Canberra job losses will cut into house prices

Cross posted with permission from Capital Appreciation – will this also apply further afield, with public sector job losses mooted in Queensland?

Yesterday’s Canberra Times article on the federal government public service job cuts is likely to be one of many media articles covering this issue in the coming months. So far around 1500 job cuts have been announced across different departments, with most of the cuts affecting Canberra public servants. The long list of job cuts includes:

  • around 300 at the Department of Climate Change and Energy Efficiency,
  • 66 at the Department of Regional Australia, 150-200 at Treasury,
  • 500 at the Department of Education, Employment and Workplace Relations,
  • 50 at the Australian Bureau of Statistics,
  • 11 at Customs,
  • 100 at the Department of Resources, Energy and Tourism,
  • 90 at the Department of Veteran Affairs,
  • 50 at ComSuper,
  • 70 at the Fair Work Ombudsman,
  • 17 at the National Gallery of Australia,
  • 11 at the National Library,
  • seven at the National Film and Sound Archive and
  • 20 at the National Museum.

I’m sure I have missed some too.

The big unknown is that there are still many government departments who are yet to announce their job cut numbers. As a result, the final number of public service job cuts is likely to far exceed 1500. There’s also a rumour that the dreaded efficiency dividend could go as high as 5%. These kinds of cuts to federal public service jobs and budgets will also have flow on effects to the ACT private sector, which relies heavily on a happy and healthy public sector. The timing is not great either with the Australian unemployment rate expected to trend upwards during 2012.

Such cuts to jobs and budgets will surely also have a negative impact on property prices. Already we are seeing signs of declining confidence with the auction clearance rate teetering around 25-30%. One wonders how low the clearance rate can go. ACT property sale listings have declined slightly in the past 1-2 weeks but the number of listings remains near record highs. There is also significant residential property construction occurring, which will see further properties hit the market in the near future. The above job losses should lead to additional properties for sale but will there be a declining number of buyers with the confidence to purchase?

The clincher will be what Canberra property investors and downsizing retirees choose to do in this uncertain economic climate.


  1. Ditto, Wellington; where the public service is looking at rationalising. Will the spill-over effect from the political centres of our nations extend to the retail/manufacturing centres of as Melbourne, Sydney and Auckland? I have little doubt that it will, and property prices in all urban areas will continue their decline; especially give the noted uncertainty surrounding ‘property investors and downsizing retirees choose to do in this uncertain economic climate.’

      • The r&d credit/concession does nothing but line the pockets of cynical tax advisors. This article is the typical of the lame duck MSM – basically rewording the press release from the advisory firms that have gone into lobby mode ahead of the budget – hopeless!

        The now 10c in the dollar benefit in Aust is effectively just a subsidy for business as usual work in 99 percent of Aussie corporates. The working group know it, the companies know it, treasury knows it, everyone in the tax game knows it. The only people that don’t are the mug voters.

        But the dodgy R&D claims flow down into dodgy R&D numbers through the ABS, and that lets our dodgy politicians pretend we actually do some real research.

        Geez if ever there was some money that could be better spent!

        • and this is in contrast with honest negative gearing and capital gain discounts on property speculation.

        • I am a senior engineer working for a small engineering company who manufactures and exports close to 90% of our equipment to overseas markets, with our products being manufactured locally in Melbourne.

          The only reason we are still in business is we are a high-tech company, build to order, in a neiche market.

          Over the past 5 years I have been heavily involved in R&D, which is the only way we can stay ahead of the foreign competition, Chinese companies knocking off our designs, as well as the high AUD which hurts or competitiveness and profit margin.

          With close to 50% of profits invested in R&D (yes 50%!) you would think our government’s R&D tax concessions would be easily granted. Sadly it’s an arduous task to say the least.

          We have even had the minister from the Victorian Government Department of Business and Innovation (DBI) personally visit our facility to verify our legitimacy, and yet we struggle to obtain assistance.

          The only way we are able to obtain any benefit for R&D claims is to engage a prominent firm who prepares the claim and lodges on our behalf.
          They have the contacts and the procedures to navigate the bureaucracy.
          And they take a good chunk of the grant money we receive for their trouble.

