Governments ensure the public sector keeps pace with slow wage growth

By Stephen Easton

Thursday March 14, 2019

The slow wage growth that has become the norm across the economy is also evident in the public sector, with most governments choosing to put a hard ceiling on pay rises and risk the inevitable industrial disputes this approach tends to cause.

Image: Australian Bureau of Statistics.

At a national level, hourly income increased marginally faster in the public sector than the private sector in 2018, according to the Australian Bureau of Statistics, but this was not the case everywhere. In Western Australia, Tasmania and the ACT, people working in the private sector had a better run.

It’s not a competition; suppression of public sector pay can actually contribute to sluggish wage growth across the board, and most governments are unwilling to let their employment costs rise by more than a couple of percentage points, often citing “community expectations” as a key reason.

While the most recent period of enterprise bargaining for Commonwealth agencies generated extraordinary levels of sound and fury over a strict pay rise cap, the wage bill is actually fairly insignificant within the gigantic federal budget. The opposite is true of the state and territory governments, where it is a huge chunk of public expenditure.

Public sector employees of any kind living in Victoria and the Northern Territory did the best in the year to December 2018, with income growth of 3.1% and 3.4% respectively, but that looks unlikely to continue in either case.

Victoria: low-ball offers likely in upcoming bargaining round

Citing falling revenue from a downturn in the Melbourne property market, Victorian Treasurer Tim Pallas has low-balled staff in several agencies whose enterprise agreements are soon to expire with a below-inflation offer of 2%.

Unions are certain to ask for more and Pallas told the ABC the government was “prepared to have a discussion” but it is clear the Andrews government will be far less generous than it has been in the past, with over 20 agreements up for renewal this year.

Northern Territory: 300 cuts, caps and a looming efficiency review

NT public servants are looking at 2% wage rises and a reduction of about about 300 jobs across government. Agencies have 12 months to get staffing down to 2018 levels.

Treasurer Nicole Manison announced this week the government had settled on last year’s average staffing level of 21,118 for the cap, which she flagged in April as part of a plan to save $800 million by 2012-22 to help dig the territory government out of a deep financial hole.

“Agencies must live within their means and setting a specific cap will ensure they do and help tackle expenditure growth,” she said in a statement.

Earlier in the year, she announced the plan to reduce pay rises from 2.5% to 2% per annum and claimed that was “still in line with other Australian jurisdictions” and the cost of living in the NT.

Individual agencies that currently have more staff than their ASL across the 2018 calendar year have been asked to report monthly on progress towards their reductions. Manison said front-line roles like police, teachers and nurses would not be cut and election commitments would still be met. Agencies can make “special case requests for staffing” subject to Cabinet approval.

The NT government is continuing its efforts to extract longer-lasting efficiencies through a “root and branch review” led by the former head of the Western Australian Treasury Department, John Langoulant. Manison said the cap was “separate” to that review and promised its outcomes would be announced before the 2019-20 budget.

New South Wales: opposition promises more

The ABS reports annual public sector wage growth was third-highest in New South Wales last year at 2.8% and with an election looming on March 23, shadow Treasurer Ryan Park has said he would like to see the figure—for those employed by the state government—start with a three.

Park attacked the government’s 2.5% cap on agency pay rises as a “blunt instrument” while his opposite number, Dominic Perrottet, claimed Labor’s plan to remove it would put the budget into deficit.

If elected, opposition leader Michael Daley has suggested he may well hand responsibility for public sector pay back to Industrial Relations Commission. He said Perrottet had made inaccurate claims about the cost of his wages policy, speaking at the National Press Club, but did not provide an alternative costing for annual pay rises above 3%.

ACT: remuneration tribunal sweetens the deal for senior executives

The ACT’s independent remuneration tribunal has decided to bump up the salaries of top-tier public servants by a minimum of 4.7% in a bid to remain competitive with other governments.

The tribunal gave politicians a more modest 2.5% top up, which is about the same as most other public servants covered by enterprise agreements have been able to negotiate lately. The ABS figures show public sector wages in Canberra went up by only 1.8% over 2018, compared to 2.2% in the private sector.

One territory government backbencher, Bec Cody, attacked the tribunal’s decision on senior executive pay in a letter to The Canberra Times while Chief Minister Andrew Barr pointed out the government couldn’t overrule the decision even if it wanted to, without changing the law.

