Government policy requires improvements in remuneration to be 100 per cent offset by internal productivity gains. This is absurd for many reasons, not the least of which is that in just about all public sector organisations, including the ADF, productivity simply cannot be measured.

Last year, this didn't stop the government and the ADF asking the Defence Force Remuneration Tribunal to approve pay increases of 4.5 per cent for military personnel over three years, with an immediate adjustment of 1.5 per cent allegedly based on anticipated productivity gains. In fact, the proposal was not based on productivity but principally on reductions in certain conditions of employment. That is, conditions largely unaffected by inflation were removed for a pay increase that will be eroded by inflation.

When the tribunal approved this dodgy proposition, the grumblings, aided and abetted by former soldier turned Tasmanian senator Jacqui Lambie, turned quickly to something that could further reduce Prime Minister Tony Abbott's popularity and make his oft-expressed admiration for the ADF look hollow. This would not do.

So, with breathtaking sleight of hand, the government said it would keep the 1.5 per cent increase but remove the reductions in conditions that had been used to justify it. The tribunal rolled over, probably thinking that a pay increase without a justification was as good as one that didn't satisfy the requirements of government policy.

Unfortunately, the backflips by the government and the tribunal were insufficient to quell the discontent. Lambie said she'd not vote on any legislation in the Senate until the right thing was done by ADF personnel, whose pay had become a political football in need of further kicking about. Thus, in March, Abbott announced that the first serve of the ADF pay increase would be upped to 2 per cent. He said: "This is a modest catch-up ... as well as an acknowledgement of the special compact between the Australian people and those who wear the uniform." But is this "special compact", even if it exists only in Abbott's imagination, worth a paltry 0.5 per cent of a pay increase? It doesn't sound like much of a compact.

And what is this "modest catch-up"? The Prime Minister, Defence Minister Kevin Andrews and Employment Minister Eric Abetz said it was the ADF catching up with pay increases in the public service. That's just not true. Over the past 10 to 15 years, the ADF is slightly in front of pay increases for Defence civilians.

In an attempt presumably to be helpful, Communications Minister Malcolm Turnbull, who just happens to have thousands of ADF personnel in his electorate, chimed in to say the Prime Minister's 2 per cent rethink "keeps ADF pay above the current annual inflation rate". He's missed the point. He's looked backwards rather than forwards. It's not the current inflation rate that's important. It's the likely rate over the period for which the ADF agreement is to apply. In that time, the Reserve Bank reckons inflation will be between two and 3.25 per cent a year. That is, the government's "special compact" with the ADF is likely to result in a reduction in real earnings for its members.

Finally, three academics – Sue Williamson, Michael O'Donnell and Joshua Shingles – have taken up the cudgels in the Australian Journal of Public Administration. They say the government's messing about with military pay runs the risk of moving personnel from a "relational" foundation based on a long-term career with a "transactional" one, where ADF members concentrate more on their monetary rewards. The authors reckon that if this were to happen, there would be effects on the "psychological contract" between the ADF and the government, which could cause members "to re-evaluate their ongoing commitments to the ADF".

It's hard to know what to make of these academic constructions. The existence of the posited "psychological contract" would probably come as something of a surprise to most ADF members, including its senior officers. On the other hand, as with people in many other organisations, those from the military sometimes say, quite genuinely, that they're not in it for the money.

In part, that may be because their overall remuneration is, for all sorts of good reasons, not lacking by general community standards. At notionally equivalent classifications in the Defence organisations, military pay rates are higher than those for civilians. In addition, the military attracts allowances for a range of different kinds of work – service allowance, flying allowance, submarine service allowance, operational allowances and the like – as well as housing subsidies, a comprehensive health service, and superannuation and injury compensation benefits of a kind usually unavailable elsewhere in Australian employment.

These benefits play an important part in the military's operational effectiveness, a cause for which the community has a great deal of sympathy. In this context, its leaders and members have been remarkably effective in ensuring that their remuneration is sufficient to recruit, retain and motivate those it needs. That is, the ADF has always given a great deal of attention to what Williamson et al refer to as the "transactional" aspects of their relations with the government and have usually been able to get what they think is necessary and fair.

