NSW wage freeze shows Liberals are bad economic managers

Pausing public sector wages will depress the economy and make the recovery slower. 

Gladys Berejiklian said all public sector wages will be frozen for 12 months, claiming "Every spare dollar we have and every dollar we don't have currently we need to spend in health and obviously also in jobs and job security." [1]

But by cutting already-agreed wage increases, the government is doing the opposite of spending on "jobs and job security".

Every single public sector employee will be worse off in 12 months than they are right now, as wages will fail to keep up with inflation. So what will they do? Those public sector employees will spend less, and invest less. 

9.8% of the NSW workforce is employed by the NSW government [2]. By pausing public sector wage growth (which was expected to be 2.5% in a year) we can say goodbye to, at a minimum 0.25% of productivity from the outset. 

But that's only the beginning. These employees may cut their spending by more than 2.5% because of fears of future pay stagnation and a desire to have more savings because of pay uncertainty. If those public sector employees save an additional 2.5% of their income on top of the lost wage growth, their spending will be 5% lower than expected and the economy will lose 0.5% of productivity.

Then there is a flow-on effect. Given that the savings most people make when they have to tighten their belt is the labour-intensive customer service sector (cafes, restaurants, pubs and other discretionary spending), many more people would be out of a job than otherwise would be, further damaging the economy.

The Liberals ideology is "Spend big as a government when times are good and tighten the belt when times are bad." Howard did it, and now Abbott/Turnbull/Morrison did it. And interest rates are at all time lows, meaning there's nothing left in the tank to stimulate the economy, so all that is left is government spending. 

You might have seen these ideas before, it is called Keynesian economics. It explains why the Great Depression was so hard and drawn out (because of government cuts) and why Australia did so well out of GFC (because of Kevin Rudd's stimulus package). 

It's just another way that the Liberal governments at both the state and federal level are using this health crisis to achieve their political ends (cuts to the public sector) without care for the economic consequences. 

And this is the big "thank you" the Liberal government is sending the school teachers who locked down last and returned to work first, the nurses and doctors who were asked to work the front line, and the police who had no choice but to turn up to work to protect us all. 

James Jansson is running in Eden-Monaro by-election for the Science Party. You can support him with a donation here: 

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References
[1] Channel 7 news, press conference with Gladys Berejiklian 2020-05-27 @3:00 https://www.facebook.com/7NewsAustralia/videos/339354390365059/?t=190
[2] https://www.psc.nsw.gov.au/reports---data/workforce-profile/workforce-profile-reports/workforce-profile-report-2019/chapter-two 

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