KPMG flags concerns with growth rate of public sector wages
Wage increases in the public sector suggest there may be a growing disconnect between fiscal and monetary policy, says the big four firm.
Recent ABS data has revealed wages growth is past its peak with the annual 4.1 per cent figure being held up by the September 2023 quarter figure of 1.3 per cent, whereas the latest quarterly result is only 0.8 per cent.
KPMG chief economist Brendan Rynne said the “real concern” is the public sector as wages rose slightly to 3.9 per cent from 3.8 per cent and contributed 25 per cent of overall wage growth this quarter.
“This is significantly higher than the contribution the same time last year, measured at 19 per cent,” he said.
The annualised figure of wages growth produced the Wage Price Index (WPI) of 3.2 per cent which is less than headline inflation.
This figure is consistent with a weakening labour market, a fall in demand, and an increase in supply through migration.
Rynne said the RBA has been “comforted” by the decision to hold the current interest rate.
“This will let the economy continue to cool and allow the supply side to expand,” he said.
“This is necessary given we are still at full employment, although we anticipate Thursday’s labour force data will show a small increase in the unemployment rate which will continue to rise for the remainder of this year.”
Data from the WPI figures also highlighted that 67 per cent of all jobs which recorded a wage change over the previous 12 months received an annualised increase above 3 per cent compared to 53 per cent in the 2023 June quarter.
It was also found wage growth was broad-based at the state level.
Tasmania recorded the highest annual wage growth of 5.1 per cent, while Victoria, South Australia and the Northern Territory recorded an annual growth rate of less than 4 per cent.
By method of setting pay, jobs covered by an individual arrangement contributed over half of WPI quarterly growth in the June 2024 quarter.
Healthcare and social assistance was the industry to experience the most annual wage growth measured at 5 per cent, while the mining sector recorded the largest quarterly wage growth at 1.3 per cent.
Rynne said the data reflects substantial headcount increases and changes to new state and federal wage policies introduced across 2023.
“It expands into the economy and even though private sector jobs still form the large majority of the labour market, it nonetheless needs to be pulled back,” he said.
“The government’s wage increases for childcare workers, combined with aged care and disability care workers, collectively add up to around $30 billion, which is in effect the socialisation of wage increases in one sector of the economy through all taxpayers.”
Rynne said KPMG is concerned the “ramping up” of government spending will impact an ongoing disconnect between fiscal and monetary policy.
