Victorian budget 2021: Public sector wage bill skyrockets

Victoria’s public sector wage bill is forecast to jump 17.8 per cent over the budget forward estimates, ­including by 9.6 per cent next ­financial year.

Australian Education Union Victoria president Meredith Peace. Picture: Sarah Matray

Victoria’s public sector wage bill is forecast to jump 17.8 per cent over the budget forward estimates, ­including by 9.6 per cent next ­financial year, blowing out past Treasury predictions including some made just six months ago.

Treasurer Tim Pallas admitted the big increase during 2021-22 was unsustainable, attributing the rise to the cost of putting more public sector workers on during the pandemic.

He said the government “had to use our balance sheet to support the wellbeing of the community”, and after next financial year’s spike, the average annual level of increase in employee expenses would be 2.5 per cent between 2022 and 2025.

Public sector employee ­expenses, the state government’s largest expense, are forecast to be $32.83bn this financial year, a $2.14bn rise from last July.

Employees expenses, including superannuation, are forecast to rise to $35.97bn next financial year, to $36.87bn a year later and $37.9bn by June 2024.

They will rise to $38.69bn by mid-2025.

Compared with forecasts published last November, expenditure this financial year will be $800m below predictions, but $1.6bn higher in 2021-22 than predicted six months ago.

The wages bill will also be $1bn and $800m higher in the two years from mid-2022 than forecast last year.

From January next year, the government will adjust its wages policy, reducing the guaranteed annual increase from 2 per cent to 1.5 per cent. However, Mr Pallas said it would remain “one of the most generous wages policies in the country”.

In a move described as highly unrealistic by rival union officials, the Australian Education Union is seeking a 21 per cent pay increase for teachers, principals and support staff over three years as well as superannuation rises.

The government’s initial counter-offer was 2 per cent annually.

AEU state president Meredith Peace defended the claim, saying during the past year the “community has developed a much greater understanding of the significant work that principals, teachers and support staff do, not only in educating young people but providing the care and support that they need”.

“They work incredibly hard. Teachers are working 15 hours of unpaid overtime every week. Principals, on average, are working 58-hour weeks,” she said.

Defending the growing public sector wages bill, the Community and Public Sector Union said the “population is growing, demand is up so we need more people delivering services and that is what the government has delivered”.

The budget papers forecast the revised wages policy will deliver $1.88bn in savings over the forward estimates. However, most of the savings will not kick in until 2023-24.

CPSU analysis of departmental spending cuts over the four years finds the government will seek to cut a further $1.688bn over the forward estimates, with cuts to spending on consultants and contractors a recurring theme.

Projected wages growth across Victoria is forecast to be just 1.25 per cent this financial year, ­delivering real wage cuts, given that the inflation rate is tipped to be 1.5 per cent.

However, the wage price index is forecast to rise to 1.75 per cent next financial year, gradually increasing over the forward estimates to 2.5 per cent in 2024-25.

The state Treasury forecasts inflation will be an average 0.25 per cent below wages growth from next financial year.