The multibillion-dollar question: How much more Labor is spending on wages

The NSW government will spend $6.6 billion more paying public servants over five years to June 2028 than would have been the case had the Coalition’s controversial wages cap remained in place.

But as high-stakes pay negotiations continue with nurses and rail workers, Treasurer Daniel Mookhey says the investment in the state’s key workers is affordable and will improve delivery of essential services.

NSW Treasurer Daniel Mookhey dumped a long-standing cap on public sector wage increases. Credit: Dominic Lorrimer

When Labor won office in March 2023, it scrapped the cap on public sector wage increases in favour of negotiated pay agreements.

The government has since reached multi-year pay deals with about 240,000 out of the state’s 400,000 employees but is under pressure to resolve industrial conflicts that threaten to disrupt services. A complete shutdown of Sydney’s train network was narrowly averted last week when talks with rail unions reached an impasse.

Mookhey said ending the wages cap had allowed for more flexible, long-term agreements to be negotiated.

“This is a major paradigm shift for the NSW public service,” he said. “By moving to multi-year agreements paired with a bargaining framework, we’re in a better position to reform public services to deliver for the public.”

Mookhey said recent pay deals with NSW teachers illustrates this. “We now have 3331 extra lessons every day because teacher vacancies are at a three-year low and we’re returning our best and most experienced teachers to the classroom, who no longer have to leave to become administrators in order to get a pay raise,” he said.

In June 2022, the Coalition forecast employee expenses to grow by an average of 2.9 per cent over the four years to 2025-26. This year’s budget predicts employee expenses to grow by an average of 3.2 per cent over the four years to 2027-28.

Mookhey said a “modest” increase in public sector wage outcomes is a necessary investment to improve public services.

“The only way you can fix public services to deal with the pressures they’re currently under ... is if you actually sit down respectfully with your workforce and talk to them and create a culture of co-operation,” he said.

Wages are the largest component of the state budget; the NSW government is forecast to spend nearly $48 billion on employee expenses this financial year.

The O’Farrell Coalition government introduced a 2.5 per cent cap on annual public sector wage increases after winning office in 2011. The cap was briefly reduced during the COVID-19 crisis but when inflation spiked in 2022, the Perrottet government lifted it to 3 per cent, with an additional 0.5 per cent on offer in return for productivity improvements.

Analysis by NSW Treasury shows the Minns government will spend $6.6 billion more on public sector wages over five years from the 2023-24 budget compared to what would have been the case had the Coalition’s wages cap remained in place.

Mookhey said Labor has been able to do away with the cap while lowering the NSW budget deficit from $10 billion to less than $4 billion and reducing state debt by $9 billion.

“We search for opportunities to offset wage increases by spending the public’s money better,” he said. “For example, if we can pay our police officers more by paying private insurers less, we will.”

Costings provided by Labor to the Parliamentary Budget Office ahead of the state election said the wages policy would have “no budgetary impact” over the forward estimates to 2025-26. It said any “upside risk” to wages growth would be offset by productivity savings.

Premier Chris Minns has repeatedly stressed an improved wage offer for nurses relies on the union finding savings.

Employee expenses will account for 39.5 per cent of NSW government expenditure in 2024-25, growing to 40.6 per cent by 2027-28. That compares to an average of about 41 per cent under the former Coalition government.

Wages policy continues to stoke controversy despite the end of the cap. Labor was accused of double standards after the state’s 16,000 strong police force was offered a “generational” $700 million wage deal, while refusing to budge on a 10.5 per cent offer to nurses over three years.

Under the deal with the NSW Police Association, non-commissioned officers’ pay will increase by between 22.3 per cent to 39.4 per cent over four years, while commissioned officers enjoyed a bump of 20.5 per cent and 27.1 per cent over the same period.

Celebrated by the police union as the most significant pay rise in three decades, the government claims savings found through reform of the bloated Police Blue Ribbon Insurance Scheme (PBRI) meant the deal would ultimately be budget neutral.

The government says the cost of the PBRI to taxpayers had grown from $335 million in 2018 to $700 million in 2024 – about 33 per cent a year. The death and disability insurance had created a perverse incentive for officers to leave the force with major payouts rather than remain, the premier said.

Mookhey said the police deal would not have been possible under the wages cap policy.

“You would not have been able to solve the explosive growth in police death and disability costs under a wage cap,” he said. “Because we are paying less to our private insurers for police death and disability, we can pay our police officers more and deliver a once-in-a-generation overhaul of the policing profession, and the policing career, to suit modern conditions.”

Nurses have recently ramped up industrial action, insisting on a 15 per cent first-year wage increase to bring them in line with other jurisdictions. A statewide strike in November caused 700 elective surgery cancellations and extensive delays in emergency departments.

Health Minister Ryan Park said the union had rejected variations of the deal during bargaining, including boosting the pay of first- and second-year nurses by 16 per cent, and spreading the 15 per cent pay rise over three years.

The Industrial Relations Commission considered the party’s positions on Monday and set another hearing date for December 9. Minns has repeatedly stressed the court is the government’s preferred forum to hash out the pay dispute, saying it was re-established precisely to resolve these matters.

There are also tense negotiations over a new enterprise agreement covering about 14,000 rail employees. Unions representing rail workers have demanded a 32 per cent pay rise over four years.

Mookhey said he wants to create a “culture of co-operation” with the state’s employees to improve public services.

“We still have a lot of hard work to go with our negotiations, especially with our rail workers and our nurses but we’re making progress and we’re demonstrating that you can pay essential workers more and not wreck the budget,” he said.

Despite the threat of industrial unrest, work time lost to industrial action has been relatively low since Labor came to office. Government figures show that in the 18 months before the March 2023 election, 907,789 work hours were lost to industrial action in the NSW public sector. That compares with 19,382 working hours lost over the 18 months since the election.

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