‘Crisis': Major problem hanging over treasurer ahead of economic roundtable

News.com.au

a day ago

A glaring problem is hanging over Treasurer Jim Chalmers ahead of this month's economic roundtable: Australia's growing addiction to public sector jobs.
More than 80 per cent of all jobs created in the last two years have been in the non-market sector, according to a new analysis from Australian Industry Group. Usually, the private sector accounts for about two-thirds of job creation in Australia, but since 2023 its job creation rates have collapsed, adding just 53,000 new jobs last year.
The government picked up the slack with new jobs in the public sector, where workers are directly employed by the government, and the non-market sector, which includes jobs in the ballooning National Disability Insurance Scheme (NDIS), projected to cost the government $52.3 billion this year.
The boom in government-supported jobs led Anthony Albanese to trumpet job creation and low unemployment during the election, but experts warn it is hurting rather than helping the economy.
Although unemployment has held at about 4 per cent since the pandemic, for the past two years the government has been creating most of the 400,000 new jobs needed each year to sustain the figure.
While public sector jobs are essential for delivering services like health and education, they're less productive than market sector jobs.
Having too many creates a drag on overall productivity and poaches labour from the private sector, which is struggling with high vacancies and skills shortages.
Mr Chalmers has described productivity as the primary focus of his second term as treasurer.
But it's feared the government will heed calls from unions for tax hikes at a key meeting on August 19, initially billed as a 'productivity summit' but later re-named as the 'economic reform roundtable'.
'The reason our living standards have gone up over time is because productivity has gone up over time. It's basically the key driver,' AMP chief economist Shane Oliver told news.com.au.
'If we don't make strides in improving productivity it will mean lower living standards over time. That's why this summit is so important.
'The risk is it just turns into a revenue-raising exercise and we don't get meaningful reforms from it.'
Government-funded jobs are tied to public sector spending, which had soared 'sky-high' in recent years, from about 22 per cent of GDP historically, to about 27 per cent after the pandemic, Mr Oliver said.
'The treasurer has said it's a key role of the private sector to grow the economy, but for that to happen the public sector has to get out of the way.
'I'd like to see a cap on public spending of 25 per cent of GDP - that would free up scope for the private sector. It would mean more resources (including workers) available for the private sector and lower taxes long-term.'
Deregulation, and tax reform to rebalance income tax to GDP, were two other changes Mr Oliver hoped to see come out of the roundtable.
'If all that comes out of this is a higher tax burden on one group of income earners, it won't achieve its objectives and will result in a worse situation.
'...If we want to spend more on NDIS jobs, for example, then we've got to find more public sector jobs to cut back on.'
Dr Jeffrey Wilson, head of research and economics at the Australian Industry Group, said the surge in government-supported jobs from 2023 had suppressed unemployment, but at the cost of rebalancing the labour market, which had become 'increasingly dysfunctional' since the pandemic.
The issue was a 'notable blind spot' in the public discussion leading up to the economic reform roundtable later this month, Dr Wilson said. But there was an urgent need to turn the private sector back into the main engine of job creation.
'This trend of government-supported job creation is not ultimately sustainable,' he said.
'It places an ever-increasing pressure on state and federal budgets, whose current fiscal positions cannot maintain these record rates of job creation indefinitely.
'Cost blowouts in many areas of government service provision - including but not limited to the NDIS and public sector wage bills - are the corollary of this stimulus.'
Dr Wilson argued the Australian labour market's resilience - its ability to withstand economic shocks or disruptions - had become 'wholly dependent' on government spending.
Critics took to social media to express outrage at Ai Group's findings.
'These figures demonstrate what those of us in business knew was happening,' former Queensland Premier and Brisbane Mayor Campbell Newman said.
'This is a crisis and it's been caused by over-spending politicians and governments.
'It's not sustainable and yet as we head towards a 'productivity summit' all we hear about is 'tax reform', i.e. more tax needs to be paid.
'This is not the answer - it's government spending that has to be brought under control.'