Federal public sector employment grows at triple the pace of population growth

The Federal public service is growing at triple the rate of the population and sharply accelerated when Labor came to power three years ago.

The number of Federal Government employees soared 5.6 per cent last financial year to 385,900, up from a 4.3 per cent increase the previous year, Bureau of Statistics figures showed. The population increased 1.6 per cent from immigration and births.

University of New South Wales economics professor Richard Holden said the increase in public servants was partly due to Labor seeking to in-source more expertise and rely less on private consultants. However, he warned the higher numbers would have dire implications for the Budget.

“The major issue here is the impact on the Commonwealth Budget which is already under pressure,” he told The Nightly. “It’s projected to have a decade of Budget deficits going forward so that has flow-on implications in terms of our debt position.”

The public service increased 3.2 per cent in 2022-23, the Coalition’s last financial year in office. That was a steep rise from 1.2 per cent in the 2021-22, covering the end of the pandemic.

MacroBusiness chief economist Leith van Onselen said the bloated public sector was likely to get worse when Labor introduced a universal childcare scheme on top of the National Disability Insurance Scheme.

“It’s this creeping, growing government influence in the economy, taxpayer-funded economy. It’s problematic not only from a cost of the Budget being unsustainable,” he told The Nightly.

“The whole universal childcare push they’re doing is going to add billions of dollars of cost to the Budget and it just means you’re going to have more growth in non-market jobs and I guarantee you, it’s going to end up costing more than what they think, just like the NDIS has. Chances are we are going to have NDIS 2.0.”

Federal government spending makes up 26.2 per cent of gross domestic product, which is the highest since 1986 outside of COVID, with a big public sector wages bill a key driver of big government spending, Mr van Onselen said.

A fall in iron ore prices is also likely, following the opening of the Simandou iron ore mine in west Africa, which could hit company tax revenue.

The Department of Industry expects Australia’s iron ore export earnings to fall $3 billion in 2025-26 and another $10b in 2026-27 to $103b — down from $116b in 2024-25. This is expected to lead to even bigger Budget deficits.

“I wouldn’t be surprised if that happened,” Mr van Onselen said. “We’ve got a major iron ore mine in Africa that’s about to open very soon. That’s going to compete directly with Australian iron ore.”

This could see Australia turn to even higher immigration to reap more revenue from personal income taxes.

“This is why the Feds love high immigration,” Mr van Onselen said.

An expanded public sector workforce has also been blamed for Australia’s minuscule 0.2 per cent increase in productivity, which is a fraction of the 2.1 per cent average annual pace during the 1990s to the mid-2000s, when the internet was new.

State governments were still the biggest public employer with 1.993 million staff, up 2.9 per cent over the year, as New South Wales and Victoria’s Labor governments tried to slow the increase in taxpayer-funded jobs.

Unlike the Federal Government, the States have weaker credit ratings and can’t as easily raise money from issuing new government bonds.

“The State governments kind of have less wiggle room. They’re under more pressure and as a result, they’re often more prudent with these things,” Professor Holden said.

Local councils were in third place with a 2.1 per cent growth pace, for 218,000 employees.

The Federal Government still has a AAA credit rating, unlike the States, with Australian public debt levels still low by global standards.