Victorian budget: basic reviews to guide $2b efficiency dividend

By David Donaldson

Tuesday May 28, 2019

Victorian state budget breakfast. Source: IPAA Victoria

Victorian public servants will need to find almost $2 billion in fat to cut over the next four years as an increased efficiency dividend and changed funding indexation are introduced, according to Monday’s state budget.

Instead of funding for ongoing costs growing at the normal 2.5%, it will instead only increase around the projected inflation rate of 2%, giving the government $250 million in savings in the coming financial year. Then in 2020-21, the efficiency dividend will jump, bringing savings up to over $1.7 billion over the subsequent three years.

All up, the indexation change will save $200 million over four years, while the efficiency dividend will take out $1.77 billion.

Implementation of the cuts will be guided by a review process led by Treasury and Premier’s Department secretaries David Martine and Chris Eccles.

Martine told the IPAA Victoria budget breakfast on Tuesday morning that it would be “a comprehensive basic review process where all areas of government expenditure will be reviewed so that later in this coming year we’ll go back to government with various options on where savings can be delivered, including whole of government savings, so it might be improved procurements, shared services, those sorts of things.”

Grattan Institute CEO John Daley noted that “relative to what the Commonwealth has been doing on that score for the last couple of years”, the cuts were “not that large”.

The cuts are “not extraordinary”, said former secretary Fran Thorn.

“They’re not pleasant and I know how difficult they are going to be, when I know the parameters or restrictions you get put on you about what you’re allowed to cut, because it wouldn’t be hard to find those savings just by looking at the budget papers.

“So I know they’re difficult to find, but they’re not huge. When you consider the size of the budget, they’re not enormous cuts.”

Martine agreed.

“I think your point, Fran, was quite important around the quantum of savings”, he said.

“If you put it into context, total spending is $70 billion a year. You multiply that by four, that is a big base upon which to find efficiencies.

“That’s not to downplay it, because they are challenging and it’s not easy. But they are doable, and in that context they are modest. Even despite those efficiencies which are built into the numbers, the size of government is still growing, and expenses are still forecast to grow.”

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