Canberra is bracing for another tough budget next week, with the Turnbull government set to rip up to $1.2 billion more from public service departmental budgets.
Treasurer Scott Morrison is reportedly preparing to tear up a pledge from last year's budget to ease back on the "efficiency dividends" that have been eating into Commonwealth spending since being introduced by the Rudd Labor government.
The main public service union, the Community and Public Sector Union, says the move will cost jobs and hurt services, and a leading public sector finance expert says efficiency dividends are often a false economy, despite being seen by both sides of politics as an easy target for savings.
The deeper efficiency dividends will be imposed to pay for tax cuts designed to offer relief from bracket creep for taxpayers earning more than $80,000 a year.
The move would be a reverse of the pledge in last year's budget to return the efficiency dividend, a percentage of annual budgets that departments are expected to save each year, to the "base rate" of 1 per cent from 2017-2018.
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Costings show a 1.25 per cent efficiency dividend would raise an extra $610 million over four years, the Australian Financial Review reports.
A 1.5 per cent dividend would raise an extra $1.2 billion over the same period, and the Treasurer said on Tuesday that the Commonwealth would not be given a "leave pass" from having to do more with less.
"Every government at every level always has to be looking at ways for it to live within its means ... that means you are always looking for better ways to do things," Mr Morrison said.
"Out there in the economy today, businesses are being told they need to produce the same quality of product to be competitive in the market, and they need to do it for less.
"Now, government should not be given a leave pass from having to drive the sort of innovation in its own operations to deliver the same sorts of things that businesses and employees around the country are being asked to do, and it has been a key driving thought and principle - a practical principle that is driving our thoughts and our preparation of this budget."
Former Finance Deputy Secretary Stephen Bartos said the nation's budgetary position meant cuts needed to be made, and he agreed that efficiency dividends provided real savings.
But the Canberra consultant said both Liberal and Labor governments needed to have the courage to decide what areas and programs to cut, rather than take the broad brush and lazy path of efficiency dividends.
"It is better to attack problem areas of wastefulness directly, rather than use a broad brush efficiency dividend increase that hits both the profligate and the frugal equally," Mr Bartos said.
The CPSU said it was deeply concerned about the "irrational" move to increase the dividend.
"Making yet another round of irrational and arbitrary cuts to government services through increased across-the-board cuts with a so-called 'efficiency dividend' shows the Turnbull government has its priorities absolutely wrong," union leader Nadine Flood said.
"These cuts will inevitably lead to more job losses and the erosion of the services that ordinary Australians rely on.
"This is a continuation of a policy that meant one in three phone calls to the Medicare, Centrelink and child support agencies went unanswered last financial year, 22 million calls missed in total."