Western Australia: industrial dispute likely over $1000-a-year cap

In Western Australia, the Community and Public Sector Union has argued for a two-year deal that would average out at a fairly modest 2.25% per annum—back-loaded with 2.5% in the second year—but even that is too rich for the Labor government.

Minister for Industrial Relations Bill Johnston has refused to budge on an unusual $1000 per annum limit on pay rises, and the CPSU has threatened industrial action, the West Australian reports.

“With WA having secured a greater share of the GST, the state budget returning to surplus early and Perth CPI on the rise, the $1000 payrise cap introduced in 2017 is no longer fit for purpose,” said state union secretary Rikki Hendon. According to the ABS, public sector wages only crawled up by 1.4% in WA last year compared to 1.7% in the private sector.

Tasmania: back to the barricades after unions reject 2.25%

After months of industrial strife, the Tasmanian government recently decided to lift a 2% cap on pay rises that has applied for the last five years, ever so slightly. It offered to put an average of 2.25% more in the pockets of its public servants annually for the next three years, starting at 2% in the first year and rising to 2.5% in the final year.

But that was not enough to make peace with the unions, which are going back to the barricades and ramping up the campaign that is nearing its first anniversary.

The latest offer involved changes to other conditions, of course, like removal of overtime rates for some part-timers, changes to public holidays, the introduction of performance-based pay progression to all positions.

CPSU secretary Tom Lynch said the offer would have cut away conditions of significant value and the extra pay was below increases in the cost of living, and would cost the government about $24 million while it stood to gain over $30 million from included efficiency measures.

The deal would also have secured the blessing of unions for a two-year public service review to underpin a “structural, legislative and cultural” transformation and, no doubt, find more savings. Wage growth in Tasmania was 2% in the public sector last year, according to the ABS, and 2.9% for the private sector.

Queensland: negotiations break down over sector-wide agreement

The Queensland government also maintains a 2.5% cap on yearly public sector pay rises and is currently struggling to reach a new blanket agreement for most public sector entities after the old one expired last August. Initial hopes that negotiations with a very long list of unions would lead to an agreement in September soon proved somewhat naive. By October the Minister for Employment and Industrial Relations, Grace Grace, was denying claims that in effect, she was offering some workers a 0% increase.

“These claims are false and misleading,” she argued. “The Government’s wage offer is 2.5% per annum over three years—not zero. In fact, as a result of measures undertaken by the Palaszczuk Government to restore fairness to the public sector, workers at some classifications will see their rates increase by up to 3.5% in line with the recent State Wage Case.”

Later that month, the negotiations went into conciliation at the Industrial Relations Commission, and that is where they remain, according to the government’s running commentary.

The ABS reports public sector wages rose 2.4% in the sunshine state last year, and 2.3% in the private sector. Even though this is one of the better results, it’s only about even with inflation.

South Australia: mostly quiet on the pay front… for now

South Australia has also seen public sector industrial disputes, in response to corrective services job cuts announced in last year’s budget, and during enterprise bargaining with the state’s teachers last year, but that was more about employment conditions and investment in schools than pay rises.

The current SA Modern Public Sector Enterprise Agreement that covers most state agencies was finalised in January 2018, and the government can look forward to another round of enterprise bargaining soon ahead of its expiry in January 2020.

South Australians working for public sector employers saw their pay go up 2.5% last year on average, which was 0.2% greater than the increase for South Australians working in the private sector.

Reserve Bank: 3.5% a year would be nice

A good steady rate for income growth across the economy in general would be about 3.5% per annum against a backdrop of around 2.5% inflation, according to Reserve Bank governor Philip Lowe, who would like to see incomes rise faster than the cost of living but has also observed the stagnation is part of an international trend.

The federal opposition hopes to make wages an election issue and says it will try to push them upwards. It’s not exactly clear how but it will involve “working together” with the Fair Work Commission, according to finance spokesman Jim Chalmers.

His opposite number, Finance Minister Mathias Cormann, recently tried to argue that sluggish wage growth was a kind of necessary evil — a consequence of “flexibility in the labour market” that prevented “massive spikes in unemployment”— but he was soon overshadowed by an extraordinary gaffe from his colleague Linda Reynolds.

“That is a deliberate feature of our economic architecture,” Cormann told Sky News host David Speers, who later asked Reynolds if she agreed with the argument.

She absolutely did not, at first, thinking it was Bill Shorten who said it, and confidently asserted the idea showed “a fundamental lack of understanding about economics” — before Speers told her he was actually quoting Cormann. In that case, she absolutely agreed with his unassailable wisdom.

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