rates higher for longer.
Employee expenses are one of the fastest growing areas of government spending, rising 8 per cent over the 2023-24 financial year, according to figures released by the Australian Bureau of Statistics on Thursday.
UBS chief economist George Tharenou said public sector wages had more than doubled since 2008-09, the last time salaries grew by more than 8 per cent annually.
The extra outlays helped propel public sector spending to a record 27.3 per cent of GDP in the June quarter, with some economists blaming the state and federal governments for prolonging inflation.
The Albanese government was one of the major drivers of the rise in public sector wages, recording 10 per cent more employee expenses for a total of $37.3 billion last financial year.
The outcome was due to a more than 4 per cent rise in federal government headcount and an almost 5.5 per cent rise in the wages paid to Commonwealth employees, who recorded an average annual salary of $102,130 in 2023-24, analysis by The Australian Financial Review found.
The increase took the federal public service, including the defence force, to 365,400 employees in 2023-24, up from 350,300 in 2022-23.
Only the ACT recorded a larger rise in public servant wages than the federal government last financial year, posting a mammoth 15 per cent rise in expenses.
The Albanese government has added more than 8700 new public service roles to replace work previously done by external consultants and labour hire teams, part of its promise to build the bureaucracy’s capacity and cut spending with the big four consulting firms.
The May federal budget included an additional 2400 positions converted from labour hire.
State splurge
While federal government spending on public servants is growing rapidly, the bulk of outlays occurs at the state level.
The states constituted 77 per cent of public sector employment, or more than 1.9 million workers last financial year, due to their role in providing frontline services such as nurses, teachers and police. Another 213,500 people worked for the local government.
The Queensland and Tasmanian state governments both recorded a 9.9 per cent rise in employee expenses in 2023-24, due to a roughly 6 per cent rise in wages and a more than 3 per cent rise in headcount.
Government spending is already at a record 27.3 per cent of gross domestic product, but would rise further in part due to expectations of additional stimulus from the federal government before the election due by May next year, Mr Tharenou said.
RBA governor Michele Bullock on Thursday said governments were being very conscious of how they are spending money.
“There are certain services that government has to provide, and the government needs to provision for that, and they are. So I would just say that I think the attitude at the moment that I am hearing from the government is the right one,” Ms Bullock told Liberal senator Dean Smith at Senate estimates.
Several state governments have recently axed caps on the public sector.
The West Australian state government dumped its $1000 per worker annual pay cap in December, and unions in Victoria want the Allan government to scrap its 3 per cent wage growth limit.
NSW Premier Chris Minns scrapped the former Coalition government’s 3 per cent annual wage growth cap last September, amid union pressure to axe limits on worker pay.
Mr Tharenou said public sector employment grew by 6.3 per cent over the year to June, the fastest pace on record.
“Overall, the recent strength in public employment is largely offsetting the weaker trend in private employment, and hence keeping the overall labour market remarkably resilient, and relatively tight,” Mr Tharenou said.
