The price of big government

since 2019, the rate of government spending a day has increased four times faster than inflation, driven by public sector wage and headcount increases. this is painful news for families struggling in a cost of living crisis. by nick cater.

There's nothing quite like a good crisis to expand the size of government.

In 1939, on the eve of World War II, there were 68,000 Commonwealth public servants.

A decade later, their ranks had almost tripled in size to 182,000.

The sombre lesson of history is that there is no such thing as a temporary increase in government spending, any more than anyone can enjoy a free lunch.

So, no one should be surprised to learn that funding the Australian public sector is a heavier burden on taxpayers' shoulders than it was five years ago when the origins of COVID-19 were locked up in a Wuhan laboratory.

There are more than 380,000 more hungry public servant mouths to feed than in 2019, with the Commonwealth government leading the way.

In June 2019 there were 242,000 Commonwealth public servants on the books.

In June last year, there were 350,000, an increase of 44 per cent,

State governments have not been idle in the field of job creation either.

Victoria leads the way with an increase of 21 per cent, followed by WA (18 per cent) and Queensland (15 per cent).

The overall result is that the cost of running government across the country has risen more than twice as fast as inflation, and the number of public servants per head of population has increased.

The impact of the rising government cost is one of the more spine-chilling messages to emerge from last week's scary National Accounts.

While wage rises in the private sector remain subdued, the public service wage bill rose by 9.2 per cent in 2023, the most significant jump since 2011, during the last term of the Labor government.

The rise was driven by new enterprise bargaining agreements, the removal of wage caps across several states and territories, and bonuses paid by state government departments, the Australian Bureau of Statistics reports.

The wage bill was further boosted by increased employment at some government agencies, including the Australian Electoral Commission, which took on extra staff to conduct the Voice Referendum.

The state and federal response to the 2020-2022 pandemic triggered a permanent transfer of wealth from the private to the public sector.

Federal government expenditure hovered at or below 25 per cent for the last 20 years.

This year, it stands at 27 per cent and is rising.

The rate of government spending has increased from $1.4 billion a day in 2019 to $1.9 billion today, four times faster than inflation.

Meanwhile, the rise in mortgages, rents, fuel, food, health care and childcare has forced households to trim their budgets.

Household expenditure rose by just 0.1 per cent over the year.

Not so in the case of spending by government departments which remain immune to the economic pressures on the rest of us.

Government expenditure over the year rose by 2.7 per cent.

Public sector capital investment rose by 13.6 per cent last calendar, twice as fast as investment by the private sector.

Investment in private housing shrunk by 3.1 per cent, while non-dwelling construction rose by 13.6 per cent.

Despite this week’s gloomy figures, Treasurer Jim Chalmers could not resist giving himself a pat on the back.

The economy grew by just 0.2 per cent in the December quarter, but “even weak growth is welcome growth in the circumstances,” claimed Chalmers.

Japan and the UK had ended the year in recession, he said, pointing to weaknesses in the global economy.

Yet Australia, too, would be in recession were it not for sustained government spending and the government's lax immigration policy.

Indeed, Australia is already in a per-capita recession, with a decline in Gross Domestic Product per person for the third consecutive quarter.

Inflation remains stubbornly high, not least because of the high level of government spending.

The Treasurer is confident of returning a Budget surplus for the second year in a row, but the surplus is illusory, stemming from an increase in revenue principally driven by high commodity prices, which are on the way down.

Understandably, the Treasurer wants to put a positive spin on the figures, boasting that Australia faces weakness in the global economy from a position of relative strength.

Yet Australia would be in a far stronger position if the Albanese government had had the fortitude to cut spending and resist the bullying of the union movement.

Inflation would be lower if the government had been prepared to pull back spending to pre-COVID levels.

Families would have been spared a least some of the 12 rises in official interest rates since Labor came to power that have added $2,000 a month to repayments of the average mortgage.

With the uncertain global outlook, the economy can only be propped up by government largesse for so long.

Budget surpluses mean nothing if they are built on higher taxes and bracket creep.

Big government comes at a price.         

As Milton Friedman once put it: “Government cannot spend money at nobody’s expense.”