Briefing Book Article, 47th Parliament

The Australian Government public sector

Philip Hamilton

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Key issue

The Labor Government will differ from the Coalition Government on key aspects of public sector management. For example, Labor has promised to:

abolish the Average Staffing Level (ASL) cap
reduce ‘waste’ and ‘excessive reliance’ on contractors, consultants, and labour-hire companies
invest nearly $500 million in ‘rebuilding capability’, particularly in service delivery roles at Services Australia, Veterans’ Affairs and the National Disability Insurance Agency (NDIA)
establish an Advanced Strategic Research Agency (ASRA) in the Defence portfolio

It has also pledged a Royal Commission into ‘robodebt’ and a ‘user audit’ of the myGov portal.

The Parliament will have opportunities to monitor the implementation of these policies through Senate Estimates committee hearings and Joint Committee of Public Accounts and Audit (JCPAA) inquiries. Auditor-General reports will also contribute to the Parliament’s understanding and scrutiny of public administration.

Government entities

The Australian Government operates, owns, or controls numerous entities and companies that deliver an array of policy objectives. In some circumstances, these are collectively referred to as the public service, and the employees as public servants.

However, in law, the Australian Public Service (APS) comprises only those entities employing staff under the Public Service Act 1999 (PS Act). This includes all departments of state, and 98 other entities (as at 19 April 2022). Generally, APS agencies are components of the legal entity that is the Commonwealth, so they are non-corporate Commonwealth entities (NCE). The responsibilities of the Australian Public Service Commission (APSC) include building workforce capability and promoting integrity in the APS.

In contrast, corporate Commonwealth entities (CCE) are generally established through legislation. Consequently, each of the 71 CCEs (as at 19 April 2022) has a legal existence separate from the Commonwealth. Although there are exceptions, CCE employees are generally not employed under the PS Act and so are not part of the APS or under the purview of the APSC.

The Commonwealth also controls 18 companies established under the Corporations Act 2001 (as at 19 April 2022), whose employees are generally not employed under the PS Act. Some companies (for example, NBN Co Ltd) and CCEs (for example, Australia Post) are also Government Business Enterprises.

Administered and departmental funds

Budget appropriations for public sector entities are classified as either administered or departmental. Administered funds are non-discretionary funds expended by an agency on behalf of the Government for the benefit of external parties, generally through programs. For example, Services Australia is required to make income support payments to applicants who fulfil eligibility requirements. Other examples include grants, subsidies, and other obligations arising from legislated eligibility rules and conditions. The Parliamentary Budget Office (PBO) has calculated that, in the 2019–20 Budget, administered expenses accounted for around 86% of total expenses. In contrast, the remaining expenses were from departmental funds, which are generally intended to cover agency running costs such as employee salaries and equipment and property acquisitions.

Efficiency dividend

Since 1987–88, successive Australian governments have applied an Efficiency Dividend (ED) to agencies’ departmental expenses, reducing funding to account for increased productivity. The ED is set as part of the Government’s Budget development and applied prior to the addition of any new measures. Accordingly, the ED rate is not always explicitly transparent, as a non-budget measure. Additionally, various agencies have been fully or partially exempted from the base and one-off ED rates.

The ED rate has varied over time but has usually been either 1% or 1.25%. While the highest ED rate was 4% in 2012–13, most Budgets since 2014–15 have incorporated a 2% or 2.5% ED rate. Since the onset of COVID-19 in early 2020, the Government’s Budget papers have not discussed the ED. However, during the 2022 election campaign the Coalition indicated that the ED was 1.5% and noted current exemptions for the NDIA, ABC, SBS, Safe Work Australia, and entities with an Average Staffing Level (ASL) below 200.

Labor’s election statement on the public service did not mention the ED. However, further clarity is likely in either a ministerial statement on the economic and budget outlook when Parliament reopens in July or in a new Budget for 2022–23 expected in October.

Staffing, contractors and consultants, and capability

Average Staffing Level (ASL) and the ASL cap

When discussing public sector employees, Budget papers use ASL, to adjust for casual and part-time staff and to show the average number of full-time equivalent employees. ASL is almost always lower than a headcount of actual employees, used by the APSC.

The ASL cap commenced at the 2015–16 Budget, when the Coalition Government committed to a general government sector (GGS), excluding military and reserves, at around or below the 2006–07 ASL of 167,596 (2016–17 Budget paper no. 4, p. 132). In October 2020, the Government reported that while this had been achieved prior to the COVID-19 pandemic, temporary ‘significant ASL increases will occur in a number of portfolios in 2020–21 … reflecting the nature of the response to COVID-19’ (2020–21 Budget paper no. 4, p. 18).

During the 2022 election campaign Labor committed to abolishing the ASL cap, because it had ‘impacted on services provided to Australians, eroded public sector capability, reduced job security and wasted taxpayer funds’. Accordingly, Labor promised ‘1,080 new secure frontline service delivery jobs’ in agencies including Services Australia (200 staff), the Department of Veterans’ Affairs (500 staff), and the NDIA (380 staff).

Contractors and consultants

In 2017 the Australian National Audit Office (ANAO) indicated that the total Commonwealth Government spend on consultancy contracts in 2016–17 was close to double the expenditure in 2012–13. The following year the JCPAA established an inquiry into procurement contract reporting, including examining government entities’ use of consultants and contractors. Based on submissions to the JCPAA inquiry, media reporting noted that spending on contracted labour had doubled in 5 years. In November 2021 a Senate inquiry report into APS capability noted the very limited publicly-available APS labour hire data, including expenditure and headcount. The main public sector union told the inquiry that ‘at least 20 000 APS positions are filled on a labour hire basis’ (pp. 25; 27).

