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Scrap the efficiency dividend, says Centre for Independent Studies

Date

Phillip Thomson

The Abbott government's efficiency dividend has received a broadside from a surprising critic.

The Centre for Independent Studies, which advocates the type of smaller government the Coalition is moving toward, says the efficiency dividend should be scrapped because it has failed.

Alexander Philipatos, a policy analyst at the centre, has released a report saying the measure does not target wasteful programs or spending.

Criticism of the cost-saving measure has grown louder and includes members of both sides of politics as well as the National Commission of Audit.

Mr Philipatos said the numbers of managers in the public service have ballooned despite the efficiency dividend. 

"The efficiency dividend has failed to stem the growth of managerial employees in the public service, and to moderate rising managerial pay, with senior executive (SES) base remuneration growing 25% to 35% since 2002," Mr Philipatos says.

"At a time of increasing budget pressures, the Abbott government should introduce competitive pressures to drive efficiencies in the public sector, and introduce greater choice for customers."

"It also allows the government to shuffle off the decision about which programs get cut to agency heads."

His report Withholding Dividends: Better Ways to Make the Public Sector Efficient says senior executives and executive level staff accounted for 30 per cent of the public service today, compared to 15 per cent in 1991.

"Despite an efficiency dividend of at least 1 per cent applying throughout the 2000s, agency running costs grew by 23% in real terms – or from $32 billion to $52 billion," he said. 

Even though many lower level jobs in the bureaucracy had been replaced by technology he said "I still think the growth in middle management is frightening". 

Mr Philipatos said cost savings must be more targeted.

He echoed the Audit Commission by saying an agency should conduct yearly reviews of agency functions and programs to decide which ones to cut. 

This could be done by a better-funded Productivity Commission or Australian National Audit Office – the latter will do three less audits this year because of a reduced budget.

"Government should introduce an annual review of agency functions and programs via an independent body, and use it to decide which programs to improve and which to cut,"  Mr Philipatos says.

Mr Philipatos recommends the use of a voucher system, where customers would use government funds to seek services from approved suppliers in the private market, such as in education or health care.

The efficiency dividend is an annual reduction of the funding for departments and agencies.

It doubles to 2.5 per cent at the start of the coming financial year – most of the increase is a hangover from a policy put in place under Kevin Rudd while the Coalition has added an extra 0.25 per cent. 

Opposition public service spokesman Gary Gray said last week the efficiency dividend should no longer be used and was relied on too much even when his party held power.

Liberal Senator Zed Seselja has called the dividend a "blunt instrument".

Since the early 1990s, the federal public service has grown top heavy, with public sector managers - Senior Executive Level (SES) and Executive Level (EL) - accounting for 15% of the public service in 1991, yet now accounting for 30%.

'The efficiency dividend has failed to stem the growth of managerial employees in the public service, and to moderate rising managerial pay, with SES base remuneration growing 25% to 35% since 2002,' says Mr Philipatos.

'At a time of increasing budget pressures, the Abbott government should introduce competitive pressures to drive efficiencies in the public sector, and introduce greater choice for customers.'

10 comments so far

  • The efficiency dividend is a tool of lazy governments. All they do is expect agencies to continue to do the same with less and this is not possible. If governments want to make savings (and that is their right) then do what Abbott and Hockey are doing at cut programmes and wear the political heat.

    Commenter
    Observer
    Date and time
    May 29, 2014, 7:43AM
    • "Even though many lower level jobs in the bureaucracy had been replaced by technology he said "I still think the growth in middle management is frightening". The truth is they've not been replaced by "technology" because much of that work is not automated but by employees employed at a higher level I middle management.

      At least 50% of the work done by those in middle management can be done by APS staff at lower level. They should replace 50% of middle managers with APS employees by redistributing the work accordingly who can do it just as competently and efficiently. That would save considerably on costs and still get the job done without the need to cull employee numbers.

      Commenter
      Felix
      Location
      ACT
      Date and time
      May 29, 2014, 10:24AM
  • The Gonski reforms were basically a voucher system, and look what happened to that.

    Commenter
    Mardi
    Location
    Tuggeranong
    Date and time
    May 29, 2014, 7:53AM
    • @Mardi, I don't understand your comment. Gonski is stillborn, thanks to the current government. The proposed funding reforms are in tatters. How does Gonski compare to a "voucher" system?

