The Public Service: back in from the
cold
The Albanese government has begun to rebuild Australia’s shattered Public Service. The government’s fate depends on it – but there’s much still to do.
Australia's first public service chiefs, 1901
For almost half a century, the balance of power and
influence in government has shifted inexorably from the public service to
ministerial advisers. The change has had profound impacts on the way Australia
is run.
The decades of public service ascendancy were in the postwar
period of Robert Menzies and his immediate successors, but had its foundations
in the Post-War Reconstruction programs of the Curtin and Chifley governments.
This was an era of massive expansion of Commonwealth responsibilities, centred
around a constitutional
referendum in 1946 which gave the federal parliament the power it needed to
create the welfare state.
For the first time, the national parliament could make laws
on the provision of “maternity allowances, widows’ pensions, child endowment,
unemployment, pharmaceutical, sickness and hospital benefits, medical and
dental services … benefits to students and family allowances.”
Under the long years of Menzies and his conservative
successors from 1949 to 1972, much of the structure and approach designed by
Coombs was allowed to survive. Power solidified around a small number of
formidable men: Sir Arthur Tange (External Affairs), Sir John Bunting and Sir
Lenox Hewit (Prime Minister’s), Sir Henry Bland (Labour, Defence).
The decline began in 1984. The Hawke government was
concerned than unelected officials had, in many cases, more effective power
than elected ministers. The new government, drawing on a series of reviews
including a key one by Nugget Coombs, reined in that power. So began the rise
and rise of the career ministerial adviser.
Many of those reforms were healthy, as the former senior
public servant Andrew Podger attests. Other were not.
“With the benefit of hindsight, however, some of the shifts
that these measures started subsequently went too far” Podger
wrote recently.
“Tenure for secretaries was removed in 1993; ministerial
staff were no longer expert consultants and public servants on secondment but
political apprentices whose role was increasingly to control the APS … the
efficiency agenda became dominated by the use of competition with contracting
out undermining internal capability; and the new [Public Service Commission]
lacked the authority of the former [Public Service Board] to provide the
professional leadership the APS requires.”
Under the Howard government, the shift came to its ultimate,
disreputable conclusion. Howard appointed as secretary of the Prime Minister’s
Department (and head of the public service) Max Moore-Wilton, a figure who
quickly became feared and loathed in the public sector and far beyond.
Moore-Wilton left the government service in 2002 to become
CEO of the Sydney Airport Corporation. When he retired from that job in 2006,
Anthony Albanese issued a one-word statement:
Mike Pezzullo was the epitome of the new style of public service head. As secretary of the Immigration and Home Affairs departments from 2014 until his fall in 2023.
And that is what we have come to. Without a reasonable
independence and policy capability – both in a state of withering decline after
decades of attack – there is no countervailing power to the political
self-interest of ministers and the party activists in ministerial offices.
Private sector consultants, whose livelihoods depend on pleasing the
politicians who pay them, are no substitute.
So outrages like Robodebt and successive pork-barrelling
disasters become inevitable. The Prime Minister and his senior colleagues seem
to understand that their own fate, like that of Scott Morrison, hinges on
whether the public service is capable of doing its job. Or not.
Outsourcing
for fun and profit
In its final year in office, the Morrison Liberal government
spent $20.8 billion on outsourcing public service functions. An
audit commissioned by the new government found that in 2021-22, external
labour accounted for 53,911 full-time equivalent jobs. This ‘shadow’ workforce
added 37% to the official public service, at a massively higher cost than doing
the same work in-house.
This inflated the size of the public service from a nominal 144,271
FTEs to an actual 198,182. In other words, 27% of all the people performing
Commonwealth government functions were in fact employed by someone else.
Most of that was in one agency, the Department of Defence.
It accounted for 65% of all the external consultants; the next agency in the
ranking, Social Services, was well behind on 10.1%.
Defence also punched above its weight in spending. External
labour for that single portfolio, in that single year, cost $15.7 billion, or
76% of the total of all agencies.
The main areas in which most outsourcing happened show the
extent to which the capability of the federal public sector has been depleted.
The top ten job areas for external labour under the previous government were
all those which, in former times, would have been regarded as core
capabilities. It seems extraordinary that such areas as management, service
delivery, policy, accounting and regulatory compliance should be outsourced to
private-sector providers.
But people employed under the Public Service Act form only
part of total federal-level public sector. Importantly, the Public Service does
not include public corporations (such as the National Broadband Network or the
ABC) or the Australian Defence Force.
In the time the Albanese government has been in power, the
total number of federal government employees has grown significantly. Between
June 2022 and June 2024, Commonwealth employment increased by about 26,100;
over half of that was in Canberra (13,300) and only about 100 in Tasmania.
On a percentage basis, the distribution of the new public
sector jobs around the country has been very uneven. South Australia’s count of
federal jobs increased by 8.7%; Tasmania’s by only 1.7%.
The amount being paid in wages to public workers is the main
benefit of extra employment to state economies. Here, the impact is still more
uneven: total wages paid in South Australia increased by 16.1% over the period
from 2022 to 2024; Tasmania, with 5.1%, was again at the bottom of the ladder.