Labor has promised to ‘reduce wasteful spending on external private labour (contractors, consultants and labour hire) … by $3 billion over four years’, including reducing ‘spending on external labour by 10 per cent in the first year’. The new Government has also proposed an APS employment audit and an intention for some labour hire, casual or contract roles to be converted into ongoing APS employment. However, The Mandarin has observed that consultants and contractors are ‘entrenched’ in agencies’ work structures due to increased workloads and static staffing levels. In this circumstance, it will be challenging to unwind interdependencies.

Public sector capability

In recent years, the APSC has focused on capability development through establishing the APS Learning Board, APS Professional Streams, and the APS Academy. However, Labor has argued that the staffing cap and reliance on contractors and consultants has ‘eroded public sector capability’. As such, the new Government has committed to ‘invest[ing] nearly $500m in “rebuilding capability”’ particularly in Services Australia, Veterans’ Affairs and NDIA service delivery.

This position echoed the themes and recommendations of the Senate’s 2021 inquiry into APS capability, and a previous 2019 report into the APS by David Thodey. However, the term ‘APS capability’ remains ill-defined, and lacks benchmarks. Consequently, there is no clear vision of what capability looks like, particularly in an environment where service delivery is heavily outsourced.

In a wide-ranging essay published by the Grattan Institute in 2021, Professor John Daley discussed the importance of public service capability in the context of governments’ capacity to develop and implement policy, particularly ‘policy reforms that would increase Australian prosperity’.

New and ongoing initiatives

Advanced Strategic Research Agency (ASRA)

Announcing the trilateral AUKUS security partnership in September 2021, the joint leaders of Australia, the UK and the US noted that AUKUS would ‘foster deeper integration of security and defense-related science, technology, industrial bases, and supply chains’. In February 2022 the UK established the Advanced Research and Invention Agency. In this context, Labor has committed to creating an Advanced Strategic Research Agency (ASRA) in the Defence portfolio, emphasising that ‘ASRA would be modelled after the United States Government’s groundbreaking Defence Advanced Research Projects Agency (DARPA)’.

Key features of the ‘DARPA model’ are that program managers are hired for a limited tenure, and that DARPA does not have to comply with usual public sector procurement arrangements. In this context, the design, implementation and ultimate success of an Australian version of DARPA may depend on its corporate form (see ‘Government entities’ above), and the extent to which it can take advantage of non-conventional hiring and procurement arrangements that are substantially outside the normal public service rules such as the Commonwealth Procurement Rules. A Parliamentary Library FlagPost outlines the ‘DARPA model’.

Digital Identity system

A Digital Identity system has been in development since 2015. Budget papers indicate that more than $600 million will have been expended on the system by 2024. The Digital Transformation Agency (DTA) has explained that ‘a secure Digital Identity replaces the need for multiple logins to access different services and makes getting things done with government faster and easier. The system will expand over time to include more government agencies as well as private sector organisations’.

An exposure draft of a Trusted Digital Identity Bill 2021 was circulated in late 2021, but the Bill was not introduced in the 46th Parliament. While it is likely that the system will be progressed during the 47th Parliament, many variables will depend on how the Labor Government responds to criticisms of the system, and the views of crossbench senators. A Parliamentary Library FlagPost provides an outline of the system and highlights criticisms about architecture, security, and biometrics.

Public sector reviews

Labor has committed to establishing a Royal Commission into the Centrelink online compliance initiative (‘robodebt’) by the end of 2022. Proposed terms of reference will cover the advice and processes informing scheme design and implementation, and potentially computer-supported decision-making, which reportedly caused ‘incorrect or inflated debt calculations for over 450,000 individuals’. Other lines of investigation could include the scheme’s complaints handling processes and use of third-party debt collectors.

Labor also promised to conduct a ‘user audit’ of the myGov portal, which provides access to a range of government services. In detailing its proposal, it stated ‘the myGov audit will be conducted at arm's length from Services Australia and myGov but will be led by a senior public servant from within departmental resources’.

The ANAO, led by the Auditor-General, publishes an Annual audit work program for its planned audit coverage of Australian Government entities. The JCPAA has a statutory duty to examine all ANAO reports. The JCPAA also conducts its own inquiries, either arising from ANAO reports or on other matters relating to public administration. In the 46th Parliament the JCPAA reviewed the Auditor-General Act 1997 (AG Act), a routine review undertaken approximately once per decade since the 1990s. The report made 27 recommendations for amendments to the AG Act and other related legislation, many of which are technical in nature. A Government response to the report can be expected.

In 2021 two former departmental secretaries and a Reserve Bank board member conducted the APS hierarchy and classification review of SES and non-SES classification levels and structures. In February 2022, the review’s report was reportedly under consideration by the APS’ secretaries board, with the Government likely to consider any recommendations. The classification review was one of 40 recommendations made in the Thodey Review, which the new Government may also revisit. In July 2021 Professor John Daley of the Grattan Institute observed:

There was a clear pattern to the [Coalition] Government’s response to the Thodey review – it systematically rejected changes that would reduce the power of ministers. Unfortunately, those changes are precisely those most likely to improve the chances of reforms that would otherwise be blocked because they face hostile public opinion, party shibboleths, vested interests, or lack independent evidence.