          I guess my gripe is when a small but innovative and globally competitive export oriented MANUFACTURING company struggles to gain assistance from the government, then I fear for the future of Australian export businesses.

          Up until now we have managed to hold on to not only our manufacturing operation here, but solid R&D, however I fear it could only be a matter of time before innovation and R&D itself it outsourced abroad.

          • Well small struggling developers and innovators is where, ideally, the assistance should sit.

            Unfortunately i have some bad news for small SME developers like you:

            1. It is very common for small businesses to be put in tax aggressive positions – remember the standard approach for advisory firms is upfront fees and back-end risk. If you have paid success or high fees for this work – remember it’s self assessment so just making a claim doesn’t make it eligible. The ATO can and does audit this stuff and that’s when the chickens really come home to roost. SME’s playing with the big boys is like mums and dads investing with Goldman or MacBank – they’re going to eat you for breakfast.

            2. Small businesses that pay high fees for this work are pretty much being scammed. They will at some stage want to take the capital out of the business so the tax deductions are illusory – at best a timing difference – because when they take the capital out of the business (as a dividend) they will have no franking credits and so just pay the tax at the personal level at a later stage. For some reason the advisory firms are pretty shy when it comes to explaining this.

            2a. If it is really working capital the SME is after – then i suggest the interest on an equivalent loan would be much cheaper (remember they are still taxed when the capital is taken out of a business so tax deductions to generate working capital in an SME are laughable – a timing benefit).

            The real point is small innovators and developers really do deserve a break and support but this is not what the current R&D system provides.

            Unfortunately the complexity of the system makes it easy for the advisory firms to waltz easy fees out of struggling developers/innovators that are busy trying to make a genuine business.

            The current R&D tax credit/concession is a massive waste of tax-payers cash.

  2. Waynes Black Swan

    Defence is yet to announce their intentions and from what I understand it’s not good. But then along comes today’s Canberra Times confidence saving headline;

    “ACT PS set to keep on growing”

    How I’m not sure. The ACT Government is facing a deficit and going forward, revenue, in particularly stamp duties and other land associated revenues are declining. The hidden detail will be the outcomes of the razor gang.

    • Another typically poor Crimes article. They quote the ACT PS numbers from last financial year 2010/11. However, the numbers are likely to have declined in the current financial year and continue to do so in the next financial year for the reasons you quote above. I spoke with someone high up in the ACT public service and they indicated that job losses in the ACT PS were a certainty in the near future.

  3. Any whispers about the immigration department?

    A good friend of mine works @ Australia House in London for immigration and seemed to think his job was safe as houses, excuse the pun! 😉

  4. To get perspective, how many federal government public service jobs were added each year, since Labor took over ?

  5. MsSolarFelineAU

    Sooo, where are the property bulls disputing the concept that unemployment feeds into low house prices? *snicker*

  6. Other than perhaps a possible rise in welfare expenditure in the budget isn’t this a good thing?

  7. well its about time … the public sector has swollen to an unsustainable level.
    I’m concerned they are going to remove 20 from the national musuem … 20 … they couldn’t be that over staffed, there would be no one left!!

    i reckon they should look back at the numbers fom 10 years ago and try to rationalise to that level

    • Population has grown in that time, as has the economy.

      In 2001-02 there were 213,000 Federal public servants. Currently there are 263,000.

      In 2001 the population was 19 million, now it is almost 23 million.

      So the Federal public service has grown by 23%, and the population has grown by 21%. Not too far out of whack!

      The public service head count numbers were taken from the following Canberra Times story, which projects cuts of 14,000 over the next three years, based on the funds Treasury predicts it will need to pay wages:

      • The problem is that it’s absurdly top heavy, not that it’s too big.
        – the median pay grade for a public servant is EL1 (which is about 100k)
        ie: fully half the APS are ‘executive level’ or above.

        This is ultimately a legacy of what Howard tried to do, to create a service full of professional managers with everything else outsourced (which was an expensive failure) but nobody has actually gone about cleaning up and getting rid of the absurd system and philosophy that was put in place in the late 90s.

