A bigger public service is not the answer to economy

It should not take a financial genius to realise that unrestrained growth in the number of public servants is inexorably linked to the poor budget outcomes being experienced by ill-disciplined state governments. High wage costs represent recurrent expenditure that must be covered regardless of other budget imposts and whatever happens to revenue. Unless higher employee numbers are delivering measurable improvements in the quality and quantity of services, they represent a drain on productivity. The issue is compounded by rising interest rates that have changed the outlook for highly indebted governments, as well as for private businesses.

Victoria is the exemplar of poor budget management, topped off by profligate spending on an ever less productive public sector. The two things are not unrelated. As we report on Thursday, the number of Victorian government employees has jumped by 60 per cent across the past 15 years and at double the pace of population growth. Experts have warned the bloated public service will make it harder to repair the state’s budget and pay down debt levels that are now equal to those of Queensland, NSW and Tasmania combined. Analysis shows increased spending on Victoria’s public service has resulted in higher staffing per capita in key services such as education and policing but not necessarily better services or living standards than in other states.

High public sector growth is something state Labor governments share in common. In Queensland and Western Australia there has been a 40 per cent increase in public sector workforce numbers, but there also has been a 30 per cent increase in population. In NSW, consecutive Liberal governments helped to contain the increase in headcount to 28 per cent between 2008 and last year, less than half the rate of Victoria.

The hiring ill-discipline is not confined to Labor states. Australian Bureau of Statistics figures released in November last year revealed an almost 10 per cent jump in the number of Canberra-based public servants, driving a $1bn lift in the annual wages bill in the year to June 2023. As chief political correspondent Geoff Chambers observed at the time, Labor’s obsession with public service jobs, which are driving historically low unemployment rates, comes amid severe skills shortages, hundreds of thousands of job vacancies, 13 interest rate hikes, sluggish growth, and concerning global economic headwinds.

These considerations must be front and centre for what Anthony Albanese said on Wednesday was his big priority for this year: to provide cost-of-living relief while taking pressure off inflation. The Prime Minister said he wanted to “take the pressure off people who are feeling pressure as a result of global inflation”. Mr Albanese was correct to say that distributing additional cash to people would “make inflation worse” and therefore would not help to solve the problem. He said he had asked the departments of Treasury and Finance for ideas and advice.

To have an impact, Mr Albanese should first follow the advice of proven economic managers John Howard and Peter Costello, who have urged the federal government to ignore left-wing pressure to repeal or amend the stage three tax cuts. They said budget surpluses should be banked, not spent, to acknowledge the historically high terms of trade. Further tax reform, including an increased GST, should be on the table to pay down state and federal government debt.

Mr Albanese’s real challenge is to contain public sector spending, including wage growth, and to push stop on changes to industrial relations laws that will make the workplace less flexible. These things are harder to do than boosting the number of unionised public servants at a time of acute labour shortages. But Mr Albanese has identified the challenge, and the time to act is now.