One of the key issues raised by this research relates to the ability of governments to contain public service wage costs with regard to the economic circumstances. Seemingly all too often over the past few years, governments have been readily prepared to accede to the continuous political pressure exerted by public sector unions for inflationary pay increases.
In response to the recent economic downturn, most governments have announced new or amended policies limiting accepted growth in public servant wages covering new certified agreements. However, as the IPA research indicates, the effect of old certified agreements still flowing through plus generous new pay deals means that governments are unlikely to achieve their formally stated wages policies.
I compare the actual projected growth in state employee (wages and salaries) expenses over the forward estimates with what these expenses would look like if state wages policies were strictly adhered to. Over four years, cumulative actual projected employee expenses for the six states are about $285 billion. By contrast, if states stick to their wages policies the cumulative projected employee expenses would be about $269 billion instead.
This yields a difference of just over $15 billion over four years. With payroll tax revenue estimated at about $16 billion last financial year, in effect state governments will be seeking a new payroll tax worth of funds to pay for public servant wages that grow over and above the wages policies.
Here are the excess projected employee expenses from 2009-10 to 2012-13, compared to payroll tax in 2008-09, for the states:
NSW Expenses $5.9bn PRT $6.4bn
Vic Expenses $3.9bn PRT $4.0bn
Qld Expenses $4.2bn PRT $2.7bn
WA (over three years) Expenses $1.3bn PRT $2.2bn
SA Expenses -$17m PRT $913m (note: SA projects that its wage expenses will be below its wages policies over four years; a heroic projection indeed!)
Tas Expenses $192m PRT $266m
On this basis, most state governments are effectively conceding that they will not meet the wage growth targets outlined in their budgets. This implies that more comprehensive measures and reforms to restrain the largest cost driver of state operating budgets are required.
