Central agencies: part of the problem, part of the solution?

Two recent Western Australian reviews of public administration included discussion relating to the performance and capacity of central agencies. We look at the concerns raised in these reviews.

With the recent announcement by the Prime Minister of an independent review of the Australia Public Service, it is timely to take a closer look at the role of central agencies. Responsibilities of central agencies include whole-of-government policy advice, budget advice and public sector workforce leadership.

While central agencies have been explored extensively in the UK by scholars, they are under-researched in the Australian context. It is even less common to find examples of analysis of the role of the central agencies as a group. It is also relatively rare for the role and performance of central agencies to come under public scrutiny, even though they are often the invisible hand shaping wider public sector performance.

WA Premier Mark McGowan.

Two recent Western Australian reviews of public administration included discussion relating to the performance and capacity of central agencies, and these are the focus of this article. We look at the concerns raised about central agencies by these reviews and reflect on what else might be needed to assess their combined performance and to hold them to account.

The Western Australian public sector has much in common with other Australian jurisdictions but it has not always adopted changes undertaken elsewhere. It took up output-based budgeting soon after Victoria and evolved it to outcome-based budgeting. On the other hand, unlike Victoria, it has tended to retain a large number of departments and agencies.

Traditionally, the Western Australian Department of the Premier and Cabinet (DPC) was not prominent as a policy driver, especially compared to the Department of Treasury (Treasury). This was reversed during the period of the Burke government in the 1980s, with ebbs and flows since.

There have also been movements of roles between central agencies. The Public Service Commission was replaced by a Public Sector Standards Commission, with DPC taking on a public sector management role. Later, the Public Sector Commission (PSC) was established, combining integrity functions with leadership and oversight of the public sector, while DPC was left to focus on policy direction, leadership and oversight.

Significant public sector reforms, including a 40% reduction in the number of Western Australian government departments from 41 to 25, were announced in April 2017. The impact on central agencies however was minimal, with just some minor transfers of function – for example, Treasury resumed responsibility for economic regulation from the Department of Finance (Finance), and relinquished oversight of strategic projects.

The two Western Australian reviews

The Service Priority Review (SPR), chaired by former New Zealand State Services Commissioner Iain Rennie, examined the functions, operations and culture of the public sector, with the aim of driving lasting reform. It provided broad directional statements regarding the role of central agencies, observing that “…[s]trengthening leadership across government will require central agencies to take a system stewardship role that supports a culture of collaboration, continuous learning and looking outside for new ideas.”

It expanded on this role, stating that:

It is a primary responsibility of central agencies to take a stewardship role towards the public sector as a whole. This includes providing overarching strategic direction and implementing policy levers carefully and in concert; setting high-level cultural and behavioural expectations; and overseeing the structure and functions of the sector at a high level to ensure its individual parts can operate as a cohesive whole. It also involves tending to the issues which will shape the future capability and effectiveness of the public sector over the medium term.

The SPR identified that in Western Australia, the centre of government is considered to be constituted by the DPC, Treasury and the PSC and foreshadowed that this may in the future be expanded to include functions now undertaken by Finance and the Office of the Government Chief Information Officer.

There is some implied criticism of their performance, but it is broadly stated. For instance:

  • “[t]he sheer volume of administrative workforce directives issued by central agencies is argued to lack clarity and cohesiveness”;
  • “… central agencies must move from siloed gatekeepers to system stewards”; and
  • “[t]he magnitude of the current structural challenges facing the sector suggests that, in recent years, central agencies have over-invested in short term priorities to the detriment of medium and longer-term priorities”.

The report recommended that the capacity of central agencies should be strengthened to “ensure regular, formal, purposeful engagement between central agency heads to strategically manage sector-wide issues including budget, workforce and high-level policy levers”.

The report also sounds a note of warning:

[a]ll three central agencies will need to develop much more sophisticated operating styles to be successful. Each of them is likely to find this transition to be challenging. DPC’s overall leadership of public sector reform will require it to take a longer-term stewardship role of the development of the public sector as well as continuing to address the short-term imperatives required by the Premier and Cabinet.

