Public servant wages drown state budgets in debt

According to a new report from accounting firm EY, state debt in Australia is on track to keep rising, with Victoria leading the way. The increase in debt is partly attributed to higher public servant wages, which have outpaced population growth. From FY16 to FY25, the number of state and territory public service employees grew by 29%, more than double the 14% population growth.

Victoria saw the largest increase at 40%, followed by the Australian Capital Territory (ACT) at 49%, while the Northern Territory experienced the smallest rise at 15%.

Government employee costs now account for around 39% of total expenses, up from an average of 33% over the past decade. The report warns that all states and territories have consistently underestimated their employee expenses, with forecast error rates ranging from 4.3% in New South Wales to 11.3% in Tasmania. EY remains skeptical that states can curb public servant wage costs, projecting that general government employee expenses will only grow by an average of 3.4% over the next four years, far below the long-run average of 6.0%.

The report suggests that Australia's bureaucracy has grown too large and inefficient, driven by unsustainable government-funded employment and low-skilled immigration. To ensure budget sustainability, reduce living standards pressures, and boost productivity, the bureaucracy must be downsized.