Bumper job figures driven by expanding public sector

You can now listen to The Australian's articles. Give us your feedback.

You can now listen to The Australian's articles.

Governments love announcing good jobs numbers, as Jim Chalmers did on Thursday, boasting about Labor’s economic plan and patting himself on the back that it was the first time a federal government had overseen one million new jobs in a parliamentary term. Taxpayers should take a bow. They have paid for it, overwhelmingly.

Now for the reality check. The Treasurer and Anthony Albanese’s hopes of a pre-election interest rate cut have taken a dive because the soaring growth came not from private sector investment and business expansion but from a major increase in taxpayer-funded roles, predominantly in the so-called care economy.

As a result, as HSBC chief economist Paul Bloxham warned, the “unquestionably strong” jobs market coupled with underlying inflation remained “tangibly above” the RBA’s 2-3 per cent target band, which could leave the Reserve Bank unable to cut rates until the second half of next year. That will leave heavily mortgaged households and small businesses, many of which are struggling to survive, doing it tough for longer. Until now, many economists and borrowers anticipated a drop in rates early in 2025.

Australian Bureau of Statistics data showed unemployment remained steady at 4.1 per cent in September, but analysis by The Australian shows 82 per cent of work hours added were in “non-market” sectors supported by taxpayers – in the NDIS, public service, education, healthcare and training.

In a bad sign of current economic policy settings, the imbalance of jobs growth being driven by public spending is becoming entrenched. As we reported in May, nearly three in four jobs created in the six months to February were in government-dominated spheres.

While the spending has underpinned the nation’s surprisingly resilient labour market, it is holding down productivity growth. The care economy, important as it is, is a service sector vital to an ageing population. Its role is not to generate profit, export earnings or pay taxes. The imbalance between robust public sector jobs growth and much of the private sector, if it continues, will ultimately drag on the revenue side of the budget, which supplies government with the means to provide and improve services, and fund the states to do so.

As KPMG chief economist Brendan Rynne estimates, the increase in public sector and non-market sector employment will be a factor in the decline in measured national labour productivity.

Earlier this year, the RBA board noted that the jobs market needed to cool further in order for the country to continue along its ­“narrow path” to bring inflation under control without sinking the economy. “Conditions in the labour market have eased over the past year but remain tighter than is consistent with sustained full employment and inflation at target,” it said.

Unlike in the public sector, funded by taxpayers, jobs growth is suffering in a significant section of the private sector. A fortnight ago, Australian Securities and Investments Commission data showed that the number of business insolvencies hit a record high of 11,053 in 2023-24, with the worst quarterly figures of 3305 in the three months to June. And the trend continued, with 3003 insolvencies in the September quarter.

Current IR policies are crushing too many businesses, which over time will be problematic for productivity, revenue and for Labor politicians in outer-suburban and regional areas, as families and businesses struggle. In addition to providing defence services, funding infrastructure and paying down debt, taxpayers should not have to carry the burden of job creation.

Reform of the uncompetitive business tax system, industrial relations, and green and red tape is vital to reboot a more productive economy.