Treasury will need to actively support ministers and their departments to find financially and economically smart solutions to the medium-term challenges they face while continuing to be able to provide Cabinet with sharp commentary on agency proposals. The PSC will need to become much more engaged with the sector and bring stronger expertise to the table in the sector’s workforce issues while continuing to preserve its independence of action.

It is notable in this context that as part of a program of capability reviews the Panel was strongly of the view that “… central agencies should ensure that their own departments are reviewed early, with at least one being involved in the first round of reviews”. This has recently been taken up with the announcement of a review of the PSC.

Some central agencies have been sidelined

The second review of note is the Special Inquiry into Government Programs and Projects led by former Western Australian Under Treasurer John Langoulant, which examined 31 programs and projects entered into between 2008 and 2017 by the former Liberal / National government. It identified key drivers or failures in decision making that led to the state’s operating deficits and unsustainable debt position.

Findings included that the public sector lacked a sense of common purpose, the annual budget process became a year round activity, decision makers lacked the capacity to act upon signs of unsustainable growth in net debt, the quality of financial information supporting Cabinet submissions deteriorated and capability gaps emerged in the public sector especially around project planning and evaluation. Actions to change public sector culture and attitude included central agencies being reinstated as whole-of-government policy makers, decision makers, influencers, educators and leaders.

The Special Inquiry observed that “[i]n many ways, some central agencies have been sidelined. The profile, resourcing and work of the Department of Treasury has diminished significantly over the period”. The review made a broad recommendation that central agencies “… must be more strongly resourced”. In addition to the three central agencies identified by the SPR it added Finance to its use of the term, and elsewhere also added the State Solicitor’s Office.

The Special Inquiry made clear that its primary concern about resourcing of central agencies related to the Treasury, and it recommended that Treasury “… must be reinstated as the economic and financial leader, advisor, controller and policy maker across the public sector … This will entail addressing resourcing issues” (emphasis added).

Need to distinguish roles clearly

The concerns raised suggest central agencies need to focus on:

  • providing overarching strategic direction, and having a system stewardship role;
  • overseeing the structure and functions of the sector at a high level to ensure its individual parts can operate as a cohesive whole; and
  • being policy makers, decision makers, influencers, educators and leaders at a whole-of-government level.

It is particularly important that the respective roles of DPC and Treasury are delineated clearly. Over time the relative influence of each on government decision-making has fluctuated, largely as a reflection of the priorities of the Premier and senior Ministers of the day.

For instance, Treasury’s scope and thus control was diminished through changes such as relocating the Expenditure Review Committee secretariat from Treasury to DPC in 2008 (known until 2017 as the Economic and Expenditure Reform Committee). With the removal of public sector management from DPC in 2009 and its reorientation towards policy development and leadership, it is curious that the Langoulant review has emphasised Treasury’s policy role. Sorting out the division of policy labour between these two key central agencies is clearly an urgent task.

There is also a need to distinguish the roles of DPC and the PSC. The Service Priority Review identified that DPC has an overall leadership role for public sector reform and that the PSC needs to be more effective in relation to sector workforce issues. It also noted limitations on the PSC’s ability to participate in cross-agency initiatives due to a statutory obligation to act independently.

There is potential to clarify the PSC’s role through a recently announced review which has terms of reference that include:

  • the governance and accountability arrangements of the PSC and the extent to which the arrangements support a high performing public sector; and
  • any changes that may be required to the governing legislation to support longer term public sector reform.

It is not evident that this review of the PSC will look more broadly across central agencies to consider their roles and structure and to identify how they can work together cohesively. This seems contrary to the view that central agencies need to function as a system and have a collective impact.

Whatever the roles assigned and the agency structures over time, it is important to ensure that central agencies are required to report meaningfully on their performance, and for a range of measures to be instituted to hold them to account. Parliament, its committees and watchdog agencies can all have important roles to play in this regard.

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