Public Disservice

Wages in the public sector – a third of the Australian workforce – are growing too fast and without critical gains in productivity, says Tim James.

Wages are growing faster in the taxpayer-funded public sector than in the private sector, where normal market forces determine the worth of people’s work.

Public servants, who constitute about a third of the workforce, also earn more on average – about $95,000, or $10,000 more than their private-sector counterparts.

The geographical distribution of public servants confirms this. Canberra has the highest average weekly earnings in the country (about 10 per cent higher than the state that surrounds it, NSW). It also has the nation’s highest concentration of public servants.

Labor politicians understand the electoral advantages of this public sector expansion. In Victoria, public servants’ wages grew by 3.7 per cent in the year to June, which arguably contributed to the Government’s return at last year’s election. Last year The Australian reported that the Victorian public service wages bill had risen by 25 per cent since the Andrews Government came to power in 2014.

But even this isn’t enough for the state’s 40,000 public servants. In June, The Age reported that a “serious industrial clash” was possible over a claim for a 3.5 per cent pay rise, more superannuation and an extra week’s holiday.

Meanwhile, Andrews’ federal counterparts continue to call for public servants to be paid more. Opposition financial services spokesman Stephen Jones recently urged the Government to “lead by example” and increase public sector pay to “stimulate the economy and overall wages growth in Australia”. Herein lies a key defining difference between the two major political parties. Liberals invariably recoil from the notion that governments are able to provide the best solution to such a problem.

It’s difficult to identify the productivity gains achieved by these wage rises. That’s not to disparage the efficiencies delivered by diligent public servants. And this is not an attempt to divide Australia workers against each other. We should all strive to serve the country in a co-operative manner.

Higher wage growth is vital, but government is not the answer. As one economist wrote recently, Australian wages are now “a ward of the state”. This is hardly a positive for a modern, open, developed economy.

Smart, sustainable and strong wage growth will only come from the private sector, which employs two-thirds of Australians. The engine of growth must be individual and corporate enterprise, not government enterprise.

This is how Robert Menzies saw it. The true creators and generators of income and wealth are not governments but individuals and their free enterprises. He asserted that the path to prosperity was not to increase government spending but to stimulate business growth and new employment opportunities for people to prosper.

The real wage growth that Australia needs today will only come from a combination of growth and productivity, by among other things, cutting taxes, reducing regulation, working smarter and improving competitiveness. These are the harder reforms that Australia needs to tackle for the long term. We need to give business incentives to expand, employ, innovate and invest.

As usual, Menzies foresaw all this. “The greatest function of a democratic government is to create a climate in which enterprise will flourish and productivity will increase, in which not only will human physical progress develop, but the human mind expand and the human spirit constantly revive,” he said.

Building a bigger bureaucracy, appeasing unions and paying people more without the condition of productivity improvements all fail the pub test. The answer is in real reform for the country that lifts growth, productivity, and most of all, people.