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Even though many lower level jobs in the bureaucracy had been replaced by technology he said "I still think the growth in middle management is frightening".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