Annual cap on pay increases
Introduction
3.1
This chapter assesses the annual pay cap of 1.5 per cent (subsequently
2 per cent) imposed by the Coalition government's bargaining policy
against both actual public sector remuneration and the key economic indicators
over the bargaining period.
3.2
Before making these assessments, the committee recognises that the Australian
Public Service (APS) bargaining process has been conducted against a backdrop
of misleading claims that Commonwealth public servants are somehow paid
exorbitant wages and enjoy extravagant conditions. These assertions have been
propagated by interest groups with an extreme ideological agenda such as the Institute
of Public Affairs (IPA). Moreover these narrow and erroneous views have been
endorsed and supported by the Coalition government.
3.3
For example, Mr Aaron Lane who is a Legal Fellow at the IPA argued that
'all APS agreements contain generous allowances which have the effect of
increasing the overall salary by up to tens of thousands of dollars each year.'[1]
Mr Lane persisted with this contention despite acknowledging that the benchmark
comparison for the IPA's research was the basic minimum thresholds contained in
the National Employment Standards.[2]
3.4
In a similar fashion, on 15 October 2015, the Minister for Employment,
Senator the Hon Michaelia Cash accused public servants of failing to live in
the 'real world':
...in the real world where Australians live, in the real world
where people open businesses and risk their own money, you do not actually get
a pay rise if you do not give a productivity gain. In voter land, when you are
out having a coffee at a cafe, when you are having a beer at a pub, when you
are having a sandwich at the local sandwich shop, the idea that you would get a
pay rise and not have to offset that pay rise with a productivity gain, quite
frankly, is unacceptable.[3]
3.5
As a counterpoint to the negative and false depictions of public
servants and their employment conditions, Mr Andrew Greenan, who is a member of
the Administrative Appeals Tribunal Bargaining Team, provided some real-life
context by describing his family's lifestyle on public service wages:
I am a public servant and I do not have an extravagant life.
It is very modest. I do not drink and I do not smoke. We have one car for a
family of six. We live in a modest three-bedroom home. Because of years of
delays on pay rises and an increasingly bleak outlook for the future I am
increasingly relying on seasonal part-time work to keep my family going, on top
of the wage I get as a public servant. I do not think I am the only one in that
boat.[4]
APS and private sector remuneration
3.6
This section compares private and public sector remuneration in order to
determine whether the wages of APS employees are in fact above or below those
in the private sector and whether the majority of APS employees earn above or
below the average Australian wage.
3.7
Drawing on data from the Australian Bureau of Statistics (ABS), the Community
and Public Sector Union (CPSU) calculated that the majority of APS employees
earn less than the average income. The CPSU pointed out that as at May 2016,
the majority of APS employees (53 per cent) were classified as APS5 or below
and that the median base salary for an APS5 employee was $74 451 per annum
which was below the adult average ordinary full time earnings of $78 832 per
annum.[5]
3.8
In 2011, the APSC commissioned Mercer Consulting to conduct a comparison
of private and public sector remuneration. The CPSU noted that Mercer found
that, apart from APS1 and APS2 (which made up less than 6 per cent of the APS
workforce as at 30 June 2016), median base salaries in the private sector were above
the corresponding APS median salary for the equivalent classification.
Furthermore, total remuneration packages in the private sector were even higher
than corresponding APS total remuneration packages.[6]
3.9
Table 3.1 below illustrates the differences between private and APS
salaries at equivalent classifications.
3.10
However, the figures in Table 3.1, although quite stark, only show half
the picture. For example, employees at an APS5 classification or lower 'are
most likely to be public servants in frontline roles in the Department of Human
Services or Australian Border Force'.[7]
3.11
The wage profile of lower paid public servants is examined later in this
chapter with reference to employees in the Department of Human Services.
Table 3.1—Total
remuneration package analysis—APS1 to EL2—31 December 2010
|
Equivalent
Classification
|
APS Median
|
Private Sector Median
|
Difference
|
Difference %
|
|
APS1
|
$47 546
|
$34 738
|
$12 808
|
37%
|
|
APS2
|
$56 933
|
$51 816
|
$5117
|
10%
|
|
APS3
|
$63 238
|
$64 854
|
-$1616
|
-2%
|
|
APS4
|
$70 347
|
$77 892
|
-$7545
|
-10%
|
|
APS5
|
$77 483
|
$92 083
|
-$14 600
|
-16%
|
|
APS6
|
$89 882
|
$112 945
|
-$23 063
|
-20%
|
|
EL1
|
$112 788
|
$137 116
|
-$24 328
|
-18%
|
|
EL2
|
$140 397
|
$168 608
|
-$28 211
|
-17%
|
Source: Mercer Consulting, 2010
Broader Market Comparison—APS SES and Non-SES Remuneration, August 2011, in
CPSU (PSU Group), Submission 196, p. 16.