The ADF has now been brought into an uneasy accommodation with the moveable wishes of the government, which will likely see military rates of pay over the next three years slip behind the rate of inflation and, more importantly and relevantly, see the ADF's competitive position in the wider labour market reduced. It is likely to be this that will cause military personnel "to re-evaluate their ongoing commitment" rather than effects on a notional "psychological contract" whose import may or may not cut a lot of ice in Townsville, Kapooka, Darwin or Turnbull's electorate.

Unlike the military, the civilian public service does not have the community on its side in anywhere near the same way. With these employees, the government has been able to take a harder, if no less farcical, line.

Let's take the Department of Human Services. On February 17, the department issued a media release in which its spokesman, Hank Jongen, gave details of its pay offer (4.15 per cent over three years) and listed some of the "offsets" on which it was based. None of them had anything whatsoever to do with improving productivity. So the department was asked if it could provide a full list of the "offsets". It refused the request, saying "information about productivity [sic] offsets will be discussed with staff" and so it "would not be appropriate to provide [that] information ... before the discussions". But hang on: Jongen had already publicised a swag of it via a media release. According to the department's latest line, he was obviously wrong to do so.

In the middle of all of this, up pops the Public Service Commissioner, John Lloyd. In an open debate with the Community and Public Sector Union's Nadine Flood, according to reliable reports, he distinguished his contribution with a red herring: the woes of the economies of Spain, Greece and Ireland, and reductions in the pay and conditions of public servants in those countries. We wouldn't want to be like those poor Hibernians, he said glumly, and have public service wages cut by 15 per cent. This is not even a remote prospect and therefore has nothing logically to do with APS pay negotiations.

Laying on irrelevance with a shovel, the commissioner apparently went on to say that taxpayers expect Australian Public Service staff to accept historically low pay increases so as to help reduce the budget deficit. This expectation is mentioned nowhere in the bargaining guidelines and is a sentiment contrary to a remuneration policy based on productivity gains. And how does Lloyd know this sentiment exists in taxpayers' minds? Has he asked them? This column asked a few and they'd not heard of it.

On the other hand, Abetz has said that public service pay increases should satisfy community expectations. At the same time, he is keeping secret the calculations of so-called "productivity offsets" that are claimed as justifying what is now being offered by some agencies. The community should be satisfied if pay service remuneration moves according to the requirements of government policy, but the minister will not make public information that would enable them to be satisfied that this is so. That is, Abetz is thumbing his nose at the very community expectations he wants to be satisfied.

In summary, the government has:

Then, when it surveys the mess it has created, the government and the responsible minister, Abetz, turn around and blame everyone but themselves. Unless the government sees the light, this will end badly.

☆ ☆ ☆ ☆ ☆

Let's conclude on a lighter note with the Treasurer, Joe Hockey. In his eulogy on Malcolm Fraser, Hockey said the former prime minister "was the greater initiator ... of the [cabinet] expenditure review committee".

He wasn't. The Menzies government established an industrial and economic committee of cabinet in the early 1940s. The Whitlam government set up an ad hoc cabinet expenditure review committee in 1975. In 1981-82, the Fraser government had a review of Commonwealth functions that was supervised by a group of ministers.

The standing cabinet expenditure review committee, as it is now known, was developed in a Labor pre-election document, Labour and Quality of Government, and was introduced by the Hawke government in 1983. As journalist-historian Paul Kelly points out in his book The End of Certainty, the government's economic statement in May 1983 "saw the first operation of the cabinet expenditure review committee", which became "the engine room for the Hawke government". The committee has been maintained, as a standing committee of cabinet, ever since.

How could the Treasurer be so sloppy about the history of the portfolio he now leads? It's no wonder Foreign Minister Julie Bishop exhaled, rolled her eyes and shook her head when Hockey claimed for Fraser something he didn't do.

Paddy Gourley is a former senior public servant. pdg@home.netspeed.com.au