Real wages growth at weakest pace in two years with public servants enjoying largest salary increases

Public servants enjoyed big wage rises over the past year that could effectively stop the Reserve Bank of Australia from cutting interest rates again while private sector workers effectively received no pay increases because of an inflation surge.

The 3.2 per cent annual increase in private sector wages in September was the weakest in more than three years and equal to inflation for the same period, new government figures today showed. This meant those in jobs not funded by the taxpayer effectively had no wage increases.

Government employees, including NDIS and other non-market economy contractors, saw their wages grow 3.8 per cent, which was the best result for them in more than a year.

The average hourly wage increase across the economy was 3.4 per cent, the same as the year to June.

Adjusted for inflation, wages grew 0.2 per cent over the year, the weakest growth since December 2023, after the Reserve Bank of Australia increased interest rates for the 13th time to combat the worst inflation since 1990.

Private sector workers have also had the worst real wages growth in almost two years as government-funded workers saw their pay increases outpace private enterprise for the third consecutive quarter.

Australian Industry Group chief executive Innes Willox said private enterprise was struggling as the public sector drove wages growth.

“This reinforces (that) the private sector is struggling in an environment of high taxes, regulation and red tape,” he said.

“This is just a jobs and wages sugar hit delivered by governments of all levels and is unsustainable for a growing and thriving economy into the future.”

Tim Wilson, the shadow minister for industrial relations, employment and small business, said this was a recipe for higher government debt.

“Australia’s economy is slowly sinking as the private sector is being outpaced by public spending— and public spending is just debt spending that is driving up inflation,” he said.

KPMG chief economist Brendan Rynne said high public sector wages growth would make the RBA reluctant to cut interest rates.

“Because of this, the RBA’s handbrake is well and truly on and is unlikely to lift until well into next year - if at all,” he said.

EY senior economist Paula Gadsby said State Government enterprise agreements had led to the spike in public sector pay during a time of weak productivity growth across the economy.

“As the economy looks to be close to its supply capacity, we remain of the view that the Reserve Bank cannot cut the cash rate much further, if at all, without generating inflation,” she said.

Wages lagged inflation from the June quarter, 2021, to the September quarter, 2023, coinciding with COVID lockdowns and Russia’s Ukraine invasion, which led to higher crude oil prices and $2.20 a litre prices for unleaded petrol in Australia.

During the past four quarters, annual real wages growth has averaged 0.8 per cent.

Prime Minister Anthony Albanese, as Opposition leader in 2021, had chastised the Coalition for presiding over stagnant wages.

“People have endured eight long years of stagnant wages, growing job insecurity and pressure on family costs like childcare, rent, petrol and groceries,” he said then.

But on Wednesday, Treasurer Jim Chalmers emphasised how real wages for all workers had still been growing for eight consecutive quarters.

“This is now the longest period of consecutive annual real wage growth in almost a decade,” he said.