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Public sector wage freeze to cost 1,100 jobs

(Source: Getty, AAP)
(Source: Getty, AAP)

The NSW government’s announcement of freezing public sector pay could actually trigger more than a thousand job losses, according to new analysis by an Australian thinktank.

In late May, the NSW government announced it was pausing pay rises over the next 12 months for public service jobs in a move designed to save taxpayers $3 billion amid unprecedented levels of unemployment.

Freezing pay “to create jobs” was the “right thing to do,” said NSW Treasurer Dominic Perrottet, and the funds will instead be diverted to bringing forward construction and infrastructure works to create jobs. Unions have, however, slammed the proposal as a “slap in the face”.


But according to a new report by economists at the Australia Institute, the NSW government’s claims that lowering the incomes of more than 400,000 public servants will lead to a higher number of jobs is questionable.

“The available data does not support the assertion that switching public spending away from public sector pay and towards capital expenditure would lead to an increase in employment in NSW,” wrote Richard Denniss, Matt Grudnoff and David Richardson in a new report.

In fact, reducing the spending power of some Australians will actually injure the economy, the economists pointed out.

“While reducing the disposable income of NSW public servants will not result in a direct reduction in employment, it will likely have a significant impact on the level of spending NSW public sector employees and, in turn, on the level of demand and employment in the NSW economy.”

An earlier report released in mid-April by the Australia Institute argued that freezing public sector wages could actually turn Australia’s recession into a depression.

“Freezing or cutting public sector wages would substantially exacerbate the dangerous deflationary risk we already face,” wrote economists Troy Henderson and Jim Stanford.

“Scapegoating the public servants who are doing so much to help us through this crisis, and suppressing their incomes, will make things worse, not better.”

Breaking down the figures

According to the economists, the figures don’t check out: spending money on construction activity will actually see fewer jobs created than if money was spent on public sector salaries.

The NSW government has claimed that the pay freeze on public sector salaries will save taxpayers $3 billion over four years.

“If that $3 billion is spent on construction, it could be expected to generate 2,910 jobs. If on the other hand that $3 billion was spent on public sector pay it could be expected to increase employment by 4,020 jobs,” the economists wrote.

“This means that a shift in government spending away from public sector salaries and towards construction activity would result in the loss of around 1,100 jobs.”

Besides, there is nothing stopping the NSW government from spending on both infrastructure or construction projects as well as going ahead with planned pay rises, the economists added.

“The data presented above does not mean that investment in construction is a poor investment for the state, simply that if expenditure on construction is to lead to an increase in state-wide employment the construction spending needs to be additional to, not a substitute for, other more labour intensive areas of expenditure.”

Perrottet is reportedly mulling a $1,000 sweetener for public servants in a bid to pass the proposed legislation along NSW Parliament’s upper house.

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