Victorian public service wages blowout threatens the budget

The public service has grown greatly throughout the past four years, much to the consternation of the Victorian Auditor-General.

Victoria’s Auditor General Andrew Greaves. Picture: Liam Kidston.

An alarming 30 per cent blowout in public service wage costs has sparked a stern warning from Victoria’s Auditor-General Andrew Greaves about future economic shocks threatening the budget’s operating sustainability.

The number of full-time public servants under the Andrews government has soared by about 33,000 people during the past four years, with 250,000 people on the public purse at June 30.

Employee expenses are costing the budget more than $25 billion a year, a figure that prompted Mr Greaves to caution that a tepid real estate market and potential external shocks such as an unstable Chinese economy could threaten the budget’s sustainability.

Wages have soared by 30.3 per cent during the past five financial years at an average of 5.5 per cent a year, with the wages bill forecast to increase under Labor by more than $7 billion over the life of the government’s first term.

In the past four financial years, the number of full-time employees has increased an average of about 3.2 per cent, with state Liberal Treasury spokesman Michael O’Brien warning that Labor has poured more than $100 million extra into so-called fat-cat salaries averaging $213,000 each.

The public service blowout is set to become a key issue at the November 24 election as the government prepares to detail its budget update. Mr Greaves outlines the surge in the number of public servants in the annual financial report for 2017-18, with a third of ­operating expenses now taken up in the soaring wage bill.

He notes that since 2013-14, Victorian public sector wages have climbed above those in the private sector. Last financial year, Victorian public service wages climbed 3 per cent, compared with 2.2 per cent for business.

Mr Greaves said while the underlying economy was strong, the increasingly lukewarm real estate market plus global uncertainty could affect the budget’s sustainability, underpinning its great reliance on stamp duty on housing.

“Land transfer duty accounts for 30 per cent of total taxation revenue in 2017-18. The duty collected is based on property prices and number of property sales,’’ he said. “If the Victorian property market were to experience a sharper slowdown than anticipated, the revenue for land transfer duty would fall, impacting the state’s operating sustainability.”

He also sounded a warning about the risk of sustained lower than forecast economic growth.

“Victoria’s economy is also exposed to risks in the global economy — for example, the possibility of a severe slowdown in China’s economy or the rising cost of ­credit pushing up funding costs for banks,’’ Mr Greaves said.

The huge lift in public service expenses was attacked yesterday by Mr O’Brien, who said Labor had lost control of the bureaucracy.

“While frontline police numbers are falling, Labor has blown out Victoria’s public sector wages bill by $7.1bn in four years,’’ he said.

Labor and the unions will use the increase in public servants as a positive message to voters. “We make no apologies for investing in the people we need to rebuild our schools and hospitals, and deliver the rail and road projects Victorians need to get them home sooner and safer,’’ a Labor spokeswoman said. “In contrast, the Liberals cut billions of dollars from our hospitals and schools, hurting patients, students and hardworking Vic­torians, and they will again if given the chance.’’