Government funded jobs printer jams across the land

In the years since the Albanese government came to power and the sugar hit of pandemic driven stimulus and so called ‘Revenge Spending’ drew to a close in the middle of 2022, the Australian economy has become more and more reliant on employment growth in non-market sectors of the economy.

The ABS defines non-market sectors as: Public Administration, Education and Healthcare, and Social Assistance.

Market sectors of the economy are all industries outside of those three.

Despite the non-market sector of the economy encompassing fewer than 27.3% of overall employment when the Albanese government came to power, since Q2 2022, it has represented 68% of overall jobs growth.

As the chart above shows, the divergence between the market and non-market sectors of the economy has been particularly pronounced since Q3 2023, with only 39,700 jobs being created in the market sector since then.

But there are signs that the taxpayer-funded jobs printer, which has supported the overwhelming majority of employment, is beginning to falter.

In the first quarter of 2025, the total level of non-market employment contracted for the first time since the lockdown in 2021.

This is arguably a result of state governments beginning to pull back on their role as a driver of employment growth, as they increasingly confront significantly more challenging environments for their respective budgets.

Meanwhile, in the background, federal programs such as the National Disability Insurance Scheme (NDIS) have continued to see the ranks of individuals employed by the program grow.

Shortly prior to his exit from federal parliament, former Opposition Leader Bill Shorten credited the NDIS with driving jobs growth and helping to keep the economy afloat, sharing an estimate that over half a million workers now earn a living through the scheme.

Amidst the ongoing pullbackin government-driven employment growth in aggregate at a state level, reports have emerged from the AFR that the federal government faces:

“billions of dollars in public sector funding cliffs, which bureaucrats warn threaten service delivery, key government initiatives, and thousands of jobs.

The article went on to note that key government departments, such as Health and Social Services, amongst a number of others, had warned their respective ministers that budget cuts as large as 50% were on the cards in coming years and asked if they should plan to cut staffing levels.

This comes in the wake of reports in January that Labor had not budgeted for up to $7.4 billion in federal public servant wages, driven by an increased headcount and a pay rises for approximately 185,000 workers.

According to the AFR, it would seem attempts to “massage” the budget to produce better forward estimates are a significant factor:

“One government source who spoke on condition of anonymity because they were not authorised to speak on the topic said the cabinet’s expenditure review committee had only extended funds for many non-ongoing programs until 2025-26, which kept costs lower over the four-year forward estimates ahead of the May 3 federal election.

The worst of the looming budget shortfalls take effect from 2026-27 when at least 100 programs, and likely dozens more, will have their funding expire.”

This potential hit to the labour market could scarcely have come at a worse time, with unemployment recently surging to the highest level since 2021 and now sitting slightly above the RBA’s forecast level for mid-2027.

In this, Australia is not unique; Canada and the United States both recently saw shock deteriorations in their respective labour markets.

However, Australia faces several major unique issues.

With labour force growth still running at an extremely high rate, the economy needs to create around 25,000 jobs per month for unemployment to remain stable, assuming that migration flows do not reaccelerate.

Australia has also relied far more heavily on taxpayer-funded employment growth for significantly longer than the United States and Canada, using up the latent scope for this strategy to be used to stabilise the labour market in the future.

Australia now faces a challenging and uncertain future. TThe Albanese government can increase spending to address the gaps it reportedly created in the federal budget in an effort to maintain stability, but there are no guarantees that this will be sufficient to keep unemployment stable while state governments work on restoring their own budgets.

The hope of the Reserve Bank is that the market sector will refire and create enough jobs to fill, but that is arguably a hope-based strategy.

A strategy that could be further complicated and undermined if the Albanese government is unwilling or unable to fix its allegedly self-imposed budget black hole.