Superannuation
3.12
The committee heard views expressed that the superannuation received by
public servants was particularly generous. However, several witnesses made the
point that remuneration should be considered as a total package rather than as
isolated elements.
3.13
For example, Mr Esmond Smith argued that terms of employment are a
package:
You cannot conclude that any one condition should be reduced
because it appears generous (relative to what other employees get in the
Australian economy) in isolation to all other terms and conditions of
employment.[8]
3.14
With respect to superannuation, Professor Andrew Podger made the
following points about the provisions for superannuation in the APS:
-
first, they originated as a means of retaining staff in the
context of the then view of the APS as a career for life;
-
second, the value and costs have been included in total
remuneration figures and agency running costs since the mid-1980s;
-
third, reforms to public sector superannuation since that time
has steadily shifted the system away from unfunded benefits-promise schemes
rewarding most those (generally male) longer-term and senior employees at high
cost towards fully-funded defined contributions schemes more attuned to the
modern APS workforce at more modest cost; and
-
finally, while the employer contribution of 15.4 per cent is
above the private sector minimum of 9.5 per cent, that minimum is legislated to
increase to 12 per cent, and most workers on median earnings and above
will need to contribute of the order of 15 per cent in total to achieve
reasonable income replacement rates in retirement, even if retiring at age 67,
that is the public sector figure is nearer the optimum that the private sector
might consider moving towards for the sorts of employees that are in the APS
today.[9]
Economic outlook over the bargaining period
3.15
This section looks at some of the key economic indicators including the
cost of living index, inflation rate, and average annual wage rises over the
bargaining period in order to ascertain the financial impact of the bargaining
dispute on APS employees and to determine what a reasonable wage rise would be
for this period.
3.16
The committee received evidence from the CPSU (see Table 3.2 below) indicating
the 2 per cent per annum cap imposed by the 2015 bargaining policy
(previously 1.5 per cent per annum under the 2014 bargaining policy) is below
the wage rises received in both the private and Australia-wide public sectors
over the last three years.[10]
This evidence is based on official figures from the ABS and the Department of Employment.
Table 3.2—Key economic indicators
|
Measure
|
June 2014 (%)
|
June 2015 (%)
|
June 2016 (%)
|
|
Consumer Price Index
|
3.0
|
1.5
|
1.0
|
|
Employee Living Cost Index
|
2.3
|
0.9
|
1.0
|
|
Wage Price Index (All)
|
2.6
|
2.3
|
2.1
|
|
Wage Price Index (Private)
|
2.5
|
2.2
|
1.9
|
|
Public Sector AAWI
(Approved)
|
3.5
|
3.8
|
3.0
|
|
Private Sector AAWI
(Approved)
|
3.3
|
3.1
|
3.1
|
Key: AAWI = Average
Annualised Wage Increase
Source: ABS 6467.0 — Selected
Living Cost Indexes, Australia, June 2016, 6345.0 — Wage Price Index,
Australia, June 2016, 6401.0 — Consumer Price Index, Australia, June 2016,
Trends in Federal Enterprise Bargaining (June quarter 2016), in CPSU (PSU
Group), Submission 196, p. 14.
3.17
Furthermore, given that the bargaining policy prohibits back pay, APS
employees who have been unable to secure an agreement with their employer have
endured three years without a pay rise. In effect, this means that those
employees' wages have not kept pace with inflation and those employees have
fallen even further behind. Even a 6 per cent pay increase over three years is
effectively about a 1.2 per cent per annum increase as a result of the two
and a half earlier years of failed negotiations without a pay rise.
3.18
Beyond the last three years, Treasury figures from May 2016 (see Table 3.3
below) indicate that inflation is expected to rise to 2 per cent in the 2016-17
fiscal year and increase further to 2.25 per cent in 2017-18 and 2018-19 and
2.5 per cent in 2019‑20.
Table 3.3—Major economic parameters
|
|
Outcomes
|
Forecasts
|
Projections
|
|
2014-15
|
2015-16
|
2016-17
|
2017-18
|
2018-19
|
2019-20
|
|
Real GDP
|
2.2
|
2·5
|
2·5
|
3.0
|
3.0
|
3.0
|
|
Unemployment rate
|
6.1
|
5·75
|
5·5
|
5·5
|
5·5
|
5·5
|
|
Consumer price index
|
1.5
|
1·25
|
2.0
|
2·25
|
2·25
|
2·5
|
Source: Extract from The
Treasury, Pre-Election Economic and Fiscal Outlook 2016—Economic Outlook,
www.treasury.gov.au/PublicationsAndMedia/Publications/2016/PEFO-2016/HTML/Economic-outlook
(accessed 15 November 2016).
