Mind the Cap Economic Costs of the NSW Public Services Wages Cap
As the NSW Government acknowledges the deficiencies of its own cap on public sector wages and temporarily increases the cap to 3 per cent it is timely to assess the impact and ongoing suitability of the policy.
The NSW Government cap on public sector wages was introduced in 2011 in an effort to control public expenditure and return the NSW budget to surplus. Previous research has highlighted the impact of the wages cap policy on private sector wages, with occupations that have a strong connection to the public sector experiencing slower wages growth than occupations without a strong connection.
New modelling undertaken by Impact Economics and Policy for this report highlights the long-term consequences of the policy that has artificially suppressed wages:
As a result of the NSW wages cap policy public servant wages grew 1.2 per cent less every year than would have occurred under ‘ideal’ wages growth.
Even with the lifting of the cap the average public servant is forecast to experience a real wage cut over the four years to June 2024 of over $7,300 per year.
Reduced expenditure on salary and wages by $19.3 billion over 11 years.
Since July 2011 the wages cap policy has reduced gross domestic product by $28.9 billion.
June 2022
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