In this article, Kevin You contextualises and disseminates the IPA’s research on the public sector.
The public sector bloat in the last financial year, driven by the federal government’s hiring spree, risks inflation once again getting out of control.
Get this: Last year the number of workers and bureaucrats employed at all levels of government increased by some 82,000. This is a 3.2 per cent increase on the previous year, which is more than double the growth of Australia’s entire population. The number of federal government employees grew at closer to three times the rate of our population.
It should not come as a surprise, then, that inflation is on the way back up – to 3.2 per cent which is now again above the top of the Reserve Bank’s preferred inflation range. This means that the next interest rate move could be up, rather than down.
The growth in the public sector pushes up inflation in two ways: by heating up the economy and by inhibiting productivity.
Public sector employees earn about $96,000 a year on average, higher than the average earning of private sector employees, at $76,000.
This means that a typical public sector employee can spend up to a quarter more than their private sector counterparts, which drives up prices for everyone else.
Now this would not be a problem if our economic productivity was ramping up at the same time. But the problem is that many bureaucrats will not be frontline teachers and nurses, but clipboard warriors, paper-pushers whose job it is to think of more rules and red tape. This again fuels increased costs and reduces investment.
When investors are unwilling to invest money on things like machinery, trucks, computers, concrete mixers, and tools – all else remaining constant – it creates a problem that economists call “capital shallowing”. This is where workers are not given sufficient tools with which to do their jobs, which is detrimental to productivity growth.
IPA research has found that the federal government is on track to employ more than 107,000 people in regulatory roles designated specifically to make it harder for the private sector to get on with the job. Most are likely to be paid well above the average earning of private sector workers. Good going, for those who can get it.
