It's time to bring back the thrift

Bookmark and Share Economics & Deregulation | Alan Moran
Herald Sun 10th February, 2012

Ted Baillieu plans to shave 3600 jobs from Victoria's bloated public service.

The state of Wisconsin in the US, with a population similar to Victoria, is the battleground for rolling back excessive public service spending.

Recently elected Governor Scott Walker realised that the state was going broke. Eight years of a union-friendly Democratic Government had seen a massive expansion of the public sector and public-sector wages. Earnings were independently estimated to be 30 per cent above those in like-for-like private-sector jobs. And that excludes the value of very high level of job security public servants enjoy.

In the face of vicious opposition, Governor Walker reduced remuneration levels by requiring public servants to pay a portion of their superannuation.

Victoria has also seen a surge in public-servant wages and numbers.

Since June 2008, average earnings per public-sector employee have risen by 18 per cent, easily outstripping the average private sector increase of 13 per cent.

During the same period, private-sector employment could manage only a 4 per cent increase but state public servant numbers increased by over 12 per cent. Moreover, undoing all the economies of the Jeff Kennett era, local governments have seen a 27 per cent growth.

EVERYONE welcomes new job creation and higher wages but these have to be accompanied by productive output.

This happens automatically in the private sector where businesses need to persuade customers that they are providing services competitively.

Only then can they earn the revenue to service a higher wages bill.

In the public sector this test is absent. Employment levels and wages are set arbitrarily.

Recently, Fair Work Australia awarded wage increases of 23-45 per cent to low-paid service-sector people largely funded by state governments.

This is typical of benefits granted by expert bodies who do not pay the costs themselves.

Though these workers perform valuable services, such increases without matching productivity improvements would send commercial businesses broke.

Senior public servants are especially adept at winning high levels of remuneration. The head of the Premier's Department in Victoria gets $600,000 a year. That's twice the level the Premier himself receives, (and actually four times that of Wisconsin's Governor).

Top public servants win such awards from arbitration bodies by pointing to supposedly equivalent high-paying private-sector jobs.

But private-sector executives, unlike public servants, quickly find themselves unemployed if performance is not maintained.

Moreover, remarkably few top public servants offer their services to the private sector.

UNIVERSALLY, the creation of sustainable and productive jobs in the private sector opens the door to maintaining and improving levels of prosperity.

An important key to this process is lower government cost burdens on businesses and consumers.

Victoria needs to be especially frugal in its public spending since we have fewer of other states' advantages in minerals and other natural assets. But frugality was absent in the decades to 1992 and, following cost-cutting under the Kennett government, after 1999.

Since its December 2010 election, the Baillieu Government has done little to reduce the deadweight burden of government costs accumulated by the previous Bracks/Brumby administration. Hopefully, a start is finally being made.