Home-based bureaucrats far from the best value for taxpayers

Businesses struggling to find workers and taxpayers are entitled to wonder about the rampant increase in federal bureaucrats, most of whom work at home. As the increase in the public sector drains resources from the private sector, fuelling inflation and impeding growth, only a third of the 200,000-strong army of federal public servants turn up at the office five days a week. That includes only 8 per cent of Australian Human Rights Commission staff and 13 per cent of those at the Australian Communications and Media Authority.

Anthony Albanese and Jim Chalmers need to ask: Is this the most efficient distribution of labour resources?

The government’s hand-picked reviewer of the National Disability Insurance Scheme, economist Stephen Anthony, thinks not. “How is it responsible, in a macroeconomic sense, that the government keeps on hiring when we have such a tight labour market and higher inflation? It makes no sense,” he said on Friday. After an extraordinary 24.49 per cent rise in the federal public service headcount since the election in May – higher than after any election for at least 20 years – Mr Anthony said it seemed implausible that the public service could keep growing so much in so short a time and result in outcomes that improved efficiency of government. “We know that’s not what is happening,” he said.

In its Statement on Monetary Policy after leaving interest rates on hold earlier in November because of a sharp rise in inflation, driven by power prices, the Reserve Bank said job vacancies remained high and a significant share of firms were experiencing difficulty sourcing labour.

An encouraging improvement in private sector growth expected in next week’s national accounts and the buoyant jobs market are good reasons for the government to reset the imbalance, which is skewed too far towards public service jobs growth. But the ballooning federal deficit is the main reason to cut back on public service growth when taxpayer resources are needed for more urgent priorities, especially defence.

In a four-month surge, the federal deficit has tripled to $33bn, Matthew Cranston reports ahead of December’s Mid-Year Economic and Fiscal Outlook. It is up from the $10bn recorded for the full 2024-25 financial year, the Finance Department’s accounts show. But the bottom line has benefited from an increase in receipts, including taxation, a good sign that the private sector has begun to grow. That trend creates an opportunity for the government to press ahead to cut public sector spending and make headway with the deficit and debt. To the contrary, unfortunately, Treasury expects current federal government spending as a percentage of GDP, outside of the Covid stimulus, will hit the highest level since 1986 at 27 per cent of GDP in 2025-26.

But in a climate of private sector growth and high government debt, priming the public sector cannot be justified. As KPMG chief economist Brendan Rynne told Cranston, the direction of government spending needs to change. “The wages bill is high and the headcount is rising, so that means there is both price and volume effects on government spending,” Dr Rynne said. “At full employment people are spending more but the government is not spending less and that’s inflationary for the economy.”

The Prime Minister and Treasurer, with plenty of political capital, need to be brave, step back from relying on public sector expansion to maintain growth and unleash the private sector’s best efforts. They also need to lean on the states to do the same.