Targeted razor-gangs replacing broad-brush efficiency dividends

By Stephen Easton

Tuesday May 12, 2015

The blunt instrument of public sector savings that is the federal government’s efficiency dividend will drop back to a base rate of 1%, but not until July 2017.

Agencies will have responsibility for administering approximately $434.5 billion in expenses this budget, and the government still wants to ensure its gets value for the outlay.

Introducing this year’s agency resourcing figures, Finance Minister Mathias Cormann writes in the 2015-16 federal budget papers that in his quest for savings he is increasingly looking at “known areas of inefficiency in specific agencies” and moving away from demanding large, uniform efficiency dividends across the board.

Cuts to communications resources in last year’s budget are to be followed this financial year with savings from shared services, according to Cormann, particularly from standardising the hundreds of different enterprise resource planning systems across the Australian Public Service. The minister explains:

“This saving is apportioned among agencies to take account of the relative opportunity for more efficient arrangements in different agencies. Similarly, software licensing will also be purchased on a more coordinated basis.”

Functional and efficiency reviews will seek to find more targeted savings in the Departments of Agriculture, the Environment, Foreign Affairs and Trade, Treasury and Social Services, as well as the Australian Taxation Office, Australian Bureau of Statistics and Attorney-General’s Department, following successful pilots recently completed in the Departments of Education and Training, and Health.

Cormann says the aim of the reviews is:

” … to determine whether the current functions of all departments and large agencies are aligned with the Government’s policy priorities and whether they are working as efficiently as possible.”

Administrative efficiencies in Education and Training are expected to contribute $7.6 million, with another $123.4 million from “ceasing and redesigning programs which are not sufficiently consistent with the government’s core priorities and national strategic policy settings for education”. In Health, $96 million is expected to flow from “efficiencies in contracting, corporate, staff and property costs”.

While unions and the ACT government initially worried the efficiency reviews would result in more cuts to the public service, the budget suggests the overall size of the Commonwealth workforce will remain almost unchanged at an estimated 167,340, just under 2006-07 level. Having achieved the staffing reduction more rapidly than expected at the time of last year’s budget, the hiring freeze has thawed — to a degree — with responsibility for recruitment handed back to agency heads.

The new Australian Government Organisations Register — which began keeping track of how many Commonwealth-funded bodies there actually are for the first time in December — confirms that 104 agencies are in the process of being abolished or rolled into others. When that is complete, 1078 will remain, down from 1296 at the 2013 election.

Cormann says a smaller number of agencies means clearer lines of accountability, and a more agile public sector, ready to respond to changing circumstances and government priorities.

The government’s entire property portfolio will also be scrutinised in the search for savings, with Finance moving to gauge market interest in the long term lease of four of Canberra’s older government buildings ahead of a wider program of rationalisation. Vacant leases are in the firing line, too, with the first priority being to make use of the many empty offices APS agencies rent around the capital. Taking a whole-of-government approach to the issue instead of leaving it up to individual agencies to sort out is expected to add $200 million to the bottom line over the next decade.

The coming financial year also brings a new user-pays charging framework, to allow agencies to recover the cost of more of their activities, according to Cormann:

“The framework will lead to additional revenue to support Budget repair and other policy priorities. It will also assist particular agencies to be more responsive to user demand. The charging framework will promote greater fairness, involving charging those who create demand for certain government services and other activities, while preserving the government’s central role of delivering quality public-benefit programmes in ways that do not adversely impact disadvantaged groups.”

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Kevin Riley
5 years ago

The winding back of the one-size-fits-all efficiency
dividend is a positive step for better resource management across the
Commonwealth. Strategically focused reviews enable a much more effective assessment
of both services and programmes and an entity structure. There are a number of
other initiatives that will contribute to the effectiveness of these reviews.

The refreshed Commonwealth Resource Management Framework,
implemented under the Public Governance, Performance and Accountability Act
2013, will provide useful tools for Commonwealth entities to prepare for these
strategic reviews. A new focus on defining entities purposes will focus on just
what it is that each entity is attempting to achieve. Linked with the updated
focus on outcomes and key performance indicators (KPIs) we will be able to
better demonstrate the successful achievements of some programmes, identify improvements
in design and delivery of others, and conclude that other programmes need to be
abandoned or re-built from the ground up.

The Commonwealth’s Risk Management Policy will arm entities
with a more robust approach to considering risks from an entity perspective,
and enable entities to demonstrate how they are developing a positive risk
culture, and seeking to innovate and improve the design of programmes that
contribute to better outcomes in a more efficient manner. Clearly communicating
the entity’s risk appetite with Ministers – and how these risks will be
monitored and managed – provides an opportunity for delivering services in new and
innovative ways.

Process reviews, and implementing the new Regulatory
Framework, provide entities with the incentives to re-design how work is done
and remove the red-tape that can often slow down or impede service delivery.
Knowledge-based and service organisations have the disadvantage that wasted
effort is typically represented by people’s time, rather than the physical
manifestation of waste we might find in manufacturing, or on a construction
site. Re-handling and re-drafting documents or re-processing an application in
poorly designed processes is wasted effort.

With demands for quality public services growing and
resources shrinking, thoughtfully and deliberatively re-designing work
processes, positively engaging with risk and honesty assessing, and then
improving performance will all contribute to better use of scarce resources by
Commonwealth entities.

Kevin Riley FCA FCPA
Independent Financial Management
Consultant and IPAA National Treasurer

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