I'm here to help: Commission of audit chairman Tony Shepherd with the good news. Photo: Alex Ellinghausen
The commission of audit has estimated 15,000 fewer public servants could be required if its recommendations are adopted. The Community and Public Sector Union thinks it is more likely 25,000. In a Senate hearing on Friday, it emerged that there was doubt about even the 15,000 figure. As the audit report noted, the figure was indicative and would depend on ''decisions on detailed program design and timing of implementation''. Some elements, such as reductions in higher level staff, depend on whether secretaries and agency heads themselves are prepared to implement them.
The slow-burning fuse for the public service is the recommendations on reforming the federation.
To put the number in perspective, it is only a little more than the estimated 12,000 job losses from the previous Labor government's extra efficiency dividends. However, because it comes on top of those cuts already under way, if the government accepts all the recommendations, it will represent the largest public service cut since the early 1990s.
There is also confusion about where the impact will be felt. The Australia Institute said 15,000 job cuts would hurt Canberra; the CPSU argues they will affect regional Australia. Remember that two-thirds of the Australian Public Service, including many administrative and processing functions, is located outside of Canberra. Canberra will not bear all the pain.
No one expects every recommendation will be adopted. Some, such as including the family home in the pension assets test, have already been ruled out. Others are likely to be accepted only provisionally, subject to further investigation. We will not know until the May 13 budget how much has been accepted or rejected.
The release of this report 12 days before the budget is part of the theatre of budgets. The government circulates a harsh and uncompromising report, and hopes the electorate will reward it when the budget is not quite so tough. Some call it expectations management: talk hard and terrifying in the lead-up so budget night will appear, by comparison, soft and cuddly. It is done so often you would think the electorate would have cottoned on to the tactic by now, but it still seems to work.
If the government were, by some chance, to implement the recommendations of the national commission of audit in full, it would be the biggest shake-up to the APS since post-World War II reconstruction. Even if it only goes halfway, it will still be the largest since 1996. Among the recommendations that most affect the public service are:
- reintegrating the Defence Materiel Organisation into the Department of Defence and significantly reducing its size, and reducing staff in Defence headquarters to 1998 levels;
- abolishing the Export Finance and Insurance Corporation;
- halving funds for Tourism Australia;
- numerous mergers of departments and agencies;
- outsourcing the Department of Human Services' payments system;
- ''staged implementation'' of shared corporate services;
- transferring Public Service Commission functions to the Employment Department and abolishing the Merit Protection Commissioner's role; and
- a range of measures to improve asset management, performance reporting, evaluation, and ''spans of management control'' (that is, reducing top-heavy staffing).
The list of recommended privatisations includes, in the short term (2014 to 2016), Snowy Hydro, Australian Hearing, the Australian Submarine Corporation and Defence Housing Australia. Medium-term recommended privatisations (after 2016) include Australia Post, the Royal Australian Mint and COMCAR. It is unlikely the government will accept all of these. It already has a major sale under way with Medibank Private, and cannot digest too many more. The only really substantial business in the medium-term list is Australia Post. NBN Co is considered long-term. While some countries (e.g. Netherlands, Germany, Austria) have privatised postal services, it is still a popular government business in Australia and may escape the axe.
It is clear in any case, including from the analysis in the audit report, that there is no need for a fire sale of assets. Australia has a long-term budget problem, not a short-term crisis. Asset sales can help generate short-term returns, but the government loses long-term streams of dividend payments. Over time, we do need to bring spending into line with revenue but it needs to be through major structural adjustment rather than short-term shifts in the balance sheet.
Tax is just as important as spending in the budget, but the revenue side was barely addressed in the audit report. There is a good case for government to examine tax expenditures - the numerous tax concessions that benefit particular groups or individuals - as part of the budget repair task. Even if government does not want to increase the total tax take, reforming tax concessions and using the savings to deliver tax cuts could make the system fairer and less complicated.
The government has learnt from the experience of the 1996 commission of audit under Bob Officer, which had limited influence. It was perceived as extreme, and much of it caught the government by surprise. This time around, consideration of the audit report has been integrated with the rest of the budget process, which means its recommendations have competed with alternative sources of advice. There also appears to have been more communication about what might be practical.
One of the positives of the report is that it rejects increased efficiency dividends as an inefficient ''blunt instrument''. By contrast, the 1996 report recommended an across-the-board 20 per cent cut, as a down payment on future cuts; fortunately for the public service, this recommendation was not accepted back then.
Other positives include recommendations for better budget reporting and the reintroduction of systematic evaluation into budget decision-making.
It also avoids the trap of blindly recommending shared services (the common provision across different agencies of back-office functions, such as human resources, IT, communications and finance). In other jurisdictions that have tried this, tempted by promises of huge savings, the results have ranged from disappointing to disastrous. The commission notes that ''a key lesson from other jurisdictions is standardising business processes is a necessary precondition to successful shared services projects'' and suggests that the Commonwealth needs to understand the services better, standardise and benchmark them as a first step.
The slow-burning fuse for the public service is the recommendations in chapter 6, ''Reforming the federation''. These have the potential to become a much bigger reform than the whole of the rest of the report put together. The commission wants to end duplication between the Commonwealth and the states (especially in health, education and housing), give the states capacity to raise income tax, and substantially rationalise reporting. Under education, it recommends transferring policy and funding for schools to the states and winding back Commonwealth involvement in vocational education and training. Health is more complicated, with further study recommended, but rationalisation is foreshadowed. There is only one - natural disaster relief (recommendation 41) - where reform could be quicker and easier to implement if governments chose to do so.
Australia's federal system is inefficient, cumbersome, leads to games such as cost-shifting (and blame-shifting) between jurisdictions, and is confusing for the electorate and politicians alike. While the problems are well recognised, solutions are hard. Reform of federal-state relations has consumed more wasted and unproductive years of public administration than any other topic.
Past prime ministers, such as Malcolm Fraser with ''new federalism'', made at best limited progress despite expending most of their political capital on the task. The more recent Council of Australian Governments was set up with high hopes but has become a bureaucratic swamp. Some brave reforms have paddled through paperwork quicksand and states-rights alligators, but many more have disappeared without trace.
The federalism reform principles set out in the commission of audit report are worthy. Getting to the end point will be much harder. Before any function can be rationalised, both the Commonwealth and states must agree on the terms, conditions and transfer of dollars involved. Even when they agree in principle, negotiations more often than not founder on the details. If there are to be public service reforms arising from this section of the report, they will take much negotiation. Having wall-to-wall Liberal or Coalition governments, other than in the ACT, may make these negotiations easier for the Abbott government. Still, past experience suggests you would be foolhardy brave to bet money on their success. Any consequences for employment are likely to be in the longer term.
Stephen Bartos is executive director, Canberra, at ACIL Allen Consulting and a former senior public servant. firstname.lastname@example.org