The Treasury Department plans to cut one in three of its public service positions by 2017 and the department's boss confirmed on Thursday that the task was already half done.
Treasury secretary Martin Parkinson told senior bureaucrats he wanted to see some of the remaining workers move to Sydney and other capital cities.
Dr Parkinson, who leaves in July, a victim of the government's purge of senior bureaucrats, told the Institute of Public Administration his department would shrink from a peak of 1100 workers in 2011 to as few as 730 in 2017.
But he warned that workers could not compensate for their dwindling numbers in the traditional Treasury way: by working harder and longer.
Forcing Dr Parkinson from his job flew in the face of advice from Liberal elders, including former prime minister John Howard and his treasurer, Peter Costello.
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But Prime Minister Tony Abbott stood firm even when former Treasury secretary Ken Henry joined the criticism.
In one of his last major speeches before he departs, Dr Parkinson defended his department from charges it was remote from business or ''the real economy'' and highlighted his success in tackling more than a century of male domination of the department.
But he made no apology for the dramatic downsizing now under way. ''We are currently shrinking from more than 1000 people by shedding about one in three positions,'' Dr Parkinson said. ''We have already shed about 15 per cent of staff, so we are half way there.
''Clearly, since we don't control the responsibilities given to us by government, change of this magnitude means delivering similar outcomes in a very different manner.
''In the past, our response to increased demands was to increase our efforts: by working harder and longer. Needless to say, this is not sustainable.''
The 34-year Treasury veteran also tackled one of the most common criticisms of his department: it did not listen.
''There has often been good reason for people to form this opinion,'' he said. ''The Treasury was notoriously closed in the 1970s and early 1980s. While we can always be better and more active in engaging with business, I reject categorically the view that we simply don't understand business.''
He acknowledged his department had traditionally had problems getting women into senior jobs, but said he thought things were getting better.
''There are signs of progress,'' he said. ''We have our first female senior executive service band 3 executive director, although it only took us 112 years.''
In more bad news for Canberra's local economy, Dr Parkinson said he wanted more Treasury staff working from Sydney, home of much of Australia's capital market activity.
''I would like Treasury to be represented in Sydney and possibly other capitals to deepen further our links with business large and small, and with community groups and other stakeholders,'' he said.