Minns government to reserve $3.6 billion to pay for public sector wage growth

The NSW government will place $3.6 billion over the next four years into a new fund to increase public sector wages, in the first clear assessment of what its decision to ditch the Coalition’s wage cap is likely to cost the state’s bottom line.

Treasurer Daniel Mookhey said the Essential Services Fund would provide long-term pay rises for nurses, paramedics, teachers, prison officers, police and childcare workers, and help recruit more staff in those vital frontline roles.

Treasurer Daniel Mookhey will hand down his first budget on Tuesday.Credit: James Brickwood

Billions must be set aside as a result of Labor’s decision to scrap the previous government’s 2.5 per cent public sector wage cap, but the government would not divulge more information on Saturday about savings to pay for the fund, nor its underlying wage growth assumptions. A spokesman said there would be more detail in Tuesday’s budget.

It is already known the budget will raise $2.7 billion over four years by hiking coal royalties, while suspending payments to the NSW Generations Fund and overhauling the state’s funds under management to reduce net debt.

A number of cuts have also been announced regarding executive teachers, family vouchers, electric vehicle subsidies and projects such as the Powerhouse Ultimo rebuild and Penrith Stadium.

Mookhey says the government has a mandate to deliver public sector wage rises by redirecting and reallocating resources. “The people that keep our state going deserve real wages growth,” he said.

“The Essential Services Fund will give them certainty and help bolster their ranks to ensure essential services workers are supported to deliver the best outcome for the people of NSW.”

Shadow treasurer Damien Tudehope accused Labor of misleading voters when it said public sector wage rises would be paid for by productivity gains.

“The Treasurer’s claim that wage rises would be funded by redirecting and reallocating resources is code for cuts that will hit NSW households and businesses,” Tudehope said.

“He needs to be transparent about where this money is coming from, what assumptions [he] took into account in arriving at that figure, and how the fund is to be administered.”

Emerging from the Coalition’s wage cap, the state budget must now contend with unknown public sector pay deals, especially as workers seek redress for years of below-inflation wage growth and unions play hardball.

Earlier this month the government struck a one-year deal with the NSW Teachers’ Federation, in line with a broader public sector wage deal, that will mean salaries increase by at least 4 per cent. Education Minister Prue Car said she had found $1.4 billion in savings over the next four years to pay for the deal and future wage rises.

The deal with the state’s nurses, also for a 4.5 per cent pay bump including superannuation, was likewise a one-year arrangement, with the government and unions returning to the negotiating table next year.

In June, before the final deals were agreed, the government said it expected its offer of a 4.5 per cent wage increase for the public sector would cost $618 million in 2023-24.

NSW Nurses and Midwives’ Association delegates Nichole Flegg, Nick Howson, Rachal Hughes, Skye Romer and Thom Hoffman at their annual conference last month.Credit: James Brickwood

Shadow treasurer Damien Tudehope accused Labor of misleading voters when it said public sector wage rises would be paid for by productivity gains.

“The Treasurer’s claim that wage rises would be funded by redirecting and reallocating resources is code for cuts that will hit NSW households and businesses,” Tudehope said.

“He needs to be transparent about where this money is coming from, what assumptions [he] took into account in arriving at that figure, and how the fund is to be administered.”

Tudehope left the door open to bringing back the cap, which was introduced by then-Liberal premier Barry O’Farrell in 2011.

“The wages cap was an effective tool for delivering real wage rises as well as being able to deliver record infrastructure during the Coalition period of government,” he said. “We cannot know what the state of the budget will be in three years’ time and would make that assessment at a time when the financial position of the state is clear.”

The government is concerned key workers are leaving NSW because of the high costs of housing. Industrial Relations Minister Sophie Cotsis said the reserved funds would help address what she called the “recruitment and retention crisis in NSW” among frontline staff.

Separately, the government announced on Saturday a $224 million package for social and affordable housing, including initial land and site works, maintenance and a trial of using “modular” or pre-fab homes for public housing.

Housing Minister Rose Jackson said it was a step in the right direction but acknowledged there was “more work to do”.

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