Editorial
Cap won’t fit: more flexibility needed for public sector wages
Soaring inflation has forced the Perrottet government to lift the cap it imposes on annual wages growth for public servants in NSW.
The cap will rise to 3 per cent next financial year with the possibility of a further increase to 3.5 per cent in 2023-24 for “employees that make a substantial contribution to productivity enhancing reforms”.
NSW Premier Dominic Perrottet announced his government’s new public sector wages policy at Liverpool Hospital on MondayCredit:Photo: Oscar Colman
In addition, the government will make a one-off $3000 “thank you” payment to all permanent NSW Health staff, including paramedics, midwives and cleaners.
The Herald welcomes both the increase in public sector wages and the richly deserved bonus for health workers.
With the official inflation rate now 5.1 per cent, there was no choice but to abandon the 2.5 per cent public sector wage growth limit, which was introduced soon after the O’Farrell government came to power in 2011.
Inflation outpaced the wages cap last financial year and will inevitably do so again this year, meaning public sector workers have already experienced a decline in real wages for two years running.
With unemployment at an historic low and conditions in the labour market extremely tight, the NSW public service risked losing well-trained workers if it did not show more flexibility on wages.
On Monday, the government unveiled an ambitious four-year plan to recruit 10,000 additional health staff. While it is unclear where all the extra employees will come from, the improved wages policy will certainly help NSW Health to attract and retain skilled workers.
The government’s willingness to lift its wages cap should bring an end to the months of industrial unrest in NSW which has affected schools, health services and public transport.
It is understandable that public sector workers were frustrated with the 2.5 per cent limit on annual wages growth, especially given the challenges of working during the pandemic and the recent spike in living costs.
But the public is tired of the disruptions caused by industrial action – especially strikes – and trade unions run the risk of losing community support if this turmoil persists.
The pandemic has pushed the NSW budget deep into the red and triggered a sharp increase in public debt. Given the state’s financial challenges, Premier Dominic Perrottet is justified in his claim that the government’s new wages policy is “fair and responsible”.
The Herald urges trade unions to be open to this offer which is a sensible compromise in the circumstances.
However, Perrottet should take this opportunity to reconsider his approach to public sector wages.
What is the point of having a specific cap on wages growth only to shift it when circumstances change?
Inflationary periods, like the one we are now experiencing, are not new and will occur again in future. Government wages policy should be flexible enough to accommodate this reality.
In an open economy like Australia’s, wages should move with market forces, not be limited by artificial government fiat.
Negotiations over public sector pay and conditions should focus on enhancing productivity and improving essential services.
Research shows the wage caps imposed by governments during the past decade had a chilling effect on wages growth well beyond the public sector.
Reserve Bank governor, Philip Lowe, has said they’ve been a “factor” contributing to a decade of subdued wage outcomes in Australia. In 2019, he told the parliamentary committee that while it was understandable that states imposed wage caps to help control public spending, this policy approach was “cementing low-wage norms”.
The Perrottet government’s shift in wages policy is overdue and should bring an end to recent industrial disputes in NSW. But by suddenly lifting the cap the government has exposed shortcomings in its public sector wages framework. The cap might have seemed an attractive ploy when the Coalition came to power in 2011, but it will not provide the flexibility needed in future.
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