On the eve of the election, the coalition said it would impose a higher “efficiency dividend” on public service agencies over the next four years in an effort to cut public service spending and address the budget deficit.
An efficiency dividend is a measure, first introduced by Labor in the late 1980s, that reduces the budget of public sector agencies by a certain percentage.
The current efficiency dividend is 1.5%, but the Coalition has promised to increase that figure to 2% for the next three years, said Treasurer Josh Frydenberg:
What we’re doing is offset that expense with a half-percent increase in the efficiency dividend, which will raise more than $2.3 billion […] The annual departmental bill in the Commonwealth is approximately $327 billion. What we’re saying is that this additional measure will result in a reduction to about $324 billion.
Board cuts in public service through so-called efficiency dividends represent a blunt means to achieve budgetary savings.
They have been used by both sides of politics over the years. They allow politicians to avoid taking responsibility for cuts under the pretense that they are only about efficiency and that public sector agency heads can manage them without exerting any influence on the public’s services.
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But several reviews, including those of parliamentary committees, have shown that efficiency dividends often affect the level and quality of services, especially for smaller agencies, and especially over time.
This can lead to an increase in fees, a reduction in services (for example, a Bureau of Statistics year book no longer comes out annually) and an increase in waiting times.
While Labor has strongly criticized the Coalition’s proposed increase in dividends, its criticism is a bit hollow as it has said it will keep it.
Labor is also proposing an additional cut in spending on consultants, contractors and administrative expenses through cuts in funding for labor hires – only some of which will be redirected to new public service positions.
Of course, taxpayers should expect public service to increase efficiency and productivity – administrative expenses should not automatically increase in line with increases in input costs. In particular, there is scope for better use of technology to reduce costs and improve service provision.
But it requires new investment as recommended by the Independent Review of the Australian Public Service, led by David Thode AO.
In 2019, after the release of the report, the government agreed to audit its existing IT investments, but we are yet to see that audit.
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Nor is there any mention of new investments that could deliver the requisite efficiencies to the government, let alone getting better services in the quest of the few.
In the absence of a more nuanced and targeted approach to efficiency gains, there is a risk of further undermining the potential of the public service.
This means further reducing resources for long-term research and being less able to raise public service wages where key skills (such as in information technology) need to be attracted.
A Lazy Cost-Saving Measure
While Labor and unions are highlighting the potential impact on public service numbers, I would be less concerned on that score if the measure was really about efficiency.
What worries me is that this is not only a lazy cost-saving measure: it also reflects an indifference to public service as an institution.
We have seen this before with the imposition of a staffing cap in addition to the cap on administrative expenses. This has forced greater use of consultants and labor hires, even where it is less efficient than the use of public servants.
And we have seen it in the rejection of the recommendations of the Main Thoda Report, not only about removing the staffing cap but also about increasing the role of the Public Service Commissioner. This would have ensured more merit-based senior appointments and a more appropriate way of setting pay and terms.