Is APS wage growth an unaccounted-for $7.4 billion budget blowout? Treasurer says there's nothing to see here

The Federal Government continues to defend its budget process despite reports it hasn’t taken into account the full impact of pay rises for its growing Australian Public Service workforce.

Treasurer Jim Chalmers is the latest minister to take a ‘nothing-to-see-here’ stance over what could be a $7.4 billion budget blowout due to not enough taxpayers’ money being put aside for rising salaries in the public sector.

An analysis by The Australian Financial Review found that the budget process did not properly account for the APS wage rise agreement and predicted growth in the sector between 2025 and 2028.

In its Enterprise Bargaining Agreement, the government agreed to pay its 185,000-strong workforce an extra 11.2 per cent over the three years to March 2026.

However, December’s Mid-Year Economic and Fiscal Outlook (MYEFO) assumes that the spike in the APS wages bill will flatline from mid-2025 and stay at $30 billion a year until 2028.

The budget appears to account for almost no growth in public sector wages between 2025-26 and 2027-28, even though the government is pushing ahead with hiring more permanent public servants to replace outsourced contractors.

But Dr Chalmers said government agencies would be required to meet wage increases from their existing allocated resources.

The Treasurer said the budget includes the “best current estimates” available for departmental expenses. He said former federal governments, including Coalition governments, have always taken a similar approach to budgeting.

“That’s been standard practice for some time now, and that departmental funding is subject to regular indexation,” Dr Chalmers told ABC Radio on Wednesday (22 January).

He added that the Coalition’s intention to “slash a whole bunch of jobs” would cost more and deliver less and it could return the public sector to the days of Robodebt.

“We saw how badly they mismanaged the public service,” he said.

Finance and Public Service Minister Katy Gallagher defended the budget when the report first came to light earlier this month.

She suggested that forecasting no wage increase for three years wasn’t as simple as it has been reported.

“This is a matter that departments manage. They live within their budgets,” Senator Gallagher said.

“Their budgets are indexed. And they have staffing costs as part of those … In those departmental expenses, there’d be a range of different factors in that. Not all staffing costs – not all programs – are ongoing, for example. And so, some of those costs will change over time.

“But in terms of EBA, we didn’t supplement the first pay increase over and above the indexation that departments get and we think that indexation meets those staffing costs.”

On Wednesday, shadow treasurer Angus Taylor said that not including the increase in public sector salaries in the budget shows that the government has lost control of its spending.

He repeated the Coalition’s promise to rein in spending by reducing the size of the public service.

“Over $100 billion of spending we’ve opposed in this term of parliament, including adding 36,000 new Canberra-based public servants,” he said.

“We don’t think now is the right time to be doing that.”

Since the Federal Budget was delivered in May 2024, the Coalition has attacked Labor’s spend on public servants, noting the budget provided for 36,000 new public sector jobs over the forward estimates.

Opposition Leader Peter Dutton used his budget in reply to label public sector jobs a misplaced priority.

Since then, his shadow ministers have been on the attack, making no secret of their plan to cut the public service.

“You’ve got to ask yourself, do we need 36,000 more public servants?” Mr Dutton said at last year’s Minerals Council gala dinner.

Nationals leader David Littleproud has also been pushing the cause.

“That is our first step. The Nationals have made it clear that we will get rid of those in Canberra,” he said in a media interview.

“There will be 36,000 public servants that will go. We don’t need more public servants.”

And in a separate interview: “The first thing we’ll do is sack those 36,000 public servants in Canberra, that’s $24 billion worth.”

Senator Gallagher, however, said the Opposition was deliberately ignoring that the public service “touches every Australian’s life one way or another” and that most of the new APS jobs are located outside of Canberra.