Public Sector Informant: Does separating service from policy work?

The Prime Minister told departmental heads last month he deeply respects the public service's work "in delivering on the agenda of a government": "In every portfolio that I have worked in ... that is always the relationship that I've had - to set out clearly where we are going and to have the strong expectation that would be delivered, and that has been my experience."

While acknowledging that "of course the public service gives us frank and fearless advice", he made it clear that "the thing we depend on and that you're professionally responsible for is the delivery of ... services". "There will be very clear targets about performance levels that we'll expect from the delivery of the public service ..."

There is nothing untoward about this; in our democracy, the public service owes loyalty to the elected government and must follow its lawful directions. But there's more to the relationship than Morrison suggests. The APS is an institution in its own right and is expected to be "efficient and effective in serving the government, the Parliament and the Australian people" (Public Service Act).

Service delivery must always be a priority, but policy-advising is no less important. Indeed, it will be critical for meeting the other priorities that Morrison identified at the meeting with departmental secretaries: the economy (and budget and financial management) and global uncertainties (economic and strategic). As the government pursues substantial tax cuts over the medium and long term, it will need to spend with greater discipline. This includes not only the areas Morrison mentioned, which are growing and/or face increasing community expectations (e.g. health and disability services), but other areas where better value for money is needed (e.g. defence, security and infrastructure).

A good start was made with the announced review of retirement-incomes policy. Hopefully, this won't waste effort, as Labor foolishly did by revisiting tax arrangements, which, after Malcolm Turnbull's reforms, are now about right. Much more important issues include:

The government will need to revisit Morrison's own changes to the assets test that undermined sensible retirement planning, and look for other ways to contain costs, such as increasing the preservation age and including high levels of housing assets in the means test.

In health, the policy agenda should include:

No doubt, an agenda will also emerge for aged care from the royal commission.

In the Informant's February issue, I also argued other policy areas, such as tax policy and climate change, need more careful analysis, drawing less on immediate political advantage and more on expertise, views across the Parliament and the perspectives of those directly involved. The government may rightly turn to external expert advisers, but the APS has deep expertise and practical experience that must be brought into the process.

Morrison's reference to clear performance targets for service delivery should be scrutinised carefully. Performance expectations must be commensurate with the resources available. In the last week of the campaign, the government announced further cuts to the APS, increasing the "efficiency dividend" over the next three years.

These reductions clearly exceed the level of further productivity improvement that can reasonably be expected, so will inevitably involve some re-prioritisation of service outputs and quality. The government has every right to require such re-prioritisation, but equally must take full responsibility. Secretaries will need to be careful that, in their eagerness to please ministers, they don't hide the consequences of the cuts they face or take responsibility for them by accepting unreasonable performance targets.

The second Morrison government's new service-delivery arrangements are of particular interest. Services Australia will not be a new agency but essentially the former Department of Human Services with a new name. But the new National Indigenous Australians Agency seems likely to be an executive agency under the Public Service Act, operating within the Prime Minister and Cabinet portfolio.

There are potential advantages in having service-delivery agencies separate from policy departments. This can allow them to focus on their clients, looking mostly "downwards and outwards", while meeting performance targets agreed with portfolio departments and their ministers; those departments would then have primary responsibility for "looking upwards" to serve ministers. Such agencies must work in partnership with the policy departments and be directly accountable to ministers, but their main energies can be devoted to the task of efficient and effective service delivery, exercising the authority devolved to them. Properly managed, this can lead to efficiencies, higher-quality services and greater responsiveness to clients.

That was the argument Margaret Thatcher used when pressing her "new steps" reforms 30 years ago; "agencification" was later pursued by several countries, such as the Netherlands, as part of the new public management agenda. Australia has long used statutory authorities to manage administrative functions like tax and customs, but has been ambivalent about pursuing agencification more systematically. We did establish Centrelink in the late 1990s in what was regarded widely as a particularly successful initiative, combining the advantages of separating service delivery from policy with the benefits of more integrated service delivery, but Centrelink (and Medicare Australia) has since been absorbed back into a department with no evidence of improved service. On the other hand, we also established the National Disability Insurance Agency, ensured public hospitals have their own boards and established independent primary healthcare networks.

I'm disappointed that the "establishment" of Services Australia doesn't involve such a move (I would have preferred going further to re-establish Centrelink and Medicare as authorities in their respective portfolios). But there could be benefits if the minister does not focus on control but on helping the department get the resources it needs and helping it improve its relations with clients, communities and non-government organisations.

I'm pleased about the new National Indigenous Australians Agency, though there is, as yet, no clarity about its governance or its relationship with PM&C. Will its minister (Ken Wyatt, who is in cabinet) be advised by the agency, PM&C or both? If, in practice, the agency is the minister's primary adviser, the advantages of a degree of independence to focus on service delivery may be diluted. Again, this might be avoided if the minister focuses primarily on helping the agency get the resources it needs, helping it foster relationships with Indigenous communities and giving it real influence over the other arms of government that serve Indigenous Australians.

Finally, the Morrison government's return will no doubt have implications for the APS review and its impact. I chose to present my views on APS reform directly to the review rather than in the Informant (my submissions are on the review's website), but I suspect the government will be less keen on the governance-reform directions the review outlined in its interim report (and which I pressed them to take further) than on measures to change the operating model to take more advantage of new technology and so on. The likelihood of significant changes to industrial relations and resourcing also seems slim.

Nonetheless, I hope the review takes its "independence" seriously and makes recommendations based on its own analysis and the expert advice it has received, including on governance, demonstrating the "frank and fearless" advising that both it and the Prime Minister have espoused for the APS.