26 September 2023

Research cool on pay freeze cost

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Research into the impact of freezing public sector pay has revealed that the recently announced six-month freeze across the Australian Public Service could cost the ‘typical’ employee $23,000 over their career and $4,000 in superannuation accumulations.

The research, conducted by the Australia Institute’s Centre for Future Work claimed the economy would suffer as well.

Director of the Centre, Jim Stanford, said that at least 35 per cent of the proposed ‘savings’ from the freeze would be offset by the loss of direct taxation revenues that would have been collected as a result of higher income and spending by the public service staff.

“Considering other tax revenue losses from the resulting slowdown in broader wage growth, even more of those ‘savings’ are never realised,” Dr Stanford said.

He said pay freezes in the PS even for short periods, “reduces the lifetime income and superannuation savings of public sector workers by tens of thousands of dollars, because it permanently reduces their lifetime wage trajectory.”

He said that imposing the freeze while public servants such as healthcare workers, first responders, teachers and social service providers were performing vital tasks for the nation at personal risk to themselves, also raised questions.

“Freezing pay for these essential workers is not just morally questionable — it’s also a major economic mistake,” he said.

“Misguided public sector wage restraint in the aftermath of the GFC short-circuited an initial recovery in private-sector wage trends in 2010-11,” he said, “and helped lock in a lasting deceleration of national wages after 2013.

“Since then Australia has experienced the slowest sustained wage growth in the entire post-war era.”

“Australia cannot tolerate a further deceleration of wage and price inflation,” Dr Stanford said.

“Inflation was already close to zero, chronically falling below the Reserve Bank’s inflation target, even before the economy was hit by the double shock of bushfires and COVID-19.”

He said that at this ‘pivotal moment’ normal wage gains should be implemented in the public sector and encouraged in the private sector.

The Centre’s 17-page report can be accessed at this PS News link.

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