Efficiency dividend at 1.25-1.5%: broken promise, still a reprieve


federal budget 2016
federal budget 2016

Federal agencies can no longer bank on the much-criticised efficiency dividend going down to 1% next July, but a reduction in the blunt instrument of savings is still on the cards.

According to a pre-budget report in The Australian Financial Review on Monday, the government has public sector budgets in its sights to help pay for income tax cuts. Treasurer Scott Morrison did nothing to allay that speculation yesterday, telling reporters that businesses were often forced to do more with less and it was only fair the public sector should be as well.

According to the article, the government has modelled the revenues that would flow from setting the efficiency dividend at 1.25% and at 1.5%, respectively, for four years. The former would leave an extra $610 million in the coffers over that period and the latter, about $1.2 billion.

While such a measure would be a backflip from last year’s budget, which foreshadowed a return to the base rate of 1%, either scenario would still be a large reduction from the current rate, which sees public service budgets shrink by 2.5% annually.

A 2.25% dividend was already being demanded when the current government came to power and it then applied a “temporary increase” of 0.25% for three years in the 2014-15 budget.

In last year’s budget, Finance Minister Mathias Cormann spoke of targeting “known areas of inefficiency in specific agencies” ahead of reducing the across-the-board savings measure, which is roundly criticised year in, year out for its extreme simplicity in cutting all agency budgets by a uniform amount.

The head of Cormann’s department, Jane Halton, told Senate Clerk Rosemary Laing last year that she had “personally railed against it, to assorted ministers and various other people” and was advocating more “sophisticated” ways of increasing budget efficiency.

Halton agreed with Laing that the long-standing mechanism could be particularly difficult for smaller agencies like the Department of the Senate and said that fact had been acknowledged by Coalition and Labor governments in the past.

The Community and Public Sector Union came out swinging against the suggestion the upcoming budget could include an “increased” efficiency dividend, although the soundings reported by the Financial Review suggest it would still be reduced, just not by as much as promised last year.

But the union’s description of the efficiency dividend as “irrational and arbitrary” more or less sums up a view that remains strong among senior public servants.

On the other hand, public servants can be thankful that the most extreme views about how to return the budget to surplus through belt-tightening and smaller government remain on the fringe of right-wing politics, expressed by Liberal Democrat Senator David Leyonhjelm in the Financial Review yesterday.

Leyonhjelm proposes a radical plan in which all public service pay would be slashed by 2%, with the upper levels of the Department of Defence in the sights for a major clean out, on the way to finding savings the cross-bencher says would equal $1400 less tax being spent per citizen:

“Government spending of $10 per person should be cut by implementing the Commission of Audit recommendation to remove excessive senior staff at Defence headquarters, comprising the top brass of the Defence Force and senior executives from the Defence Department.

More broadly, public service wages have risen faster than private sector wages since the end of the Howard era. To restore relative wage rates, the wages of all Commonwealth Government employees should be cut by up to 2 per cent, which would reduce government spending by $15 per person.”

Leyonhjelm’s plan would also include large cuts to just about every other area of government spending.

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