Is 2% as good as it gets for APS bargaining?

Reserve Bank of Australia in a reflective moment


A funny thing happened on the way to Prime Minister Tony Abbott and Senator Eric Abetz’s brawl with the federal bureaucracy over pay.

Or not funny at all if you’re a public servant, or a member of the military, hoping for a real pay rise.

Stalling growth in prices and a stubbornly sluggish economy have handed the Coalition a numerical gift in the public service ‘pay rise’ debate, a figure which was exploited to its full potential on Wednesday.

As Tony Abbott performed another conspicuous backflip of ‘good government’ and boosted the pay deal to uniformed Australian Defence Force personnel from 1.5 per cent to 2.0 per cent a year, what had been a below inflation cut in real terms became an above inflation rise.

That’s the difference just six months can make to the Consumer Price Index (CPI), the measure of growth by which unions and bosses used to try and calculate claims and deals on remuneration.

In June 2014 the CPI stood at 3 per cent. By December it hit just 1.7 per cent, off by almost half.

Most wage negotiations are based on an assumption of inflation going up, but as Reserve Bank of Australia Deputy Governor Philip Lowe pointed out to the Goldman Sachs Annual Global Macro Economic Conference in Sydney on Thursday “looking around the world it seems probable that both workers and firms perceive that their pricing power has declined.”

Australia’s annual inflation rate now sitting at just 1.7 per cent is the almost magic number that has allowed Abbott to claim the ‘above inflation’ high ground when the ADF pay offer was expediently upped to 2.0 per cent.

Even so, the political and polling blood loss the 1.5 per cent offer must have been causing is underscored by the fact that ADF personnel effectively have no right to industrial action or negotiation other than the ballot box.

The wider public service and the Community and Public Sector Union can hold out for around 4 per cent, which is unlikely to materialise, even if hard fought conditions and entitlements are traded away — which they won’t be.

Where there seems to be room to move, as Abbott rather desperately  demonstrated through the ADF deal, is on the headline number that pegs remuneration to price increases and the wider economy and the factors that have combined to keep inflation low, including interest rates.

Deputy Governor Lowe’s observations included a quite telling assessment that even when interest rates have been pruned, consumer spending previously triggered by interest rate cuts is now being absorbed by a desire to pay down debt — even when interest rates are historically low and money is very cheap to borrow.

So cheap that some banks overseas are actually charging depositors fees rather than paying them interest.

Public sector employees in Australia used to have what was regarded as more secure jobs than their peers in the private sector, but the sheer volume of retrenchments across state governments and the federal sector have been the biggest in almost two decades have pretty well eliminated that.

For many households it becomes a matter of keeping a regular and predictable income coming in, riding out the storm, not taking on risk and eliminating exposure. Just play it safe.

In this regard, no matter how Abbot and Abetz seek to negatively paint public servants, they are no different to the rest of Australia; whether they work for a local council or in central federal agencies.

People are worried.

Moreover, the sheer scale and rapid pace of Queensland’s public service reductions — and the effect they had on sentiment and service delivery — were abundantly evident by the dispatch of the Newman government after a single term despite one of the biggest first term majorities in Australian electoral history.

Not just worried, pissed off too.

Again, Deputy Governor Lowe summed up the dilemma and the mood well.

“The current environment is one in which there has been a very large monetary stimulus, interest rates are very low and inflation is subdued. This is not exactly what the traditional textbooks would have predicted,” he said.

And then there’s this:

“The experience of the financial crisis has left deep scars in many economies, including a heightened sense of job insecurity. This insecurity has been compounded by the increased competition that globalisation has brought as well as by changes in technology. It has led to many workers in advanced economies feeling less inclined to seek the wage increases that they might once have sought – they feel that they have less market power and that keeping a job is more important than seeking a large pay increase.

“A similar dynamic is probably playing out in the pricing decisions of many businesses. Globalisation has brought new competition in many markets for goods and services and the financial crisis increased business uncertainty. In this environment, putting up prices can seem to be a more risky proposition than it did previously,” Deputy Governor Lowe said.

A big part of the problem the Abbott government faces with the public service, all its glaring public policy problems aside, is that it is running a very old school textbook industrial negotiation at a time when even the nation’s own central bank concedes traditional thinking is not working.

Chief among obstacles is its absurdly strict and incongruous attempt to define productivity in bargaining negotiations as a decrease in labour costs as opposed to output.

Senior and middle level public servants Government News has spoken to indicated two per cent was where they expected progress in talks between the government and unions to be made.

Most said it boiled down to whether the government wanted to do a deal or start a fight… and that a fight was what they were expecting – leadership change notwithstanding –even if it was over just two per cent a year.

One APS source put it this way: “When petrol goes up, and it will, everything changes.”

Maybe the PM too.

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