Recent data from the Australian Bureau of Statistics points to some economic developments that will make a return to balanced government budgets even more difficult.
In the three months to September 2015, private sector wage growth has grown at 0.5 per cent (or 2.1 per cent over the previous year), making it the slowest rate of growth in 17 years.
Slowing wage growth – a significant cost of employment – could encourage business to hire additional staff. But a persistent trend could hit government budgets on the revenue side (as well as adverse terms of trade effects).
Of at least equal concern is that public sector wages keep growing despite a subdued Australian economy. The ABS wage index shows public sector wages increasingly a little more rapidly, at 0.7 per cent over the last three months (2.7 per cent), adding pressure to government budgets on the spending side.
The main culprits for the rising public sector wages bill appears to be the state and local governments. During 2014‑15 the federal government cut its wages bill by $462 million compared with the previous financial year, whereas states and councils increased their wages bill by $2 billion and $458 million, respectively.
Putting the three levels of government together, we find the total wage bill to have hit a record $141 billion in 2014‑15, up from $139 billion in 2013‑14.
Since the 2013 election the federal government has done its bit to reduce its bureaucracy and wage costs, albeit too slowly, but we also need to keep a closer eye on profligate states and local governments.