Most politicians claim that creating jobs is top of the agenda – but public sector jobs are a different matter. The Coalition has promised to cut at least 12,000 jobs in the public sector if it wins government, hoping to portray these jobs as superfluous and implying that getting rid of them will make everyone better off. The Labor government has itself cut public sector jobs and recently announced further cuts. But the Coalition’s plans are much bigger and are just a ‘starting point’. Moreover, the Coalition’s cuts will be on top of Labor’s.

Shadow Treasurer Joe Hockey says 12,000 jobs will be cut in the public service. That would be almost equal to the number of Canberra retail workers, constituting about one in 17 jobs in the capital. If the cuts are spread around the country, this ‘best case scenario’ would cut 5,405 jobs out of Canberra’s economy. ACT Liberal Senator Gary Humphries has endorsed this figure, although Coalition leadership has not followed him. Though this is around half the number Hockey is proposing, it is still a large number – more than half of all labourers in the ACT, and about one in 40 jobs in Canberra.

Even in the ‘best case’ scenario for the ACT the Coalition would cut more jobs out of the economy than during the mid-1990s, as a proportion of the workforce. If “the public service here in Canberra has to be reduced by 12,000”, as Joe Hockey says, these cuts would be three times the size of those in the mid-1990s. Combined with Labor’s cuts the impact would be even bigger, but this paper considers the extra impact from the Coalition’s cuts.

Cutting public service jobs will have a negative impact on jobs beyond the public service and on local businesses. The paper considers two sorts of impacts. Cutting thousands of pay packets from the local economy will reduce spending, which will impact especially on retail and hospitality. Cutting APS jobs will also reduce demand for services needed to run the APS, including IT and office-related services.

Cutting 12,000 jobs would reduce household spending by $694 million. That is bigger than the predicted growth in Canberra’s economy this year. Cuts on this scale are very likely to cause a local recession. Even the best-case scenario for Canberra would wipe out most growth in Canberra’s economy and, combined with existing cuts, could cause a recession.

Cutting 12,000 APS jobs would cut spending by $79 million on groceries, $33 million on household furnishings and appliances, $35 million in cafes and restaurants, $6 million on hardware and $7 million on repairs from tradespeople. That means 1,100 jobs lost in local shops and 337 jobs lost in hospitality like cafes and takeaway. Reduced demand from the APS could see 506 fewer jobs in professional services, 376 fewer jobs in IT 225 fewer jobs in office services and 137 fewer jobs in property services.

The economic records from the mid-1990s show Canberra’s economy is sensitive to deep cuts to the APS. Economic growth fell far behind the national average between 1995 and 1998. Unemployment spiked and thousands moved away to find work – 135 extra people went bankrupt. House prices fell from 1993 and took six years to recover, by which time they were 30 per cent behind national prices. Construction fell 30 per cent over five years.

Property prices have already dropped over seven per cent in the last year and are likely to fall further, leaving prices far behind the rest of the country. New construction has also fallen recently. If the 30 per cent drop from last time were replicated, more than 2,500 labouring jobs would be at risk on top of other job losses, adding further knock-on effects.

Click “download” to read the research paper.