Recently, The Economist magazine wrote an article proclaiming that Australia had the most bloated government in the world. It produced this chart, with data from the International Labor Organisation, showing that adjusted for population, Australia has the largest public sector workforce, with 143 employees per 1,000 people – roughly 29% of the country’s workers.
The only problem? The numbers are almost certainly wrong.
Though comparing like-for-like public services is tricky, ABS figures show that Australia isn’t as big an outlier at The Economist claims.
At June 2024, Australia had 2.51 million public sector employees out of a total population of 26.66 million - about 9% of the total population and 17% of the total workforce.
Though not as big an outlier, these figures suggest that Australia’s public service would still rank third on the above list of 178 countries.
Yet, that may not tell the full story. Some think the numbers should adjust for things outsourced by governments such as healthcare. Here is how the figures versus four other countries look with that adjustment.
Source: Ivor Ries
I am not totally convinced this is a like-for-like comparison either, though it’s food for thought.
Labor loves Canberra
What’s clearer is that the Albanese Government has significantly boosted Commonwealth public service numbers since it came to power. For the two years to June 2024, federal public service figures, ex-defence, increased from 195,800 to 308,200, or by 57.4%. Total numbers including defence rose 44%. And Commonwealth public service wages lifted by $13 billion during that period.
Of the 101 Federal departments and agencies, just seven accounted for 63% of the new jobs added in the first two years of the Albanese government.
Defence led the way, with an extra 2,916 joining the department. Intriguingly, the number of uniformed ADF personnel fell over the two years, so all the jobs added were bureaucrats/administration.
NDIS and health were the other departments to have large increases in headcount.
How much of the increase can be justified?
The Albanese government came into office claiming the previous Morrison government outsourced an exorbitant amount of public sector work to external consultants, costing taxpayers’ tens of billions a year. It intended to cut that waste and bring the work back to the Australian Public Service.
Labor had a point. In its final year in office, the Morrison government spent almost $21 billion on outsourcing public service functions. An audit commissioned by the new government found that external labour accounted for 53,911 full-time equivalent jobs in 2021-22. That ‘shadow’ workforce added 37% to the official public service.
I am sympathetic towards Labor’s suggestion that the Morrison government gutted the public service and outsourced the work to consultants who filled their pockets.
However, the truth is that the Commonwealth public service has been decimated of talent for decades. It started under Hawke and accelerated under John Howard when he appointed Max Moore Wilton, aka Max the Axe, as Secretary of the Prime Minister’s Department. Power shifted from the public service to ministerial offices. That meant politicians no longer relied on independent advice and data from public service departments and agencies, but on the advice of their own staffers.
The problem with the Albanese Government is that it’s added public servants at a significantly faster rate than it’s cut outside consultants.
In recent budget papers, Labor said it had delivered on its commitment to reduce the public service’s reliance on consultants, with $3 billion in cost savings in the 2022-23 budget. And it would reduce consultant fees by a further $1 billion in 2024-2025.
That total of $4 billion in savings compares to total consultant fees of $20.7 billion in the last year of the Morrison government. An almost 20% cut in consultant fees is decent work.
However, Labor has also hired new public servants to the tune of almost $13 billion during the same period. In other words, we’ve saved $4 billion in consultant fees by adding $13 billion in public sector wages.
The following chart shows that Labor isn’t just restoring the public sector workforce but adding to it.
Larger government bloat may be elsewhere
Context is important when considering public sector wages. They are relatively small fry when compared to total government spending. Australia spends $37 billion on Commonwealth government wages out of total budget spending of $762 billion, amounting to less than 5%.
If you want to deal with government waste at the federal level, then there are bigger issues to tackle.
And there may be a larger problem at the state government and council levels.
When plowing through the numbers, I was surprised by the employee and wage figures at these two tiers of government.
State Governments employ 1.94 million people at a cost of $178 billion, almost 5x the total wages of Commonwealth public servants. And local councils spend $16 billion on their employees.
About 1 in every 11 Queenslanders is a state government employee, and it’s 1 in 12 in New South Wales.
Breaking employee numbers (of Commonwealth, state and council) down by industry, about 1 in 3 public servants in Australia work in public administration and safety. Most of the rest are in education and healthcare.
I’m not sure we need 849,000 people working in public administration, costing $83 billion per year!
This data would suggest that state government and local councils may have a lot more fat to cut than the Commonwealth government.
James Gruber
Also in this week's edition...
Australian investors have been stumped by what's driven the extraordinary rise in CBA's share price over the past 18 months. Clime's John Abernethy says it's becoming clear that US fund managers are buying CBA to hedge against further falls in the US dollar and the potential for quantitative easing as America grapples with its huge budget deficit. He suggests the likelihood of QE and financial repression in the US has significant ramifications for Australia, beyond just CBA.
As markets reach record highs, exorbitant valuations and increasing concentration risk are leaving many investors with a quandary about what to do with their portfolios. Jamie Wickham advises on how to avoid knee jerk reactions and the best ways to position your portfolio for the future.
Soaring house prices are deepening Australia's cost of living crisis - and possibly distorting marriage decisions. New research by Stephen Whelan and Luke Hartigan links unexpected price changes to whether couples separate, stay, or silently struggle together.
Google has been one of the internet's poster children for disruption. Yet, AI is now threatening to diminish Google's lucrative search business - a case perhaps of the disruptor becoming the disrupted. Alex Pollack and Harry Morrow look into what Google is doing about it and whether it can reinvent itself to ward off competitors.
A new study has uncovered what many have long suspected about passive investing - that market ETFs and indexing don’t just mirror the market but shape it, often amplifying the rise of the largest firms. Larry Swedroe outlines the study and its implications for investors.
There's long been a debate about swapping property stamp duties for land taxes. Cameron Murray looks at the pros and cons of such a move, and whether it should be a priority to deal with the housing crisis.
Joe Wiggins says many of the behaviours that have made humans such a successful species also make it difficult for us to be good, long-term investors. He thinks the key to better decision making is to understand what makes us human and adapt.
Lastly, in this week's whitepaper, Fidelity provides its mid-year outlook on the opportunities and risks in markets.
Curated by James Gruber and Leisa Bell
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