      Commenter
      Truthy
      Date and time
      May 29, 2014, 8:31AM
    • Truthy, the whole point of Gonski was that the funding calculated for each student (based on their needs) travelled with the student, no matter what school they went to. So for instance under the Gonski reforms, if a disabled student were to move from a public to a Catholic school, that student's funding would go with them to the Catholic school - i.e. an administrative voucher system. That way each school would be able to provide what each student needs to help that particular student. Unfortunately, leaving the Cth funding system as it is seriously disadvantages the (mainly) public schools that cannot choose to exclude students with more complex educational or socio-economic difficulties.

      Commenter
      Mardi
      Location
      Tuggeranong
      Date and time
      May 29, 2014, 9:41AM
  • It's now costing every man woman and child in this nation about $2200 a year to subsidise these jobs,and this just in wages at the federal level! seeing very few children pay tax, the cost per taxpayer is astronomical.
    We are allowing the likes of Ford, GMH and Toyota to offshore productive jobs while our governments fill our cities with over schooled non productive employees. Clearly this is not sustainable, many of the productive jobs,which create wealth and taxation, leaving this nation are because of rules imposed to create employment for bureaucrats. Why are our refiners closing down our oil refiners and leaving us exposed to shortages if the supply chain is disrupted? why are our food manufacturers walking?
    As a nation we should be contemplating why NZ has a major white goods manufacturer while we have none? Why are all our major food manufacturers relocating to NZ?
    Clearly Josh Frydenberg has to cut harder into the red tape, which will allow our government to further cut into dead wood. This will create the conditions to stimulate employment in Australia

    Commenter
    Michael M
    Date and time
    May 29, 2014, 8:59AM
    • The efficiency dividend proved popular with governments because the public service always found excuses why a particular area could not be cut. That said the SES is bloated and largely redundant. The simplest measure is to abolish the SES 1 & 2 levels. Mostly they are overpromoted and spend their time second guessing, engaging in turf wars and hogging travel while claiming they are overworked. The NZ public service got rid of them and it works better than bloated Canberra.

      Commenter
      Bureaucrat
      Location
      Canberra
      Date and time
      May 29, 2014, 9:04AM
      • An Executive 1 or 2 role is a misnomer, they are for the most part not management positions. Most of the EL1’s and 2’s are now specialists in a particular role or area, providing expert advice or possessing a particular specialist skill set. To appropriately pay these people you need to promote or engage them as an EL1 or 2.
        If each agency had a specialist role classification system you’d possibly see a huge reduction in so called management/executive roles and replaced with specialist roles.

        I understand this could be abused by some managers, but a simple business case with the request of appropriate skills, qualifications or knowledge would overcome this.
        When I worked in the private sector a majority of the companies I worked for had employees earning an average over $100k. All because we had to pay for the specialist knowledge and it comes at a price.

        I do agree with the comment above, too many Band 1 and 2 SES officers in the APS. You could cut 60 per cent of them and achieve magnitudes of efficiency and productivity over and above just simply savings in salary.

        Commenter
        Anon E Moose
        Date and time
        May 29, 2014, 9:28AM
        • This really depends on what you define as a specialist skillset, as there are a large number of EL1 and EL2s with nothing higher than a high school education. Their only specialist skillset is in bureaucracy, or even just having been in the same programme long enough to know what has been done previously.

          Implementing proper training and adequate documentation of work processes in most areas would remove a lot of the need to constantly promote people just to retain their knowledge base.

          Commenter
          Markus
          Location
          Canberra
          Date and time
          May 29, 2014, 10:53AM
      • I totally agree with E Moose, I was part of a spill and fill and being a non ongoing person I could not apply for my position the role I was in, even though I was more qualified than the ongoing staff and had the most experience and was told I was a contractor. However saying that good people get jobs in this state and move on. However the rhetoric we had to endure when there was talk of cutting programmes etc. Being in finance SES officers talk about getting rid of people so that they look good, they do not care if programs get cut, Its time that the SES officers are made to re-apply for positions- you could get rid of a whole amount of dead wood who are waiting to retire and people who have made no contribution to departments except their own bank balance. Unfortunately the good ones will also have to apply for their positions, but good ones always stand out in a crowd.

        Commenter
        merton
        Location
        Canberra
        Date and time
        May 29, 2014, 12:27PM

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