On an ordinary Tuesday in Term 3, 2023, close to 10,000 lessons in New South Wales public schools opened with no teacher standing in front of the class. A department survey taken that term found 87% of public schools were short of casual staff on a given day, with the shortfall running as high as 59% in rural and regional areas and 72% in schools serving out-of-home-care and other high-needs students; two in five of the resulting gaps in primary schools were patched by merging classes together, and almost three in ten high-school gaps were covered by minimal supervision rather than teaching (NSW Department of Education, media release, 24-Oct-2023). It was the sharpest, most visible symptom of a workforce problem more than a decade in the making — one the outgoing Coalition government had spent twelve years managing with a hard cap on what it would pay the people who taught the classes, nursed the wards and drove the trains.
Chris Minns's Labor government took office in March 2023 having campaigned explicitly on scrapping that cap, arguing it had gutted the state's ability to recruit and keep the staff its hospitals, schools and transport network depended on. What the government did next, what it has cost the budget in every year since, and whether the trade-off holds up against the evidence, is the subject of this piece.
What the government did
The wages cap dated to 16 June 2011, when the newly elected O'Farrell Coalition government legislated the Industrial Relations Amendment (Public Sector Conditions of Employment) Act 2011, inserting section 146C into the Industrial Relations Act 1996. The section required the state's Industrial Relations Commission (IRC) — the independent tribunal that ordinarily sets public sector pay and conditions — to apply a government wages policy capping annual increases at 2.5%, unless a union could find matching savings elsewhere to fund anything above it. The cap held at 2.5% through most of the following decade; in 2020, at the height of the pandemic, the government briefly pushed for a complete freeze before the IRC awarded 0.3%. Under cost-of-living pressure late in its term, the Perrottet government lifted the cap to 3% from 1 July 2022, with a possible rise to 3.5% the following year (NSW Government Wages Policy 2022, M2022-05). By late 2022, national inflation had passed 7% (ABS, Consumer Price Index) — meaning even the loosened cap still amounted to an ongoing real-terms pay cut for essential workers.
Minns's government moved within months of taking office. It let the wages policy regulation underpinning the cap lapse from 1 September 2023, and the 2023–24 Budget, handed down by Treasurer Daniel Mookhey on 19 September 2023, delivered a 4.5% pay rise (4% to wages plus a 0.5% lift to superannuation) to more than 400,000 public sector employees — described as the largest increase in more than a decade — funded through a new $3.6 billion Essential Services Fund earmarked to support pay outcomes for nurses, paramedics, police, firefighters, teachers and child protection workers (NSW Government ministerial releases, 17 & 19-Sep-2023). The formal repeal followed on 30 November 2023, when Parliament passed the Industrial Relations Amendment Act 2023, removing section 146C and restoring the IRC's ordinary arbitration power over public sector pay. A standing Fair Pay and Bargaining Policy then set the government's baseline offer for each following round — 3% plus a 0.5% superannuation increase for 2024–25 and 2025–26, and 3% alone for 2026–27 (NSW Government, Fair Pay and Bargaining Policy 2024–25, M2025-04, 20-May-2024) — while individual sectors bargained above or around that floor.
The sector-specific outcomes moved further than that baseline. Teachers won a 2023 deal that lifted starting salaries from $75,791 to $85,000 — about 12% (approx.) — and top-of-scale pay from $113,042 to $122,100, alongside converting more than 25,000 temporary teachers and school support staff to permanent roles (NSW Government/Department of Education media releases, 2023). Nurses and midwives secured an 8% pay rise (including a 1% lift to superannuation) over the government's first two years, bundled with a Safe Staffing Levels framework — agreed with the NSW Nurses and Midwives' Association from May 2023 — introducing minimum nurse-to-patient ratios beginning in emergency departments from early 2024 and later extending to general wards. Paramedics, through the Health Services Union, settled for increases of between 11% and 29% over four years from 1 January 2024, averaging roughly 25% (approx.), which Health Minister Ryan Park called "a once-in-a-generation change" (NSW Government ministerial release, Dec-2023). Rail workers took longest: after thirteen months of disputes and strikes, the Combined Rail Unions settled for 12% over three years in May 2025 — a dispute examined in more depth in a companion piece on this site.
The strongest case
A decade of real pay cuts, and a recruitment crisis the cap helped cause
Put the case for scrapping the cap at its strongest, and it rests on evidence the government did not have to manufacture. A report prepared for the NSW Nurses and Midwives' Association by the Centre for Future Work at the Australia Institute found that, by 2022, the cumulative effect of the cap since 2012 had already cost a full-time nurse or midwife around $80,000 in foregone pay, with the shortfall on track to reach roughly $120,000 by 2023–24 had the cap continued unchanged (approx.; Centre for Future Work / Australia Institute, commissioned by the NSWNMA, Nov-2022) — a union-commissioned estimate, but one built on published award rates and CPI data rather than invented figures. Layered on top of a cost-of-living crisis that saw inflation exceed 7% in late 2022, a cap that guaranteed a real pay cut most years is not a difficult position to defend removing. The teacher-shortage data above is the clearest evidence the cap was not a victimless saving: a workforce that cannot be paid competitively will not be recruited or kept, and NSW's teaching, nursing and paramedic workforces were all visibly thinning by 2022–23.
