Public sector union orders up intellectual assault on Andrews government’s austerity economics

By Stephen Easton

Thursday October 24, 2019

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The Victorian government’s decision to put the brakes on pay rises and agency budgets is “inexplicable” after the state’s impressive economic performance in recent years, according to a progressive think-tank commissioned by the union to make the case against austerity.

As financial advisors have to warn their clients, past performance is not a reliable indicator of future performance. The Andrews government believes its moves to cap wages in the public sector and claw back larger efficiency dividends from its agencies are justified by economic storms ahead.

That is totally wrong, according to a report by economist Dr Jim Stanford and industrial-relations academic Troy Henderson, from The Australia Institute’s Centre for Future Work. “There is no fiscal problem that justifies either of these austere measures,” they argue, working on commission from the Victorian branch of the Community and Public Sector Union.

While the state’s senior Labor politicians won’t agree, many others in the labour movement certainly would. Stanford and Henderson note the budget is in surplus and forecast to remain there over the forward estimates. They say government revenues will continue to grow strongly.

“The downturn in Melbourne property prices, which undermined one component of state revenues (land transfer duties), now appears to be reaching bottom; and even in its worst stages, the fiscal impacts of that property downturn were modest, never interfering with the ongoing strong growth in overall state revenues,” they add.

The economy has been booming due to a “virtuous cycle”, with the government both driving growth and benefiting from it, according to the report, which presents evidence that austerity has led to “negative and unintended consequences” elsewhere in Australia.

“New expenditures on expanded public services and infrastructure have been crucial engines of the state’s growth. In turn, that strong growth generated huge fiscal dividends for the state government, through a robust, diversified and growing revenue base.”

Debt has grown but this is partly because of major infrastructure investments and, according to the report, there are no qualms about the government’s ability to service that debt in the finance sector.

“The government’s flirtation with austerity, despite the proven success (both economic and political) of its previous, more expansive approach, is puzzling and concerning.”

The academics say the 2% cap on wages in the public sector is lower than several benchmarks — state GDP, revenue, and overall wage growth, as well as Reserve Bank inflation targets for wages and prices — and far below the generous pay rises for parliamentarians this year. However, 2% is still above the growth in the consumer price index over recent years.

The anti-austerity paper claims the cap would hold back about $3 billion from the economy over four years “compared to normal compensation patterns” and “short-circuit a badly-needed recovery in wage growth that is just taking hold in Victoria’s broader labour market” while holding back consumer spending and private-sector pay packets.

Regional communities “depend especially strongly on public sector jobs and incomes” and would be hit hardest by austerity and there would be “negative spillover effects … throughout Victoria’s economy” far beyond the value of the government’s savings, it claims.

Scraping bigger efficiency dividends from agency budgets will exacerbate these effects in the gloomy picture painted by Stanford and Henderson, who find this an “equally puzzling” policy choice.

The thrust of the report’s argument against the efficiency dividend as a policy tool also has a familiar ring and, as with its broad arguments against austerity, there many others who have come to similar conclusions: “… in practice it amounts to a mindless, across-the-board cut in expenditures, service delivery, and potentially employment.”

The CPSU-commissioned report includes the union’s policy wish-list. In that fantasy, the government ditches both policies, goes back to normal enterprise bargaining, and looks for efficiency improvements with no specific targets for budget cuts. It eschews forced redundancies and works to improve public services by redeploying, relocating or retraining staff members.

Read more: Industrial action looms as parliamentary pay rise infuriates Victorian public sector union

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