Public institutions have been politicised by the government's management consultants, warned Labor senator Tim Ayres, who chairs the inquiry into APS capability that has been running since last December.

"The report describes an industry of outsourcing and sleazy Canberra deals," he told the Senate on Thursday.

"There is a giant transparency deficit here with billions of dollars going into labour hire companies, ICT companies and consultancy companies, but no measurement. A shadow workforce under opaque contracts, completely unmanageable and ungovernable."

The report, titled APS Incorporated and tabled on Thursday, described the close to $1.2 billion spent in one year on eight private consulting firms as "entirely unaccountable" and "utterly unacceptable". That work could arguably have been completed in-house by the APS, it said.

The federal government turning to consultants to inform decisions and strategy on the COVID-19 vaccine rollout was "regrettable" the committee found, bypassing the role of the public service in providing "frank and fearless advice".

"When the government, despite access to a skilled and independent APS, consistently chooses to spend exorbitant amounts of taxpayer money on commissioning strategic policy advice from private consulting firms, public-sector capability is undermined."

The committee also recommended abolishing the staffing cap and working towards eliminating labour hire from government bodies where permanent and contract employees could do the work instead.

The senators estimated that nearly one in five people working in federal government departments is employed via an external contractors or through labour-hire firms that charge taxpayers margins of up to 28 per cent. They calculated the government had spent $7.8 billion on labour-hire services since 2015 and $2.1 billion in the last budget year, which the CPSU calculated was equivalent to more than 12,000 permanent APS jobs.

Senator Ayres said large multinational companies were making millions of dollars in profit by charging taxpayers more and paying workers less, and distributing profits offshore through complex tax-avoidance arrangements.

He said it was no coincidence three of the four government organisations with unusually high rates of contract labour-hire arrangements were the subject of royal commissions.

The report named the Department of Veterans' Affairs, Services Australia, the Aged Care Quality and Safety Commission, and the National Disability Insurance Agency as the largest shadow workforces.

Veterans' Affairs' use of labour hire was an example of unnecessary externalisation that had negatively impacted the quality of services delivered to veterans, the report stated.

The royal commission into veteran suicide starts on Friday.

Senator Ayres said the Prime Minister's Department, Treasury and the Education Department ignored the committee's requests for information and gave no reason for doing so.

"That result is a reflection of a politicisation of the upper echelons of the APS," he said.

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Government senators accused the Labor-dominated committee of making "politically motivated" recommendations from the union movement's wishlist that were uncosted but would require significantly more taxpayer funding to be injected into the APS.

"With over 150,000 employees across dozens of departments and agencies, it is inevitable that there will be occasions when the APS falls short of internal or external expectations," deputy chair of the inquiry and Liberal senator Claire Chandler wrote.

"It is important that there are robust mechanisms in place within the APS to minimise these occurrences to the greatest extent possible by identifying potential risks and shortcomings and proactively taking action to address them. The evidence supplied by various departments indicates that this has been a key focus of APS leadership in recent years, and it is important that it remains a top priority in the years ahead."

In a supplementary report from Greens senators, the crossbench party recommended the repeal of section 44 of the constitution so public servants could run for Parliament without having to sacrifice their public sector careers.

"Public servants need to be clear and confident that they can participate in public debate without this impinging on their job," Senator Larissa Waters wrote.

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