The Turnbull government could manufacture a vital lift in Australia’s stagnant inflation and wage growth by allowing low-ranked public service workers to receive an annual 4% pay rise for the next five years, according to the Greens.
The Parliamentary Budget Office has costed the plan, seen by Guardian Australia, estimating it would cost the federal budget $963m.
At the same time, the Greens want to rein in excessive pay for Australia’s most senior public servants by capping their total remuneration at five times the average earnings of full-time adults.
Inflation is when prices rise. Deflation is the opposite – price decreases over time – but inflation is far more common.
If inflation is 10%, then a £50 pair of shoes will cost £55 in a year's time and £60.50 a year after that.
Inflation eats away at the value of wages and savings – if you earn 10% on your savings but inflation is 10%, the real rate of interest on your pot is actually 0%.
A relatively new phenomenon, inflation has become a real worry for governments since the 1960s.
As a rule of thumb, times of high inflation are good for borrowers and bad for investors.
Mortgages are a good example of how borrowing can be advantageous – annual inflation of 10% over seven years halves the real value of a mortgage.
On the other hand, pensioners, who depend on a fixed income, watch the value of their assets erode.
The government's preferred measure of inflation, and the one the Bank of England takes into account when setting interest rates, is the consumer price index (CPI).
The retail prices index (RPI) is often used in wage negotiations.
They say the cap would reduce the maximum salary of the highest paid public servants to roughly $420,000, on current figures, and ensure public sector executives stop getting pay rises greater than those of average workers.
The government is preparing to release its six-monthly update on the federal budget next week.
Economists say the budget deficit is on track to be about $3bn to $4bn smaller at the end of 2017-18 – at roughly $25.8bn – than the government was expecting when the budget was released in May.
The Greens have asked the Parliamentary Budget Office (PBO) to estimate how much it would cost the federal budget to give low-ranked public service workers an annual 4% to 5% pay rise for the next five years, in a bid to kickstart the economy’s stagnant inflation and wage growth.
Peter Whish-Wilson, the Greens’ Treasury spokesman, said the commonwealth public service has not been immune from the trend towards excessive executive salaries in recent years, and rising income inequality between the average worker and bosses.
He said since 2010, the salaries the senior executive service have risen 18%, and that of commonwealth departmental secretaries even more. Over the same period, the salaries of lower ranking public servants have risen just 13%.
He says after the governor of the Reserve Bank, Philip Lowe, called on Australia’s workers in June to start demanding large pay rises from their bosses, saying the economy was suffering a “crisis” in wage growth, the commonwealth ought to kickstart the process by paying low-ranked public service workers more.
The PBO says the salaries of public servants with Australian Public Service classification levels below the Executive Level 1 classification could receive an annual 4% pay rise for the next five years at the cost of $963m, or an annual 5% pay rise at the cost of $1.34bn.
The costing assumes that the size of the Australian public service remains constant until 2027-28, and that the pay rises stop on 30 June 2023.
The APS workforce comprises 152,095 employees (a 9% reduction from 167,331 in 2012), with 90% employed on an ongoing basis. At the moment, 73.8% of the workforce is employed below the Executive Level 1 classification.
Whish-Wilson said such a plan would help to revive Australia’s historically low inflation, and reduce income inequality within the public service.
“Government has the power over the public sector and can set a trend,” he said. “For years the argument against public sector pay increases has been that it would create a ‘wages breakout’. Now we have everyone from the RBA governor down essentially calling for a ‘wages breakout’.
“A commitment from both federal and state governments to a minimum annual increase for their workers of 4% to 5% over the next five years would stimulate wages across the economy,” he said.
Whish-Wilson also introduced a private members bill to the Senate last month which, if passed by parliament, would set a cap on the remuneration of the most senior public servants at five times the full-time adult average weekly earnings.
He introduced the bill after the remuneration tribunal agreed in June to increase the remuneration for the commonwealth government’s departmental secretaries by another 2%.
The remuneration tribunal ruling increased the total remuneration for Martin Parkinson, the secretary of the Department of Prime Minister and Cabinet, to $878,940 (salary: $615,258), and John Fraser, the secretary of the Treasury, to $857,630 (salary: $600,341).
The secretaries of the departments of defence, and foreign affairs, had their total remuneration increase to $831,000 (salary: $581,700), while the secretaries of finance, and health and ageing, had their remuneration increase to $788,380 (salary: $551,866).
“The effect of this bill will be to reduce the maximum salary of executives in the public service to an amount, on current figures, in the order of $420,000,” Whish-Wilson told the Senate. “This is still a lot of money, and much more than most people earn.”
