Twice as many public sector workers than mining workers were hired in Australia’s 10-year resources boom, enlarging the bureaucracy and inflating public spending.
Cutting back is now a priority for a government seeking budget savings.
In the 10 years through June 2013, 375,000 public sector workers were taken on compared with 173,200 mining workers, according to government data compiled by Bloomberg.
Even as the mining boom boosted growth and tax receipts, the ballooning government wages bill added to strains on the budget and helped push sovereign debt to a record $318 billion.
Ahead of its May 13 budget, Tony Abbott’s seven-month-old government has pledged 12,000 civil service cuts and commissioned a panel to audit public spending that’s due to deliver recommendations tomorrow.
Fiscal austerity, along with cutbacks by commodities companies, is putting pressure on the central bank to keep borrowing costs at or near a record low.
“This has been a hidden boom that the government may see as fat to cut,” said Martin Whetton, an interest-rate strategist at Nomura Holdings.
“Public service redundancies would push unemployment above 6 per cent and keep it stubbornly high, and suggests that rates are likely to remain lower for longer.” Whetton reckons the government could axe 5 per cent of the 248,500-strong federal government workforce as part of budget measures, based on past cuts by conservative governments.
Unemployment reached 6.1 per cent in February, the highest level in more than 10 years, before dropping back to 5.8 percent in March.
The Reserve Bank of Australia cut its benchmark interest rate to a record-low 2.5 percent in August and indicated a period of steady borrowing costs is likely as it tries to spur residential construction and domestic demand to help offset waning spending on resource projects.
“While falling mining investment and weak public demand were set to constrain growth for some time, there were early promising signs in other parts of the economy,” RBA Governor Glenn Stevens said in minutes of this month’s meeting released April 15.
A major driver of growth in the public sector has been at the state level, where the workforce has increased 30 percent in the 10 years through June, or 334,500 employees, government data show.
Employment in mining rose 97 per cent over the period. Health care and social assistance has seen the largest numerical gain, climbing to 1,425,720 workers in February 2014, from 953,700 10 years earlier. In contrast, the number of manufacturing workers has fallen to 949,730 from 1,022,327.
In Queensland, the state government has pledged to cut 14,000 jobs in the civil service and the New South Wales government 15,000 positions.
The federal government has already cut 6,000 civil servants and the concern is that the audit commission and budget will demand “even deeper” reductions, said Commonwealth Public Service Union Communications Director Dermot Browne.
“There is a palpable sense of concern in the community about job security,” Browne said.
“The other issue is the impact on people who rely on services.” Australian Treasurer Joe Hockey said in an April 23 speech that the commission report focuses on the 15 largest programs, predominantly welfare, health, education and defense.
It observes that state payments to retirees is the largest and takes up 10 per cent of all federal spending, he said. Hockey, in an interview with ABC radio the following day, said it was inevitable that the pension age would “have to increase,” when questioned whether the government would raise it to 70 from 67.
Australia has the highest projected expenditure growth between 2012 and 2018 among 17 advanced economies, including the US, South Korea, Canada, Germany, France and Japan, Hockey said, citing the International Monetary Fund.
Still, with Australia’s net debt projected in December to peak at 16.2 per cent of gross domestic product by mid-2019 without policy changes, the country’s fiscal position remains stronger than most of the developed world.
The audit recommends inflation-adjusted spending increases be limited to 1.75 per cent a year over the next decade, less than the projected growth in the economy, according to Hockey. He said the fiscal shortfall left by his predecessor meant that, without action, by 2024 Australia would have had 16 unbroken years of deficits, the longest stretch since World War II.
“The rate of deterioration in our budget is pretty alarming,” said Stephen Walters, JPMorgan Chase & Co.’s chief economist in Australia, who predicts a “pretty aggressive hatchet job” on the fiscal side.
“Employment blew out in the public sector under the previous Labor government, in part due to a philosophical view that big government is better than small, and it will be a target for Hockey,” Walters said.
Labor shadow Treasurer Chris Bowen says the budget problem has been exaggerated by the government in order to cut spending.
“Joe Hockey has deliberately doubled the budget deficit by changing the economic parameters,” Bowen told ABC radio April 28.
The previous government’s goals to “return to surplus gradually over time without the swingeing cuts that would be a hammer blow to our real economy are justified and appropriate,” he said.
Eighteen years ago, the incoming Coalition government ofJohn Howard inherited a deficit and rising debt from Labor and responded by slashing spending. Walters said Abbott and Hockey – – who both served in Howard’s 1996-2007 administration — had a “brief window” to cut the budget and blame the previous government for the fiscal position.
That window will close after this budget, he said. “Hockey would have a credibility problem if he’s declaring a fiscal emergency and the budget is in crisis and then does nothing about it,” Walters said.