Towards the end of 2018, Public Service Commissioner Peter Woolcott anticipated a smoother round of "workplace bargaining" because he said "people better understand the parameters". And it would appear that the current "round" of remuneration adjustments has been a lot smoother than during what has become known loosely as the "Lloyd Epoch", those clod-hopping years (2014-18) when the Hon John Lloyd PSM was the Public Service Commissioner. Today's smoothness, however, may not be so much due to people better understanding the "parameters" but because the "parameters" have been significantly changed. In short, bargaining linking remuneration increases directly to productivity gains, the system's dead cat, has been put on the reserve bench and is now not getting much of a run.
Before getting to that, it might be useful briefly to retrace the much misunderstood history of remuneration fixing in the public service in the "modern era".
Agency based bargaining was introduced by the Keating government in the early 1990s. The objective was to give agencies the chance to deal with matters through industrial relations negotiations that otherwise could not readily be encompassed by Public Service-wide bargaining. Conscious of the damage that could thus be done to the integrity of classification structures, the fortuitous effects on staff mobility and the inability to negotiate important service-wide matters, it was intended that devolved bargaining would last no more than a couple of rounds with normal centralised bargaining then being resumed on the basis of equalised rates of pay. That happened.
With the election of the Howard government in 1996, the minister for the public service, Peter Reith, allowed his ideological enthusiasms to get the better of whatever sound judgment he possessed. Thus, pay and conditions fixing was again devolved to agencies, combined with firm rules about the funding of increases. This system limped on during the Howard years.
It was more or less maintained by the Rudd-Gillard-Rudd governments despite misgivings sometimes expressed, for example in the Ahead of the Game report sponsored by the first Rudd government. Neither Rudd nor Gillard had the fortitude or willingness to tackle what had become a costly and destructive shambles.
When Tony Abbott and his associates took over the Treasury benches, the doughty Tasmanian senator, Eric Abetz, became the public service minister, among other things. While greatly concerned about another bout of wage inflation (the opposite occurred, of course), Abetz re-enforced devolved bargaining in various ways including by the lunatic insistence that all improvements in remuneration were to be wholly funded by improvements in productivity. As a consequence, the next round of public service bargaining was disastrous with high transaction costs, blows to staff morale and agency leadership and no evidence whatsoever of productivity improvements. Indeed, it's highly likely public service productivity went backwards in this ghastly period.
It was not therefore surprising that gripes about devolved agency bargaining were perhaps the most common thread in submissions made to the Thodey Review of the Public Service established last year by the Turnbull government. A draft report published by the review earlier in the year made some obscure comments about the possibility of greater standardisation of pay and conditions however, when asked about what the report was getting at, David Thodey lapsed into more confusing depths of obfuscation.
Let's be clear on a few over-riding points.
First, linking improvements in remuneration to productivity gains at the enterprise level makes no economic sense. It advantages inefficient organisations, encourages the saving up and manufacture of restrictive work practices and denies the importance of keeping remuneration competitive in labour markets.
Second, in public service organisations there is a bonus disadvantage because in them productivity cannot be measured and so bargaining self-destructs as the essential elements to negotiate cannot be established.
Third, in the Australian Public Service almost 30 years of devolved bargaining has destroyed the integrity of the "One APS" classification structure and made staff mobility significantly dependent on the fortuitous ability of individual ministers to screw money out of government coffers. When one agency pays $46,207 for an APS 1 and another $63,207 and that is mirrored through all other levels, the notion of rational classification goes out the window.
Salary gaps of between $75,000 and $90,000 between Executive Level 2s and SES Band 1s are the absurd result of the bosses giving themselves annual increases roughly double those of their staff. The decisions of the Remuneration Tribunal for secretaries of departments defy logical comprehension and reflect poorly on the private sector personnel who have dominated membership of it for far too long and who have brought to it a staggering insensitivity to fixing public sector pay and conditions. Would BHP or Westpac get in a mob of public servants to fix remuneration for their top officials? If not, why should a non-executive director of Westpac be on the Remuneration Tribunal? Surely he now should have more pressing concerns to attend to.
Agencies have been relieved of the distasteful task of having to provide detailed calculations that everyone knew were nothing more than bundles of lies.
Ministers and officials rightly stress the importance of evidence, the lessons of experience and rational analysis in public policy. When it comes to remuneration policy for public servants, since 1996 all of these things have been sacrificed on the altar of ideological stupidity. Rhetorical question: Have any current ministers or officials (or the Thodey Review) reflected on the enterprise bargaining experience in Commonwealth employment in the 1960s that made it the decade of the most significant management reform in the Commonwealth's history?
