Square the ledger on public-private pay

Freezing civil servants’ wages during the coronavirus crisis makes economic sense.

“A terrible decision” is how ACTU president Michele O’Neil described the NSW government’s plan to waive the scheduled pay increase for its staff. For state Labor leader Jodi McKay it was “a kick in the guts and slap in the face to public servants”.

In reality it’s a sad indictment on our politics that freezing pay for those in secure jobs while hundreds of thousands are sacked and budget deficits explode is even controversial. NSW, especially Treasurer Dominic Perrottet, deserves credit for taking the lead. Union and Labor leaders talk about fixing inequality yet seek to make it worse.

The NSW government will be forced to borrow billions to ride out the revenue slump and extra spending the coronavirus pandemic has induced. It’s only prudent to pause pay increases for the public sector, for moral as much as economic reasons.

We clearly aren’t “all in this together”, as our leaders keep saying. A pay freeze is a modest impost, given more than 220,000 workers in NSW have lost their jobs and many others have had their pay cut. Indeed, the Reserve Bank has forecast deflation of 1 per cent across the year to June, which suggests even no pay rise is an increase in purchasing power.

More than 80 per cent of respondents to recent polling said public servants earning over $150,000 should receive a 20 per cent pay cut. A large majority would support a mere freeze for all of them.

Emotional arguments about nurses, teachers and police ignore facts. These jobs, along with the NSW public sector in general, have excellent pay and conditions compared with most others. No one is forced to do them. Yes, they are important jobs, but so are those of the state government’s 5090 cleaners, who do a tougher job, and no one frets about their pay.

The median salary of school teachers, nurses and police officers is $103,000, $88,000 and $94,000, respectively, excluding superannuation, which is above or around median full-time private sector pay across the state. This comparison ignores generous entitlements and access to overtime, which can bump up pay significantly.

And public sector pay in NSW, notwithstanding the government’s efforts to slow it, has been growing, outpacing private sector wages for a decade. NSW public sector wages have increased by 2.5 per cent annually for the past five years, in contrast to 2.1 per cent for the private sector.

Moreover, all this ignores security. Private sector jobs have dis­appeared 4½ times as fast as public sector jobs since lockdowns began in mid-March, recent analysis of Australian Bureau of Statistics data by the Institute of Public Affairs shows.

The economic argument in favour of going ahead with the pay increase — it will “boost demand” — is risible.

Evidence and intuition show households have tightened their belts drastically. But even if public servants did spend the extra money, are we really suggesting the best way to stimulate the economy is to pay even higher salaries to those who already have better pay and conditions? That’s like a king taxing his people more in case he might buy more luxuries from them, “helping demand”.

Compounding the error, one might reasonably question the productivity of many of these jobs, even in healthcare, such as the “communications and engagement adviser” role currently advertised by the NSW government with a salary of $129,658.

“Embedded with our central corporate-focused communications team, you’ll form strong relationships as you provide strategic communication support to keep our people and services connected, engaged and focused on their jobs supporting the health system,” the ad says.

Surely other workers should be focused as a matter of course.

Or the “manager, diversity & inclusion strategy”, advertised with a salary of $148,134, who will “lead a small, diverse team which is responsible for developing and implementing strategic plans to embed diversity and inclusion across the Department of Planning”.

In contrast to these roles, workers losing their jobs in hospitality and retail, for instance, tend to be ones people actually desire.

A more honest way to “boost demand” would be for governments to borrow and give money directly to households, regardless of how or whether they are employed. Or simply ask the central bank to create new money and give it to people. These arguments are rarely made given they strike many as odd at best.

Scott Morrison set up five working groups this week of unions and employers groups to suggest how to simplify awards and revive enterprise bargaining by September.

The attitude of Labor and the unions to the NSW pay freeze doesn’t augur well. If they can’t even concede a one-year pay freeze for public servants, there’s little hope they’ll agree to an ostensible weakening of pay or conditions in awards in the interest of lifting productivity and making it easier for business to hire.

And even if they do fix it, reforming the public sector is just as important. It’s too large, and inefficient; and by offering such generous pay and conditions, it more and more lures our brightest into government rather than private enterprise.

In years gone by the security of public sector work meant a lower pay. That’s no longer the case. The crisis of COVID-19 has reminded all workers how that was fair, and the current arrangements aren’t.