Targeted razor-gangs replacing broad-brush efficiency dividends

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The blunt instrument of public sector savings that is the federal government’s efficiency dividend will drop back to a base rate of 1%, but not until July 2017.

Agencies will have responsibility for administering approximately $434.5 billion in expenses this budget, and the government still wants to ensure its gets value for the outlay.

Introducing this year’s agency resourcing figures, Finance Minister Mathias Cormann writes in the 2015-16 federal budget papers that in his quest for savings he is increasingly looking at “known areas of inefficiency in specific agencies” and moving away from demanding large, uniform efficiency dividends across the board.

Cuts to communications resources in last year’s budget are to be followed this financial year with savings from shared services, according to Cormann, particularly from standardising the hundreds of different enterprise resource planning systems across the Australian Public Service. The minister explains:

“This saving is apportioned among agencies to take account of the relative opportunity for more efficient arrangements in different agencies. Similarly, software licensing will also be purchased on a more coordinated basis.”

Functional and efficiency reviews will seek to find more targeted savings in the Departments of Agriculture, the Environment, Foreign Affairs and Trade, Treasury and Social Services, as well as the Australian Taxation Office, Australian Bureau of Statistics and Attorney-General’s Department, following successful pilots recently completed in the Departments of Education and Training, and Health.

Cormann says the aim of the reviews is:

” … to determine whether the current functions of all departments and large agencies are aligned with the Government’s policy priorities and whether they are working as efficiently as possible.”

Administrative efficiencies in Education and Training are expected to contribute $7.6 million, with another $123.4 million from “ceasing and redesigning programs which are not sufficiently consistent with the government’s core priorities and national strategic policy settings for education”. In Health, $96 million is expected to flow from “efficiencies in contracting, corporate, staff and property costs”.

While unions and the ACT government initially worried the efficiency reviews would result in more cuts to the public service, the budget suggests the overall size of the Commonwealth workforce will remain almost unchanged at an estimated 167,340, just under 2006-07 level. Having achieved the staffing reduction more rapidly than expected at the time of last year’s budget, the hiring freeze has thawed — to a degree — with responsibility for recruitment handed back to agency heads.

The new Australian Government Organisations Register — which began keeping track of how many Commonwealth-funded bodies there actually are for the first time in December — confirms that 104 agencies are in the process of being abolished or rolled into others. When that is complete, 1078 will remain, down from 1296 at the 2013 election.

Cormann says a smaller number of agencies means clearer lines of accountability, and a more agile public sector, ready to respond to changing circumstances and government priorities.

The government’s entire property portfolio will also be scrutinised in the search for savings, with Finance moving to gauge market interest in the long term lease of four of Canberra’s older government buildings ahead of a wider program of rationalisation. Vacant leases are in the firing line, too, with the first priority being to make use of the many empty offices APS agencies rent around the capital. Taking a whole-of-government approach to the issue instead of leaving it up to individual agencies to sort out is expected to add $200 million to the bottom line over the next decade.

The coming financial year also brings a new user-pays charging framework, to allow agencies to recover the cost of more of their activities, according to Cormann:

“The framework will lead to additional revenue to support Budget repair and other policy priorities. It will also assist particular agencies to be more responsive to user demand. The charging framework will promote greater fairness, involving charging those who create demand for certain government services and other activities, while preserving the government’s central role of delivering quality public-benefit programmes in ways that do not adversely impact disadvantaged groups.”