Civil service wages outpace private sector

Public sector wages have surged ahead of private sector pay for the third consecutive quarter, hitting 3.8 per cent annual growth versus 3.2 per cent in the private sector.

Wages for government employees rose 0.9 per cent in the quarter, hitting 3.8 per cent annual growth, compared with private sector workers at 0.7 per cent, or 3.2 per cent annual growth. Picture: istock

Wage growth for government workers has jumped ahead of the private sector for the third quarter in a row, triggering concerns among some economists such as inaugural Productivity Commissioner Gary Banks over the dangers of a bigger public service and lack of wage discipline.

Overall wage growth rose 0.8 per cent in the September quarter, hitting an annual rate of 3.4 per cent, keeping pressure on the Reserve Bank to hold off another interest rate cut.

Wages for government employees rose 0.9 per cent in the quarter, hitting 3.8 per cent annual growth, compared with private sector workers at 0.7 per cent, or 3.2 per cent annual growth.

It is the third consecutive quarter that public sector wages grew at a faster pace than in the private sector.

“There has been a pronounced ramping up of the public service in Australia under current (and recent) Labor governments, even by historical standards. That this has coincided with weak productivity nationally cannot be dismissed as correlation without causation,” Mr Banks said. “It is a matter of arithmetic that if the public sector grows at the expense of the private sector, overall productivity will be lower.”

Mr Banks took aim at the bulging healthcare economy, which the Australian Bureau of Statistics noted on Wednesday was the largest industry contributor to quarterly wages growth.

“Services in areas such as health, disability and aged care – what collectively the Treasurer calls the ‘care economy’ – have inherently lower productivity and productivity growth than other activities. If anything, their performance has worsened in recent years as remits have widened and workforces have increased.”

KPMG chief economist Brendan Rynne said public sector wage growth was “a concern”.

“On a quarterly and annual basis, public sector wages are growing at a faster pace than the private sector for the third consecutive quarter. Because of this, the RBA’s hand brake is well and truly on and it is unlikely to lift until well into next year, if at all,” Dr Rynne said.

Betashares chief economist David Bassanese said: “Also concerning is the public sector … While some pay upgrades for relatively lower paid public servants in area of high need – such as nursing and police – seems easy to justify, both federal and state governments seem unwilling to pursue broader public sector wage discipline. That is adding to budgetary strains and likely adding to pricing pressure across the non-market sector.”

Jim Chalmers on Wednesday said the growth in wages was now the longest period of consecutive annual real wage growth in almost a decade. “This is an encouraging outcome that shows our policies to deliver higher wages for workers are paying off for hardworking Australians.”

ABS head of prices statistics Michelle Marquardt noted that public sector wages grew at a faster pace than the private sector for the third consecutive quarter.

“By level of government, state government increased its contribution to public sector wages this quarter. State government pay rises contributed 82 per cent of public sector wage growth this quarter,” she said.

The rise was supported by state government pay rises and included the Fair Work Commission’s minimum wage decision of a 3.5 per cent increase.