If there is a single lesson from the COVID-19 crisis, it is the importance of public institutions and universal social services during big systemic crises.
Australia’s response to COVID-19 relied on the skills and capabilities of our public service. Before the crisis, the importance of the work Services Australia staff and CSIRO scientists did was understood, but now it is clear how essential the backbones of our public institutions are. Whether they work in policy, program, administration or other areas, the pandemic has brought into clear focus that government relies on those who are less visible to the public.
At a Commonwealth level, the work done by the Australian Public Service (APS) in response to COVID-19 has manifested in many ways, from financial support to millions of individuals and employers provided through Services Australia and the Australian Taxation Office, to the work of Treasury in designing stimulus packages, to the new statistical products released by the Australian Bureau of Statistics (ABS) that help us understand the impact of COVID-19 on the economy. COVID-19 demonstrates that when supported, the public service can break down traditional silos and work collaboratively across portfolios to respond quickly to systemic challenges.
As we begin to turn to what happens after this crisis, the economic challenge facing Australia is not simply to repair the damage of the pandemic. Our economy was in serious trouble before COVID-19, with stagnant wages, high household debt, declining consumer demand and low business investment.1 These are the products of long-term policy problems—namely, an overemphasis on public debt and deficits, and the failure to deal with growing inequality and climate change. The challenge we face is how to respond while addressing these underlying systemic problems.
While there is an important and necessary role for the private sector, any attempt to rebuild a better Australia cannot rely solely on the private sector to tackle the complex challenges we face. If we are to address the twin crises of inequality and climate change, an expanded role for the Commonwealth in economic coordination is necessary, using every policy, regulatory and funding lever. It requires an active state, rather than simply a neutral referee, shaping what kind of Australia we want to rebuild. It needs a mission-oriented public sector focused on tackling climate change, reducing inequality and strengthening democracy.
Rethinking how we see government
To do all this requires not only far greater investment in the public sector, but also a change in how the public sector is seen and understood, in order to build broad support for an expanded role. Unfortunately, the caricature of the public sector as inefficient tax-eaters and budget-maximisers who only seek to increase their budgets and power is still pervasive.
The public sector generates public value. Every day Australians rely on the work of public servants, from support provided by Services Australia to weather forecasts done by the Bureau of Meteorology, to the wi-fi originally developed by the CSIRO. It is an economic anchor for local economies, generating multiplier effects that create jobs in other sectors. The idea that the public sector is automatically less efficient than the private sector is not borne out by evidence.2
Contrary to popular perception, by OECD standards Australia has small government, with a tax-to-GDP ratio of 28.5 per cent—lower than the OECD average of 34.2 per cent, and on par with that of the United States.3 The vast majority of the 2 million people in the public sector workforce are at the state and local level, with fewer than 250,000 federal public sector workers.4
An anti-government ideology underpinned the National Commission of Audit that formed the blueprint of the Coalition’s 2014 austerity budget. That small-government ideology has eroded the capacity of the APS through constantly resorting to so-called efficiency dividends that impose the same blunt cuts on agency funding and the arbitrary capping of permanent public service staffing levels.
The excessive focus on the cost of the public sector can be seen in the approach to automation and digital transformation, which has been driven by perceived savings rather than better outcomes for the community. From robodebt to the census, the public has seen its impact when the interests of citizens are not placed at the centre of government policy.
If Australia’s response after the pandemic is for fiscal consolidation, because of an obsession with the cost of the public sector and the extent of government debt, we risk further damaging our public sector capacity. Rather, the focus should be on the public value created by the public sector, by both its people and infrastructure. Public sector capacity is now more important than ever.
Restoring public sector capacity
Resourcing the APS properly
The funding pressures caused by a ‘starve the beast’ approach have reduced APS capability. Former secretary of the Department of the Prime Minister and Cabinet (PM&C) Terry Moran has said that chronic underinvestment has affected the ability of the public service to provide strategic advice.5 Funding cuts have reached a point where agency heads are speaking out, with the head of the ABS last year saying that the bureau has experienced a 30 per cent reduction in real operating funding over the past decade.6
The constant use of increased efficiency dividends—by both parties of government—to achieve quick savings has reduced the capacity of the public service. The efficiency dividend was introduced in the 1987-88 budget as an annual 1.25 per cent reduction to agencies’ departmental funding.7 Cumulatively, increases in the efficiency dividend since 2007-08 have ripped out an additional $7.924 billion from the Commonwealth public sector on top of a base rate of 1 per cent.8 The increased efficiency dividend announced prior to the 2019 federal election is projected to take another $1.5 billion.9 Approximately 55 per cent of the efficiency dividend is met by reducing staffing costs.10 It is of little surprise that APS staffing levels had crashed to 144,704 in December 2019, down from 167,431 in June 2012—a reduction of 13.5 per cent.11 Over the same period, Australia’s population grew by over 2.8 million, or over 12.3 per cent.
The austerity mindset extends to investing in staff capability. Learning and development is often one of the first things to be cut due to budgetary pressures, and it is now at, or below, the lowest global benchmark in large private sector organisations. It must be reversed: the 2019 APS Independent Review recommended at least $60 million a year in dedicated learning and development funding.12
Scrapping the staffing level cap
Scrapping the average staffing level cap is essential to rebuilding the APS. The Independent Review identified the average staffing level cap and outsourcing as reasons for declining capability across the APS.13
The cap means that while agencies have funding to hire staff, they are forced to avoid any direct employment of staff and, instead, engage consultants, hire contractors and use labour hire to do work previously performed by permanent APS employees.
