All over Canberra, agency heads are contemplating the possibility of further cuts to their budgets after the next election. Quite apart from the Coalition's well-publicised threats to slice thousands from the Australian Public Service payroll, any prudent manager can see the fiscal logic that will face an incoming government. Revenue seems set to stay soft, while balancing the budget will continue to be a potent political imperative. Cutting spending will remain the overwhelming fiscal strategy.
In this context, a recent speech by federal Auditor-General Ian McPhee to the ACT Association of Certified Practising Accountants gives an insight into how the APS's leading integrity watchdog approaches the prospect of straightened circumstances for his public service clients. Couching his remarks in the cautious mandarin-speak that befits his office, McPhee makes some pertinent comments about sensible coping mechanisms for public service managers and reasonable expectations for ministers.
As a useful reference point, he begins with the Organisation for Economic Cooperation and Development's 2012 report on the Australian public sector. According to the OECD, the number of public sector employees in Australia, at all levels of government combined, is well below that for all other countries for which comparable figures are available. Government employment accounts for 28 per cent of the workforce compared with the average of 35 per cent. By implication, current political rhetoric about a bloated public sector in Australia is ill-informed and unsustainable, at least in terms of the international benchmarks that should set the reasonable parameters of reform. Overall, in terms of the OECD's public sector reform agenda, Australia is a very strong performer. There is room for more improvement, of course, but more from the standpoint of fine-tuning a well-functioning machine, not that of overhauling an obsolete structure.
Managing within budgetary constraints requires agency heads and their leadership groups to establish priorities and make some hard choices. This process has already been under way for some time as agencies have dealt with a series of increasingly stringent efficiency dividends and have pruned back less essential spending on items such as consultancies and travel. Ruthless cost-trimming will be an ongoing task for all public servants at all levels.
In the longer term, McPhee says, further productivity gains can also come from improved accountability regimes. He reiterates a familiar Australian National Audit Office theme about the value of performance accountability and the need to refine performance measures such as key performance indicators. Other well-known accountability problems also need more attention, including accountability for shared responsibilities across institutional and jurisdictional boundaries (an area in which the ANAO has recently gained increased powers, with its ''follow the money'' capacity to investigate the spending of Commonwealth funds by non-Commonwealth organisations).
McPhee welcomes the Finance Department's renewed interest in program evaluation, which has been allowed to languish for over a decade. Indeed, one might add, thorough assessments of how individual programs are actually delivered often offer a better prospect for efficiency gains than the more routinised box-ticking associated with much performance measurement and accountability. McPhee also endorses the greater emphasis on making agency heads accountable for their own and their agencies' performance, as in the amended Public Service Act.
Other methods of extracting better value for money include taking a more pragmatic view of how best to deliver public services. McPhee refers to the Nordic countries, which are attracting international interest not just for the excellence of their television police dramas but also for their approach to providing public services. The Nordic countries (Sweden, Norway, Denmark and Finland) are noted for their commitment to high levels of taxpayer-funded public services, together with considerable flexibility in methods of delivery. They have adopted a number of market-style mechanisms, such as vouchers and outsourced management of public organisations, to improve the quality of services. They have also adopted transparent performance-measurement systems in areas such as health and education as a way of making public services more publicly accountable. Their citizens are quite happy to exercise choice and deal with private-sector companies so long as they receive a good level of service.
To some extent, Australia has also adopted a similar approach, though within a lower level of overall spending. Citizens have become accustomed to receiving public services from private providers, for example in health and employment services. Most open-minded commentators on service delivery generally take an eclectic view about whether particular services are best provided in-house by publicly employed officials or outsourced to private providers. They agree that much depends on the particular circumstances, such the nature of the service, the level of accountability risk, the availability of competitive contractors and so on. This is the line taken, for example, in the recent survey of external service provision by professors John Alford and Janine O'Flynn (Rethinking Public Service Delivery, 2012).
Unfortunately, however, we lack the necessary bipartisan political consensus to underpin such a pragmatic, open-minded approach. Attitudes to government service provision offer one of the few remaining ideological differences between the two major sides of politics. Labor, like social democratic parties everywhere, is broadly sympathetic to government intervention and to the use of government bureaucracy to achieve public purposes. It is also heavily indebted to public service unions, which have an obvious self-interest in keeping public service numbers high.
The Coalition parties, in their turn, are traditionally suspicious of the public service (as distinct from the police and armed forces) and naturally prefer the private sector, from which they draw most of their support. Hence their eagerness to cull public service numbers and engage more with the private sector through outsourcing services and through public-private partnerships.
Contrary to much public rhetoric, proposals to reduce the size of the public service are not necessarily aimed at cutting government spending or balancing the budget. As experience with the new Coalition state governments has shown, reduction in public service numbers often tends to lead to greater spending on consultants and contractors, particularly if the government is officially committed to maintaining current levels of services to the public. In this case, the main effect is to transfer public spending away from government agencies and into private contracting companies. It is no accident that international public service contracting companies, such as Serco, are busily lobbying Coalition politicians at both federal and state levels. They have no interest in having government spending reduced, only in seeing it funnelled in their direction.
Opportunities for major transfer of public services to the private sector, however, are limited. As the OECD points out, the main reason why public servant numbers are comparatively lower in Australia is probably ''the large and consistent privatisation and outsourcing efforts of the last decades''. The low-hanging fruit (in the management cliche) have been well and truly plucked, leaving only a few isolated remnants of the crop on distant branches. Even so, the outsourcing enthusiasts will be keen to track them down.
In such a political context, dispassionate, evidence-based discussion about the most efficient and effective means of delivering public services will always be hard to sustain. The ANAO, and other more impartial bodies and experts, will keep up their efforts to inject more evidence, international as well as domestic, into the policy debate. But they will gain little political traction, especially around election time. A Nordic-style consensus is a distant prospect.
Overall, the prospects of further significant cuts in total government spending from productivity gains appear doubtful. In other words, the politicians' familiar refrain that costs can be severely cut without loss of services is fraudulent. McPhee quotes a number of senior public servants, from the Defence Department and Treasury, who have quietly, but forcefully, pointed out that the only sure way to cut spending is to cut back on functions.
But functions properly remain the responsibility of ministers, not department heads, and any change to government functions requires political justification and debate. As McPhee pointedly remarks, ''to date, it is senior officials playing the main roles on this stage rather than ministers''. He might also have said that the opposition, too, is reticent about engaging in any debate on substantial reductions to government's footprint. It appears to be awaiting a post-election ''audit'', which has become a standard cover for tough decisions that need to be kept from the voters.
In the meantime, departmental secretaries are caught in a difficult bind. They are being asked to become personally more directly accountable for their agencies and to carry the can for any shortfall in their agencies' performance, while they have no ultimate control over their agencies' mandate and resources. At the same time, conventions of professional loyalty to ministers rule out any overt reference to a basic cause of their difficulties. Just as well they have enjoyed a substantial rise in salary!
Richard Mulgan is an emeritus professor with the Crawford School of Public Policy at the Australian National University.