APS annual wage bill balloons $9bn to $33.4bn a year, official stats reveal

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The official cost of commonwealth public service wages is primed to explode by up to $9 billion a year under a major statistical revision that will, for the first time, pull fortnightly data directly from agency payroll software filings instead of asking agency chiefs to bowl-up their own numbers.

In a major upgrade to the method in which data on public sector wages and salaries is collected across Australia, the Australian Bureau of statistics has switched to using Single Touch Payroll data from the Australian Taxation Office to compile labour statistics, a change decades in the making.

The variation in cost estimates is significant, and expected to flow into the government’s argument that it cannot fiscally sustain the Community and Public Sector Union’s demand for a 20% across the board pay rise.

The most current ABS public sector earnings data set, known as the “Survey of Employment and Earnings (SEE) estimates” has run its final collection sweep and will be replaced a new Public Sector Employment and Earnings (PSEE), creating a new statistical series to more accurately measure earnings.

An initial “experimental” cut of the new STP-powered data PSEE estimate for the commonwealth’s cash wages and salaries book for the 2021-22 financial year wage comes in at $33.484 billion.

That number is $8.995 billion higher than for the same 2021-22 financial year reporting period for SEE cash commonwealth wages and salaries booked that chalked up $24.489 billion.

So what’s with the big variation?

The first thing that needs to be said is that this is still technically “experimental” data, so the official figure for the 2021-22 reporting period will still be the SEE, though, if you excuse the pun, it will be the last we will see of it. So, there is likely still some fine tuning – even so, it’s a big change.

“This release contains the final public sector Survey of Employment and Earnings (SEE) estimates which are collected directly from businesses. From 2023, estimates will be compiled using Single Touch Payroll [STP] data from the Australian Taxation Office. These estimates will be released as Public Sector Employment and Earnings (PSEE) to differentiate from SEE,” the ABS says.

This said, the official statistician adds the first new wage data tranche will look back as well.

“The experimental estimates from STP are a first look at this data, which will be refined as processes and methods are further enhanced for the first PSEE release in 2023. The first PSEE release will include estimates for both 2021-22 and 2022-23,” ABS says.

The second thing to keep in mind is the shift in sourcing data to a direct feed from Tax, rather than sampling as is used in SEE, necessarily reduces human variability in reporting (non-sampling error) and sampling error factors. It’s simply much cleaner data.

In this regard, the government of the day and Treasury can pretty well see their wages bill in almost real-time, certainly at least down to the last pay period almost immediately.

But it also means that the upward adjustment of around $9 billion a year will almost certainly stick around when the augmented public sector wage stats switch on.

“The ABS expects to release PSEE with similar timing to when SEE estimates have traditionally been released, in November [2023],” the ABS said in its explanation.

As mentioned before, this could well prompt a level-up on that in turn flows through to budget assumptions, and the budget books, via the National Accounts, that the data flows into.

The figure currently being used by the Department of Finance as part of the budget seems to bear this out.

The Australian Government General Government Sector Monthly Financial Statements for May 2023, (released by the Department of Finance and which are the latest available and were released June 30^th 2023) puts the revised budget estimate for the 2023-24 financial year at $24.254 billion.

The same figure from the prior year (that corresponds the ABS data being discussed) was $23.572 billion.

Both those figures are remarkably close to the $24.489 billion last recorded in the 2021-22 ABS SEE wage book.

Whichever figure you choose, the fact that the newer, cleaner figures due in November hover around a 25% increase on previous estimates puts the future cost of pay rises now being thrashed out through APS Bargaining into a sharp new light.

That’s because estimates of what the headline 20% pay rise being demanded by the Community and Public Sector Union (CPSU) could necessarily extract from other programs now looks a lot higher.

That’s before the structural impact of the pay increases without labour shedding or capping numbers – which would represent a massive policy backflip for Labor – is looking now significantly higher.

The most recent APS salary figures from Finance make it relatively easy to extrapolate what each percentage point of a pay increase would look like in budget dollar terms (though this needs to be contextualised in real terms against inflation; and 15.4% added as a liability to account for superannuation; and 30%ish subtracted for income tax).

It looks like this: each percentage point, quite neatly, adds up to just under a quarter of a billion dollars ($244,890 million); thus, once fully realised, the APSC offer of 10.5% equates to $2.57 billion, and the CPSU’s demand for 20% amounts to $4.897 billion.

All of these figures, unless offset by headcount reductions, become structural – that is, they are recurrent. There has also been little discussion about productivity in the current bargaining session.

In April, the Reserve Bank of Australia (RBA) made its position clear on the link between higher interest rates and big public sector wage increases creating a spiralling effect.

“It’s really important that we don’t develop a pattern here where wages and prices chase one another. If they do, then inflation will get entrenched and we’ll have to have higher interest rates,” RBA Governor Philip Lowe told The Mandarin when asked about the CPSU’s claim in April.

“We want to return inflation to 2½%, on average, over time, and that means, on average, over time, wages growth can be 2½% plus whatever we get on productivity growth. If productivity growth is zero, it carries implications for wages, doesn’t it? If productivity growth returns to 1½%, we can all have bigger pay rises.”

A few months down the track inflation is finally easing, and the RBA will soon have a governor as, if not more, resolute in their independence than Lowe.

The RBA’s stand on its own bargaining process will be the litmus test here.

We’ll keep you posted.