Nevertheless it's possible some of the absurdities of the government's public service remuneration policies are beginning, after decades of sour experience, to implode under the weight of their inconsistencies. Thus for the current "round" these policies have been modified in two important and related ways.
First, the need to directly offset remuneration increases by demonstrable productivity gains has been abandoned. Detailed productivity calculations are now not required with agencies only being asked to "broadly identify productivity improvements". In other words, a para or two of babble will be sufficient. That is to say, agencies have been relieved of the distasteful task of having to provide detailed calculations that everyone knew were nothing more than bundles of lies.
Second, the door has been more widely opened for agencies to adjust pay and pay-related allowances via determinations under section 24(1) of the Public Service Act without being forced to go through farcical enterprise bargaining with the final consent of the Fair Work Commission. Such determinations leave the provisions of existing enterprise bargains in place and all that is required is an indication from staff that they are happy to have their pay adjusted via Section 24(1).
Eager, no doubt, to avoid the torture they experienced under the previous round of enterprise bargaining, public service agencies are leaping through this low level hoop. Thus far 30 have done so, including the tax office and the departments of Environment and Energy, Infrastructure etc and Education. The Canberra Times has reported that others, including Human Services (or whatever it is now called) and Defence are lining up to do likewise, and so they should. If they do, the great majority of public servants will soon be the beneficiaries of good old section 24(1).
These two modifications to the government's remuneration policy for officials are modest steps in the right direction. So Commissioner Woolcott's anticipation of a smoother experience in the current round of bargaining is not so much because people "better understand the parameters" but because important parts of them have been changed. Why, this time even the hapless Department of Home Affairs might have a happier time; as President Trump might say, we'll see what happens.
Any congratulations about these moves need to be tempered, however, by a realisation that the remuneration policy remains hopelessly flawed.
First, expecting agencies to fund pay increases from their budgets without specific supplementation is asking for trouble. Putting aside their luck or the lack of it in budget bidding that often is dependent on the cabinet strength of their ministers, it is impossible for organisations not in the entrepreneurial sector and with pre-determined "outputs" to make operational savings of 2 per cent a year to pay for pay increases, in addition to matching efficiency dividends and continuing to do their work properly, effectively and efficiently.
The damage may be slow to show itself but it's a safe bet that many administrative-political failings of government will not be far away from unnatural resource constraints, such as the current inability of some agencies to meet their legal obligations under freedom of information laws. It would be better and more honest if supplementation for pay increases could be provided unless the Expenditure Review Committee is satisfied that in particular cases it should not be.
Second, fixing a 2 per cent cap on pay increases on the rough basis of economic indicators like the consumer price index and "trends" in state government wages is no way to ensure that the public service is properly and fairly competitive in outside labour markets. Without closely considering overall levels of remuneration paid by other employers on an occupational category basis there's no way of knowing whether the Commonwealth is paying too much or too little to be competitive in outside labour markets. That is to say, a blind eye is being turned to a fundamental aspect of sound personnel management.
Third, an argument could be made, not a very good one, that the immense costs of devolved bargaining were fractionally worth it when that bargaining was based on agency productivity gains. Weak as it is, the modifications to the remuneration policy have cancelled that argument. What is the point of having each agency give their staff a 2 per cent annual increase without any agency bargaining? Obviously there isn't one, as there wouldn't be one if remuneration policy were to be based on matching outside market rates; there's no point in all 100 agencies doing the same thing for the same result.
As the faint policy basis for agency bargaining has now been cancelled, it is more than time for it to be replaced by centralised pay and conditions negotiations that could gradually equalise pay rates and allow for service-wide issues to be covered in those negotiations for the first time since the 1990s. The integrity of the classification system should be restored and staff mobility between agencies should be no longer biased in favour of those agencies who for largely fortuitous reasons can offer high rates of pay. When Ernest Hemingway showed some of his early stories to Gertrude Stein, she told him to "begin again and concentrate." Those responsible for public service remuneration policy should heed her advice.
In doing so they should not follow a suggestion by the governor of the Reserve Bank that caps of public sector wage increases should be lifted because he believes, probably wrongly, that they are solidifying low rates of wage increase. This is a dumb idea. It would be entirely unfair on other employers if those in the public sector were to set the pace on pay. Public sector pay should follow the market not lead it. Current low rates of wage inflation are an economic problem with a host of causes, not the least of which is the low rate of price inflation. Accelerating the rate of wage increases should be tackled in other ways, for example, by re-instituting national wage cases through the Fair Work Commission that could lift rates of pay in all awards not just minimum rates awards based on and limited to the economic desirability of doing so.
- Paddy Gourley is a former senior public servant. Email: email@example.com