3.19
The inflation figures given in Table 3.3 indicate that if an enterprise
agreement were to be concluded at the present juncture, even a 2 per cent per
annum pay rise would now have the effect of leaving APS employees worse off in
real terms over the course of a three year enterprise agreement. This would be
compounded by the previous two and half to three years where APS employees have
had an effective pay freeze due to the intransigent approach taken by various
agencies, the APS Commissioner, and the government to the APS bargaining
framework.
Wage profile of staff in the Department of Human Services
3.20
This case study of DHS looks at the staff profile of an agency where a
large number of employees delivering important frontline services are women on
low wages, many of whom also have caring responsibilities. It then considers
the impact of the government's bargaining policy on DHS employees.
3.21
DHS is the largest Commonwealth government agency and employs 36 594
staff. DHS maintains over 400 offices throughout Australia delivering services
to Australia's most vulnerable citizens.[11]
3.22
Over the last five years, the level of permanent employment at DHS has
gone down and non-ongoing employment has gone up from 4.2 per cent of the total
workforce in 2011 to 13.6 per cent. At present, 63 per cent of the non-ongoing
staff are employed on a casual basis.[12]
3.23
The CPSU DHS bargaining team pointed out that women make up 73 per cent
of the total workforce of DHS. The majority of staff (64 per cent) are employed
at the APS3 and APS4 classification and have a salary range of $56 069 to
$69 239. Thirty four per cent of DHS staff are employed part-time, and of
these staff, 78 per cent are employed at the APS3 and APS4 classification.[13]
3.24
Ms Elida Faith, CPSU Department of Human Services Section President told
the committee:
These are the people that you talk to on the phone and who
serve you at the counters. Seventy per cent, which is a significant majority,
earn less than the average Australian wage, and one‑third of the total
workforce is part time. Insecure employment has increased in the last five
years, from approximately four per cent to well over 13 per cent. These numbers
scare staff. We are questioning why this government does not seem to care about
us or the work that we do for the community. We feel that the department now
only cares about meeting time frames and not outcomes for our customers.[14]
3.25
The department's employment profile results in a substantial majority of
DHS staff (70 per cent) earning less than the average Australian wage of
$78 832 per year.[15]
Pay disparities across the APS
3.26
The committee heard evidence from Professor Podger, a former APS Commissioner,
that the agency-based approach to enterprise bargaining in the APS had led to
substantial pay disparities across the APS amongst employees at the same
classification. Table 3.4 below shows the difference between salaries at the 5th
and 95th percentile. Professor Podger argued that the application of
agency-based bargaining had led to a series of problems including the serious
wage discrepancies shown above:
This has caused very serious damage to the integrity of the
whole pay system in the Public Service with tangible impact on mobility within
the service, serious management problems for agencies affected by machinery of
government changes, justified complaints of unfairness across and within
agencies, and unknown impacts on attraction and retention of the skills the APS
requires.[16]
Table 3.4—Salary disparities across the APS
|
Classification
|
Salary at P5
($)
|
Median Salary
($)
|
Salary at P95
($)
|
P5-P95 range
% of median
|
|
Graduate
|
53 652
|
60 158
|
69 456
|
26.3
|
|
APS1
|
39 144
|
47 736
|
49 697
|
22.1
|
|
APS2
|
48 525
|
54 588
|
56 435
|
14.5
|
|
APS3
|
55 511
|
61 512
|
62 560
|
11.5
|
|
APS4
|
62 493
|
69 239
|
70 144
|
11.1
|
|
APS5
|
69 395
|
74 451
|
76 624
|
9.7
|
|
APS6
|
78 842
|
86 923
|
90 890
|
13.9
|
|
EL1
|
101 278
|
108 382
|
115 778
|
13.4
|
|
EL2
|
122 032
|
133 905
|
151 097
|
21.7
|
|
SES1
|
159 125
|
181 006
|
215 662
|
31.2
|
|
SES2
|
208 711
|
232 644
|
277 897
|
29.7
|
|
SES3
|
275 000
|
312 000
|
380 692
|
33.9
|
Source: Professor Andrew
Podger, Tabled Document 1, Canberra, 11 November 2016.