The cap has made it difficult to retain functions or maintain them at the same size and strength as in the past. Labour hire and consultants are increasingly doing core in-house work, such as program management. In service delivery areas, compliance and contact centre roles have been outsourced to multinational companies such as Serco and Adecco, leading to deskilling and the loss of departmental capacity, with reports of mistakes routinely being made. This has real-world consequences for the recipients of government services and income support, many of whom are among the most vulnerable Australians.
Rather than reducing staffing costs, the review found spending on contractors and consultants has increased significantly.14 These ideologically driven policies create perverse incentives, such as hiring contractors to avoid the cap despite it costing more. A non-ICT (information and communications technology) contractor costs 40 per cent more than a public servant, and when the contractor leaves, corporate knowledge is lost.15
The full extent of outsourcing is unknown. There is no APS-wide figure on the number of contractors, consultants and labour hire employees,16 but the most recent estimate is over 28,000, with approximately one in four who are now doing core work for Services Australia not being an APS employee.
Outsourced core work needs to be brought back in-house and the staffing cap must be abolished.
Investing in ICT capacity
The pandemic has highlighted the importance of ICT skills and infrastructure and the necessity of a strong public service with in-house ICT capacity.
The government has a commitment to shifting service delivery to a ‘digital by default’ model, and access to all services digitally by 2025, but in order for this to work there must be investment in ICT systems, employment of ICT staff and training for other employees, and education for the community.
Unfortunately, the APS lags behind the private sector when it comes to ICT investment. The Independent Review found that the public sector spends 12 per cent more on running old systems than does the private sector.17 It estimated investment of at least $1 billion a year would be required to rectify this problem.18 That investment is urgently needed. Poor ICT capacity not only affects the digital delivery of services but also reduces the quality of decision-making and governance, manifesting in incidents such as the Centrelink portal crashing because there was not adequate responsiveness for the surge in usage when economic activity across a number of industries was shut down in March 2020.
To make the most of additional ICT investments, the APS needs in-house expertise. The late Paul Shetler, former head of the Digital Transformation Office, noted that ‘Instead of providing digital training to public servants, too often we’ve outsourced IT to large international technology vendors and consultants.’ He explained that ‘Outsourcing makes the government seem smaller, but it is expensive and it contributes further to deskilling the public service.’19
The APS employs more than 14,000 ICT personnel, a third of whom are contractors. The contractors cost far more than in-house staff. The 2015-16 ICT Trends Report revealed that, on average, the annual labour cost of a contractor is $213,906 while that of an APS employee is $131,530.20
The Independent Review also estimated that $250 to $300 million a year is needed over the next four years to lift digital skills and capabilities. At least $100 million a year in dedicated funding is required to kick-start digital transformation and deliver improvements in APS-wide capability.21
There needs to be an express goal to reduce the reliance on contractors and external vendors. Placing a cap on agency expenditure on consultants and contractors is essential to achieving that goal.
Bringing ICT work back in-house, where appropriate, will not only build internal capacity but also deliver savings that can be reinvested into the APS for improving digital skills. This is an opportunity to create digital roles in the regions and outside of Canberra. The geographic spread of ICT employees shows that governments can make decisions about where roles are located. A greater proportion of ICT employees are in Victoria (10 per cent) and Queensland (10 per cent) than in New South Wales (4 per cent).22
A more democratic state
While trust in public institutions has risen because of the COVID-19 crisis,23 it can easily be lost. The low response to calls to download the COVIDSafe app shows that many remain sceptical of government.
Prior to the crisis, early findings from PM&C’s new Citizen Experience Survey suggested that only a third of people trust public services. The figure was even lower in outer regional areas.24 The declining regional footprint of the APS due to budget cuts may be one reason for this, and it highlights the need for a more expansive geographic footprint across the country.
The state must become more democratic. Neoliberal critiques of the public sector have resonated because centralised top-down approaches ignore the experience of individuals. As David Walker, a former director at the British Audit Commission, explained, the public sector ‘left itself open to the neoliberal challenge, which purported to put the interests of citizens before those of “producers” and the trade unions representing them’.25
Only a third of people who provided feedback to the survey were satisfied with the way their complaint or suggestion was handled, and merely a quarter trust the APS to make the changes to services necessary to meet the needs of all Australians.26
Australia needs a more democratic state that is proactively open and transparent. It must be well resourced so that it has the staff, time and geographic footprint to work with both citizens and front-line workers.
Maintaining increased trust in the public sector requires strengthening integrity and accountability. It requires the establishment of a national integrity commission and reform of campaign financing, including a ban on individuals and companies with government contracts donating to political parties. We need more transparent procurement processes through open contracting and beneficial ownership registers, and more funding for independent statutory offices, such as the Office of the Australian Information Commissioner, to speed up freedom-of-information requests.
The shift towards digital service delivery and automation raises concerns about digital surveillance, data sharing and the impact of algorithms that must be addressed. Human oversight must be mandated, and protections for privacy, explicability and review legislated.
Restoration of the essential capabilities of the public sector will not happen without determined action. It is a choice we need to make and fight for. The experience of Australia’s postwar reconstruction demonstrated the importance of an expanded Commonwealth public sector. Within a decade, the sector developed the capability to set up the country for a transition to full employment.
We can either rebuild a better post-carbon economy, in which everyone flourishes, by investing in and strengthening our public sector, or we can double down on neoliberalism because we fear debt. If we do that, it will make Australia a worse country for future generations.