The government's stronger argument is structural rather than moral: it did not invent a new pay-setting mechanism, it removed a legislative override and let the state's ordinary industrial umpire do the job it does for every other employer in NSW. And on its own numbers, the recruitment problem the cap fed has genuinely eased. Permanent teacher vacancies fell from 2,460 in Term 3, 2022, to 962 in Term 3, 2025 — a 61% drop to the lowest level in four years — while the number of classes merged or cancelled for want of a teacher fell from close to 10,000 a day in 2023 to 5,669 a day in 2024 (NSW Government/Department of Education media releases, 4-Aug-2025 and 11-Nov-2024). None of that proves the pay rises were the only cause — recruitment campaigns and a cooling graduate labour market played a part too — but a government that promised to fix recruitment by paying competitively, and then watched vacancies fall by more than half, has a genuine result to point to.
The evidence
The other side of the ledger is what all of this costs, and here the state's own auditor provides a cleaner read than any press release. The NSW Auditor-General's State Finances 2024 report found employee-related expenses (including superannuation) rose $4.5 billion in 2023–24 alone, lifting their share of total state operating expenses to 42.9%, up from 42.4% the year before — a rise the audit attributed mainly to CPI-linked salary growth and an average 9.4% increase in teachers' salaries under the award that took effect in October 2023 (NSW Auditor-General, State Finances 2024). The follow-up State Finances 2025 report found the trend continuing: employee costs rose a further $2.8 billion (4.9%) to around $58.5 billion in 2024–25, taking their share of total operating expenses to 43.5% — again the largest single category of state spending, and the fastest-growing one (NSW Auditor-General, State Finances 2025).
The critique
That growth is not a one-off. Every dollar added to base salaries recurs every year afterwards, indexed forward through enterprise agreements that typically run three to four years, which is precisely why employee expenses are proving harder to bring back down than the one-off items — grants, disaster payments, capital works — that also swelled the pandemic-era budget. The 2024–25 General Government Sector deficit came in at $5.1 billion, $1.4 billion worse than originally budgeted (NSW Auditor-General, State Finances 2025) — in a year the government's own Half-Yearly Review, released 18 December 2024, asserted that a $6.6 billion public sector wages investment was "accounted for by offsets and productivity gains, creating no additional debt" (NSW Government, Half-Yearly Review 2024–25, 18-Dec-2024). The review did not itemise what those productivity gains were.
That gap between the claim and the detail has been the Coalition's central line of attack. In NSW Legislative Assembly debate on 20 June 2024, opposition members argued that "not a cent in productivity offsets has been identified" against the Premier's pre-election promise that union wage deals would cost the budget nothing, citing an estimated $9.5 billion hole against that specific promise (NSW Legislative Assembly Hansard, 20-Jun-2024). That figure is a partisan estimate, not an audited one, and should be read as such — but the government has not published a line-by-line account of the "offsets and productivity gains" it says fund $6.6 billion of wage rises either. Two contested numbers, from two interested parties, is not the same as an independently verified answer to a simple question: is this decade of pay catch-up being paid for, or is it being added to the state's structural deficit?
Employee costs are now the largest, fastest-growing line in the NSW budget — and the government's claim that productivity gains are quietly paying for it has never been itemised in public.
The Auditor-General's own commentary is measured rather than alarmed — it describes employee-related costs as continuing to be "the State's largest single expense," a statement of fact rather than a warning — but the trajectory is unambiguous: two consecutive years of growth in both the dollar total and its share of the budget, at a time the government has also promised a return to sustained surplus. Something in that arithmetic — spending elsewhere, revenue growth, or the deficit itself — has to give if wage growth keeps outpacing the rest of the budget.
The risk to the future
A structural cost the next downturn, and the next bargaining round, will test
New South Wales has genuinely repaired something that was broken: a workforce that could not be recruited or retained under a cap that guaranteed real pay cuts is, on the government's own figures, being recruited and retained more successfully than it was three years ago. That repair is now permanently built into the base of the budget, recurring every year regardless of how the state's revenue performs. The current Fair Pay and Bargaining Policy runs only to 2026–27 (NSW Government, M2025-04), which means the next full bargaining round lands within this parliamentary term, against a workforce and set of unions that have just spent a decade learning what sustained pressure — strikes, log-of-claims campaigns, and public arguments over "real" versus nominal pay — can extract.
The specific risk is that the government's "no additional debt" framing depends on productivity offsets nobody outside Treasury has been able to verify. If those offsets prove smaller than claimed — or simply do not exist in the form described — the $6.6 billion attributed to them in the December 2024 Half-Yearly Review does not disappear; it moves onto the deficit, at a moment employee costs already consume 43.5% of the state's operating expenses and rising. A government that has just spent three budgets absorbing a one-off catch-up in essential-worker pay cannot easily reopen the cap it dismantled, which means the next fiscal shock — a downturn, a rate rise, a fall in GST or stamp duty revenue — would have to be absorbed almost entirely on the spending side, in a budget where the single biggest, fastest-growing item is now effectively locked in.