3.27
Alongside the inequity and adverse impacts on mobility across the APS,
Professor Podger also emphasised that an agency-based bargaining mechanism
failed to address crucial aspects of APS recruitment and retention, namely:
...whether the APS is attracting and retaining the skills it
needs to deliver the services the government, the parliament and the public rightly
expect, and whether the resulting pay and conditions promote high performance
by individuals and organisations.[17]
3.28
In light of the above, Professor Podger recommended an APS-wide approach
to determining pay that could still include a firm cap on APS-wide pay
increases. Professor Podger suggested the APS-wide bargaining policy could
include:
...undertaking market surveys of pay and conditions for
comparable work, reviewing data on APS experience regarding attraction and
retention and explaining in more detail changing demand for particular skill
sets and whether the APS-wide classification structure needs modification or
complementary arrangements such as allowances for particular high-demand skills
required.[18]
3.29
According to Professor Podger, a key advantage of an APS-wide approach
to remuneration would be the substantial gains in efficiency and productivity
that would arise from relieving individual agency executives of the need to
devote resources to finding spurious efficiency gains to meet the 'productivity'
test embedded in the current decentralised approach to bargaining policy.[19]
Committee view
3.30
It is clear from the ABS data presented earlier in this chapter that the
majority of APS employees earn less than the average income. Furthermore, the
evidence commissioned by the APS Commission from Mercer Consulting found that,
apart from APS1 and APS2 (which made up less than 6 per cent of the APS
workforce as at 30 June 2016), median base salaries in the private sector were above
the corresponding APS median salary for the equivalent classification, and
private sector and total remuneration packages were even higher than
corresponding APS total remuneration packages.
3.31
Furthermore, a strict focus on total salary ignores the fact that, for
example, at the largest Commonwealth agency—DHS—women make up almost three
quarters of that department's total workforce. Almost two thirds of Human
Services staff have a salary range of $56 069 to $69 239, and one
third are employed part-time. In short, 70 per cent of Human Services
staff earn less than the average Australian wage.
3.32
This evidence flatly contradicts the ludicrous assertions emanating from
interest groups such as the IPA that public servants somehow enjoy overly
generous wages and conditions when compared to the private sector.
3.33
In addition, official figures from the ABS indicate that the 2 per
cent per annum cap imposed by the 2015 bargaining policy (previously 1.5
per cent per annum under the 2014 bargaining policy) is below the wage
rises received in both the private and the broader public sectors over the last
three years.
3.34
Looking to the future, Treasury figures from May 2016 indicate that
inflation is expected to rise to 2 per cent in the 2016-17 fiscal year and
increase further to 2.25 per cent in 2017-18 and 2.5 per cent in 2019-20.
Therefore, enterprise agreements concluded with even a 2 per cent per annum pay
rise would now leave APS employees worse off in real terms over the course of a
three year enterprise agreement. This would be compounded by the pay freeze
that has occurred over the past two and half to three years.
3.35
The evidence from both the ABS and the Treasury reveals the remarks by
the Minister for Employment that public servants somehow do not live in the
'real world' to be utterly baseless and gratuitous.
3.36
Furthermore, as numerous submitters and witnesses have pointed out, the
dismissive attitude of the Minister for Employment towards public servants
takes no account of the fact that the Coalition government has cut 17 000
public service jobs. In an unstinting effort to maintain service delivery,
public servants are now working harder and longer due to these massive job
cuts. In the real world, this surely would count as a quite remarkable
productivity gain.
3.37
Yet, at the same time as these job cuts were occurring, the bargaining
policy imposed a pay freeze, the offer of a pay rise below the rate of
inflation, and cuts to conditions including the removal and reduction of
existing previously negotiated rights.
3.38
The committee notes that the CPSU and many employee bargaining
representatives have shown courage and leadership during this dispute. The CPSU
has surveyed its members on a pay outcome and, as a result, publicly and
explicitly reduced its wage claims during the bargaining process to a level
that was below what other enterprise agreements in the public and private
sectors had been delivering.
3.39
It seems to the committee that the CPSU has been entirely reasonable during
the course of this bargaining round and that the failure to secure an agreement
for the majority of public servants can be laid squarely at the door of an
intransigent government.
Recommendation 2
3.40
The committee recommends that the government adjust the annual wage cap
contained in the 2015 bargaining policy to a more realistic level, consistent
with economy wide outcomes in enterprise bargaining, and facilitate agency
access to a portion of the savings accrued through the delays in settlement to
allow for improved wage offers that do not come at the expense of cuts to pre‑existing
rights and conditions.
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