General government consumption growth has materially outpaced household consumption growth over the past three years.
Public sector jobs growth has significantly outpaced private sector jobs growth over the past two years.
Public sector wages have been growing at a faster pace than private sector wages for most of the past twenty years.
The case to cut personal income tax rates is growing.
Overview:
In this note we take a look at the most recent trends in employment, wages and consumption from a public/private sector perspective. The results indicate that the public sector has been putting on headcount at a much faster rate than the private sector. And wages growth of those workers in the public sector has been stronger than that of workers in the private sector. Growth in public sector employment boosts demand in the economy in the short run, but there is a financial cost that is born by taxpayers. That cost is amplified when growth in public sector salaries outstrips that of workers in the private sector.
Bracket creep means that workers are handing over an increasing proportion of their salaries each year to the Government (chart 1). This weighs on household consumption. The Q4 2017 national accounts, published last week, showed that household consumption growth has been materially less than the growth rate in generation government consumption. These trends are unsustainable in the long run. We explore the issues below.
Employment
One of the defining features of the Australian economy over 2017 was incredibly strong growth in jobs. But the growth rate in public sector employment was significantly stronger than the private sector. The ABS publishes quarterly data that splits employment by the public and private sectors. The most recent data is to November 2017. It indicates that total employment rose by 387k over the year comprising a lift in public sector jobs of 118k (30% of total jobs) and private sector jobs of 269k (70% of total jobs). From a growth rate perspective, public sector employment rose by a whopping 7.6%pa while private sector employment was up by 2.6%pa. Clearly, the headline employment growth figures have been flattered by growth in public sector jobs. In fact, public sector jobs growth has been very strong over the past two years (see chart 2, note that we have smoothed the data out on a 2qtr moving average basis).