Driving efficiencies in the overblown public sector

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The Abbott government should scrap the efficiency dividend in favour of more targeted measures to drive down costs in the public service and deliver better services, says a new TARGET30 report from The Centre for Independent Studies.

The efficiency dividend is an annual reduction of the funding that government agencies receive for their running costs, and is designed to pressure administrators to search for cost savings and efficiencies. Yet despite an efficiency dividend of at least 1% applying throughout the 2000s, agency running costs grew by 23% in real terms - or from $32 billion to $52 billion.

'The efficiency dividend has failed primarily because it does not target wasteful or unnecessary programs and agencies, presenting instead a blanket cut,' says Alexander Philipatos, author of Withholding Dividends: Better Ways to Make the Public Sector Efficient.

Since the early 1990s, the federal public service has grown top heavy, with public sector managers - Senior Executive Level (SES) and Executive Level (EL) - accounting for 15% of the public service in 1991, yet now accounting for 30%.

'The efficiency dividend has failed to stem the growth of managerial employees in the public service, and to moderate rising managerial pay, with SES base remuneration growing 25% to 35% since 2002,' says Mr Philipatos.

'At a time of increasing budget pressures, the Abbott government should introduce competitive pressures to drive efficiencies in the public sector, and introduce greater choice for customers.'

Mr Philipatos recommends the use of a voucher system, where customers would use government funds to seek services from approved suppliers in the private market, such as in education or health care.

'Government can also use competitive tenders, where private companies compete for the right to provide public services, which would allow the government to ensure better performance,' says Mr Philipatos.

'Benchmarking public sector agencies against the private sector would be an important step towards greater efficiency, as it would indicate whether government agencies are delivering on outcomes.'

'Government should introduce an annual review of agency functions and programs via an independent body, and use it to decide which programs to improve and which to cut,' says Mr Philipatos.


Alexander Philipatos is a policy analyst at The Centre for Independent Studies. He is available for comment.

Access the report: Withholding Dividends: Better Ways to Make the Public Sector Efficient.

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