Growing the Canberra bubble

Many Australians are doing it tough, especially those paying down mortgages who are also dealing with inflation, the Reserve Bank of Australia acknowledged in its latest quarterly Statement on Monetary Policy on Friday. After 13 consecutive rises, Australia’s cash rate is now 4.35 per cent – its highest level in 12 years. Weaker household consumption, the RBA said in its statement, had been more than offset by added demand from the pace of migration and strong business and government investment spending. With inflation still above 5 per cent, well above the central bank’s 2-3 per cent target, the risk of it remaining higher for longer has increased, which will leave workers to face a further six months of falling real wages. The bank has left the door open to further interest rate rises.

Amid a stronger than expected economy, this is no time for governments to pump additional funds into the system. But despite the need for restraint in spending, the Albanese government has followed the unfortunate examples of its Labor counterparts in Victoria and Queensland.

In Friday’s paper, Greg Brown and Patrick Commins revealed that, in the first financial year since its election, federal Labor increased the number of public servants in the Canberra bubble from 96,500 in mid-2022 to 105,400 by June this year, inflating the annual wages bill by $1bn. Wages and salaries paid to federal public servants in Canberra rose by 10 per cent, substantially higher than the 7.6 per cent increase for state government workers across the nation. Taxpayers are entitled to question how, if at all, the increase in staff numbers and wages have improved services and whether they have lifted productivity. Because the commonwealth does not run schools or hospitals, it must keep a tight check on the ratio of backroom staff to those on the front lines. The headcount will continue to rise after Government Services Minister Bill Shorten announced an additional $228m will be spent on 3000 extra staff for Centrelink and Medicare.

If public sector unions have their way, the costs will accelerate. The Community and Public Sector Union is seeking a 20 per cent pay rise across three years. It has threatened to escalate industrial action across several commonwealth agencies after the government’s offer of an 11.2 per cent pay rise for federal public servants across three years was poorly received. That was despite the inclusion of sweeteners such as the right to work from home. The government needs to stand firm and not increase its generous offer, which is in line with or better than what many private sector workers receive.

Former Victorian premier Jeff Kennett, who restored his state’s finances after the ravages of the Cain-Kirner years, is correct when he says the federal bureaucracy is “substantially overcooked” and should be reduced. “They are sitting there shuffling paper … we are employing people who in many cases do not only not add anything to our productivity levels, they stifle it.”

At a time of low unemployment, the ballooning public service is exacerbating skills shortages in the private sector and contributing to inflation, as Mr Kennett said.