Labor fuels jobs boom with public sector employment surge

Nearly two-thirds of the jobs created under the Albanese government are being funded by the taxpayer, with Jim Chalmers paving the way for more money for aged care, childcare, higher education and health ahead of the election.

Bumper jobs growth since the Albanese government came to office in May 2022 has been fuelled by public sector and government-aligned jobs. Picture: NewsWire / Martin Ollman

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Nearly two-thirds of the jobs ­created under the Albanese government are being funded by the taxpayer, with Jim Chalmers claiming there is “not any evidence” government spending is a major driver of inflation as he paves the way for putting more money into aged care, childcare, higher education and health ahead of the election.

Economists warn the expansion of the public service and care economy is making it harder for the Reserve Bank to cut interest rates, despite the Treasurer on Sunday declaring his main economic objective is to put downward pressure on inflation.

Almost 575,000 people who joined the jobs market in the two years to June were employed in public sector or care economy roles, mostly funded by the government, including the healthcare, social welfare, education and disability sectors.

By contrast, an analysis of Australian Bureau of Statistics data showed there were close to 310,000 jobs added in the private sector in the first two years of the Albanese government.

Some industries experienced a decline in their headcount, with a reduction of more than 13,000 workers in the manufacturing sector and 17,000 fewer in the ­accommodation and hospitality sectors over the same period.

Oxford Economics head of macroeconomic forecasting Sean Langcake said the surging growth in “non-market” taxpayer-funded jobs was concealing weakness in the private sector, which had ­experienced a “huge slowdown” in employment growth.

“The parts of the jobs market that we think of as interest rate sensitive are definitely turning down,” Mr Langcake said.

“That’s really where you see the effects of higher interest rates flowing through … it’s just that you’ve got this strength on the public side masking that.”

With the Reserve Bank ­required to give consideration to inflation and full employment under its agreement with the ­government, Deloitte Access Economics partner Stephen Smith said the two-speed jobs market would complicate the central bank’s efforts to tame inflation.

“The RBA needs to consider things in aggregate. That goes for inflation, that goes for spending, but it also goes for the labour ­market,” Mr Smith said.

“That makes things more difficult when there’s a split in terms of the growth drivers in the economy. Public sector employment, public sector demand is clearly going to be less responsive to ­interest rates.”

Despite economists warning government expenditure was putting upward pressure on inflation, Dr Chalmers – who on Sunday warned plunging commodity ­prices could cause a $4.5bn hit to commonwealth revenues – said spending had saved the nation from sliding into recession.

“We know from the national accounts last Wednesday that without government investment growth in areas like Medicare and medicines, then the economy would have gone backwards in the June quarter – indeed it would have gone backwards in the ­quarter before that as well,” he told the ABC.

“We think it’s better to avoid a recession rather than clean up after one, and that’s where we differ from our political opponents and our critics.”

But at the same time he made a virtue of growing spending, Dr Chalmers said he was aligned with RBA governor Michele Bullock in treating inflation as the ­nation’s biggest economic issue.

Dr Chalmers distanced himself from his mentor Wayne Swan, after the ALP president and former treasurer accused the RBA of “hammering households”, putting “dogma over ­rational economic decision making” and of “punching itself in the face” through poor judgments.

“I don’t second guess the ­Reserve Bank in the way that Wayne has,” Dr Chalmers said.

“My focus is on working with Governor Bullock, I’ve got a lot of respect for Governor Bullock. Our objectives are actually aligned to get on top of this inflation ­challenge, and we need to do that without ignoring the risks to growth.”

The government is flagging pre-election policies that increase expenditure in childcare, health, education and aged care.

Dr Chalmers on Sunday left the door open to backing dental being covered by Medicare, after The Australian revealed Labor MPs were pushing for the government to adopt the policy, although he signalled it would not happen in the short term.

“We will work with the states and territories on dental care to see if more can be done,” he said.

“We want to strengthen Medicare as much as we can as soon as we can, but we need to do that in a responsible way which recognises the constraints in the budget.”

With cost of living set to be a major focus of the parliamentary sitting week, opposition Treasury spokesman Angus Taylor accused Labor of undermining the RBA’s inflation fight as it presided over record government spending.

“Already, we’ve seen an increase in spending of $315bn since Labor came to power, over $30,000 for every household,” Mr Taylor said.

Asked if the Coalition would cut the number of federal public servants to reduce government ­expenditure, Mr Taylor would not be drawn on the matter.

The soaring number of the taxpayer-funded jobs comes as federal and state governments ramp up outlays to fund social benefits including aged care, the NDIS, childcare and other health-related programs, driving demand for ­additional workers.

The rise in government-aligned jobs was fuelled by soaring employment growth in the healthcare and social assistance sector, with the industry swelling by 326,505 to cover 2.4 million ­employees.

Meanwhile, a jump in the number of public servants has also contributed to the increase.

At a federal level, the May budget papers forecasting Australia’s public service headcount would rise to 197,108 by June 2024, up from 173,142, when the Albanese government took power from the Coalition.

The surge in non-market roles has also coincided with an increase in the public sector wages, which has helped push government spending to record levels.

Fresh national accounts data released last week showed the public sector wages bill for the first time topped $250bn, accounting for a quarter of all government outlays, as public servants at a federal and state level benefited from recently negotiated enterprise deals.

While not included in the GDP figures, wages in non-market sectors are expected to intensify further with Labor supporting a pay boost of up to 14 per cent for 250,000 aged-care ­workers. The measure will come into effect in 2025 at a cost to taxpayers of approximately $5bn a year.

The Albanese government has also agreed to fund a 15 per cent wage rise for childhood educators and care workers over the next two years, expected to cost the budget an additional $3.4bn annually.