It comes as concerns are being raised over a loss of knowledge and expertise at the department due to a "revolving door" of employees brought on by an increasing workload.

The Veterans' Affairs Department has said in a response to a Senate question on notice it had spent more than $82 million last financial year on non-professional labour hire, sourcing workers from 46 different providers over that time.

The Community and Public Sector Union warned the department's figures showed a large percentage of the workforce were not direct Australian Public Service employees, and said this was partly to blame for long processing times for veterans' claims.

In a recent submission to a parliamentary inquiry into the public service's capabilities, the union slammed government policies introduced in the past decade for limiting the agency's capability.

A key target of the criticisms was a staffing cap imposed on APS agencies, halting direct employment and pushing them to take on contractors.

"Unless [the department] can engage the staff it needs as ongoing APS employees, the current issues with claims backlogs and other support issues will not improve," the union's submission said.

The department said it had 1615 APS employees, and 1246 labour hire employees. Labour hire staff represented 42 per cent of its combined workforce.

"Privatisation in the form of labour hire, contracting, and other third-party arrangements has reduced the department's capability to administer basic services, to respond to fluctuations in demand, and to meet its legislative requirements," the union submission said.

"It's time the government put veterans and their families first.

"Ensuring that the Department of Veterans' Affairs has the capability to do the work required in a timely and effective manner - that means investing in all aspects of APS capability - is a critical element of this."

The Veterans' Affairs Department's use of labour hire came under fire at a Senate estimates hearing on Tuesday as Labor senators questioned whether it allowed the agency to effectively provide services to ex-services personnel.

Labor senator Tim Ayres said there were significant issues in managing health and welfare of veterans, and questioned how the department could look after their interests when almost half of its staff were employed by labour hire firms.

"I look forward to coming to budget estimates and seeing that process reversed, because what it's led to is patchy performance, it's led to poor outcomes for veterans," he said.

"It beggars belief that's an acceptable approach from government for this cohort."

Finance Minister Simon Birmingham defended the quality of services provided by labour hire staff and said the Veterans Affairs' Department's use of contractors had allowed it to respond to demand pressures and achieve better service delivery for ex-services personnel.

"These are things to be continuously tested and to make sure that agencies are getting the balance right," Senator Birmingham said.

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The issue of increasing labour hire usage is not unique to the Department of Veterans' Affairs with critics calling it the government's attempts at public service privatisation by stealth.

A Canberra Times analysis in January showed government departments were averaging nearly one labour hire worker per five employees.

While Veterans' Affairs ranked first, the Defence and Attorney-General's Departments trailed behind at 24 and 21 per cent respectively.

"The [cap] has cut jobs but also driven outsourcing to labour hire companies and tax-evading multinationals in an effort to stealthily privatise the public sector," Melissa Donnelly, the public sector union's national secretary said.

"Since 2013, we have seen $3.2 billion given to big consulting companies to do work the APS can and should be doing."

Former finance minister Mathias Cormann was a strong supporter of the policy but signalled the cap would be reviewed once the budget was balanced.

Senator Birmingham ruled out any immediate changes earlier this year, stating the government was still focused on having an "agile and flexible workforce".

"The government constantly adjusts the permanent staffing figures for every agency based on budget measures and whether any new pressures can best be met by reprioritising existing staff, or by engaging new staff," Senator Birmingham said.

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