        What’s more the absolute minimum level the APS an realistically hire people at is APS2, paying about 50k, and the way the system is set up, you can expect to be promoted every 2-3 years just for keeping your seat warm.

        Because of this there’s a lot of work still being outsourced that really shouldn’t be, but until there’s a full on review and top to bottom re-write of how the APS is organized nothing will change.
        I mean if you can’t staff a bloody call center full of 20 year old’s for less than 50k a head (before super, insurance, ect) then you’re pretty much stuffed as an organization.

        It works the other way as well – the crackpot philosophy behind the whole organization fundamentally does not recognize anything but leadership, management and responsibility over others as being worthy of significant remuneration, so there’s fat chance of retaining highly skilled technical staff.

      • Unless the private sector re-employs all the retrenched public servants, aren’t we merely shifting them from one part of the public sector to another – from paid employment to paid UNemployment? Reducing their propensity to consume and contribute to growth in the process. Seems like a bit of a zero-sum game to me (though the numbers are not huge Australia wide). But of course, the motivation here is purely political.

        • I wonder how many of these soon-to-be-sacked public servants are paying off one or more investment properties which they will need to unload? The impact of the Canberra job losses on it’s stock on the market could be greater than one-to-one.

          Assuming the level of employment in the economy does not respond favourabley to budget cuts that a more than double the size of the largest previous ones, at a time when growth is rather slower than when this last occurred, it will be interesting to observe the effects (whatever they may be) on the rest of Australia’s 1.7 million property investors.

      • Would also be interesting to see the private contractor/consultant numbers employed by the Gov.

        Using the latest “Year Book Australia 2009-2010” from the ABS for all levels of Gov.[email protected]/0/47282307DA2B4619CA25773700169C42?opendocument

        “An essential part of government in Australia is the public service that exists at each level. The total number of such employees at June 2008 was 1,751,400 persons, or approximately 16% of the entire Australian workforce.”

  8. JacksonMEMBER

    “Efficiency dividend” – a fantastic turn of phrase. Could also substitute with productivity dividend, but apparently any mention of productivity is banned on the hill.

  9. 1500 jobs doesn’t sound like much in the grand scheme of things, but it represents one percent of Canberra’s 150K (approx) full-time workers.

  10. More than a few of these public servants will be taking home as much or more from the pensions they will shortly be collecting. Public servants with long service who are still in the CSS or PSS can easily get more in pension than their current pay after superannuation deductions. The advantage to the government is that these payments don’t come out of the budget, now that the Future Fund has been set up to take care of them.

    • Haha. God that’s funny that the Australian punters were bamboozled into putting the money from major asset sales into a fund to protect the defined benefit super funds of pollies and public servants. Humphry-esque!

      I always get a snigger out of that…

    • simon the likeable

      Th gift that keeps on giving. In the case of the PSS, members can elect to take their fully indexed pension (twice yearly increases) not only for the remainder of their lives, but even beyond that. After the member’s death 80% of the pension continues to be paid to the member’s spouse until his/ her death.

    • I think the key phrase here is “Public servants with long service who are still in the CSS or PSS” Both of those closed to new entrants over a decade ago, and a fair few were persuaded to go for the free market options- especially in the days when the stock market was outperforming the AWOTE benchmark. The upper echelons were also fairly excited by the SMSF option (probably with preperty) so there may not be as many as you think who are eligible for the long term pensions.
      One of the more interesting quirks of the Howard era is that certain obsessions got put into place well before other areas, and one of those was choice of super fund- commonwealth public servants had that long before it percolated to the rest of the working population

      • persnickety, I’m an ex-public servant myself, now a CSS pensioner. Nobody I know who had the choice to switch did so. Public servants are smart enough to know that if the government offers to transfer you to a new scheme, it must be because it benefits them, not you. People I know all did the sums on their own entitlements under each option, then elected to stay where they were. To do otherwise you would either have had to have been a sandwich or two short of a picnic, or just not paying attention – which would have been difficult, given how much of a topic of office conversation it was at the time.