It is perhaps inevitable that the greatest share of public
sector employment will always be in Canberra and, to a lesser extent and for
different reasons, in the Northern Territory. When we eliminate the two
territories from the average, we can see which states have been favoured. This
chart shows how many more jobs above or below an equal share have been
allocated to each state. New South Wales, Victoria and South Australia win; Queensland
and Tasmania lose.
All of the increases in job numbers in the Commonwealth
public sector between June 2022 and June 2024 came from within the Australian
Public Service and none from other federal government entities. The APS
increased by 26,153 but the non-ABS sector was, at best, flat.
Many of these off-budget organisations have been
experiencing conditions very similar to those in the private sector. NBNCo,
which runs the broadband network, recently
shed 10% of its workforce, or around 500 jobs, following a financial loss in
the second half of 2023 of $696 million.
The Australian Defence Force, hit by massive staff retention
issues, has
shrunk by 1.4% over the past four years. The losses were particularly
severe in the Army, which lost 1,964, or 6.6% of its uniformed personnel.
At the ABC, staff numbers are once again rising after
decades of budget cuts and shrinkage. But the increase has been anaemic,
increasing by 2.6% over the past three years. That’s an extra 40 jobs.
Recharging
the Public Service
The employment roller-coaster in the Australian Public Service is powerfully influenced by the government of the day. Labor governments typically increase numbers and decrease private-sector outsourcing; conservative governments begin by doing the opposite but end up having to restore the numbers of public servants – while continuing to support external providers. The result is that the total cost to the federal budget is far higher than if the skills and responsibilities of the public service had been maintained.
Over the 20-year period, between 35% and 38% of Commonwealth
public servants have worked in Canberra. A near-record high point of
centralisation – 38.3% – was reached in the Morrison government’s final year.
Since a low point in 2019, national job numbers have
increased by 38,586, or 26%.
Over the most recent three years, public service jobs in
Canberra have increased by 9,653 to an all-time high of 68,435.
Proportionally, though, the APS became marginally less
centralised in the ACT. Victoria, Queensland and South Australia now have
significantly more Commonwealth public servants than they did at the time of
the last federal election; the ACT’s share dropped.
Priorities
The government’s priorities are clearly revealed in the
breakdown of which agencies and departments have got the biggest staff boosts.
Of the 89 bodies on this list, 14 have lost staff, one has remained the same
and 74 have been given increases.
Of the 101 departments and agencies within the Australian
Public Service, just seven – headed by Defence – accounted for 63% of the new 19,747
jobs added in the first two years of the Albanese government. Between June 2022
and June 2024, an extra 2,916 civilian employees joined the Department of
Defence. Because the numbers of uniformed ADF personnel have fallen, this
represents a significant increase in the ratio of bureaucrats to serving
personnel in the army, navy and air force.
The next was the National Disability Insurance Agency,
followed by the Health Department, the Taxation Office, the Home Affairs and
Veterans’ Affairs Departments, and Services Australia.
This tells us quite a bit about the new government’s top priority.
Defence, despite its immense levels of waste and a toxic culture in the ADF, is
critical to the government’s plans. AUKUS alone will
cost between $268 billion and $368 billion over the next 30 years, and the
last federal budget committed to massive spending increases across the
portfolio.
“The annual Defence budget will grow to an estimated $100
billion by 2033-34 compared to $53 billion this financial year,” said a
government press release at the time.
“This will see Defence funding as a proportion of Gross
Domestic Product reach over 2.3% by 2033-34 – more than 0.2% higher than the
spending trajectory set by the former Coalition government.”
That inevitably means more public servants to administer the
vast and expanding enterprise.
The NDIS – troubled, inefficient and prone to scandal – has
had a staff increase of 2,776 over the government’s first two years. The
outgoing minister, Bill Shorten, has instituted major reforms to cut back an
unsustainable growth rate, and to stamp
out fraud and poor service by dodgy providers. Someone has to make that
happen.
The federal government delivers no health services but funds
Medicare, the PBS and a share of state public hospital costs. Medicare,
particularly, has been troubled by incorrect and fraudulent billing practices:
controlling that requires more oversight.
And the money to govern has to come from somewhere. The Tax
Office has been tasked with cracking down on tax avoidance by big corporations.
Unlike individual wage earners, those companies are tough opponents with teams
of highly-skilled, highly-paid lawyers and accountants to fight the taxman. But
there have been early successes from the increased investment in oversight.
“The tenth annual Corporate Tax Transparency report reveals
the Australian Taxation Office (ATO) received almost $100 billion in income tax
from big business in 2022–23, an increase of almost 17 per cent on the previous
year,” said a recent press
release from the assistant treasurer, Stephen Jones.
“This comes after significant investment by the Albanese
government to bolster the ATO’s compliance operations, including increased
funding for the Tax Avoidance Taskforce by around $200 million per year.
“This investment has bolstered crack downs on tax dodging by
multinational enterprises, large Australian public and private groups, and
wealthy individuals operating in Australia.”
But even fairly minor staffing increases can make a big
difference to smaller agencies. Government priorities can also be revealed by
looking at the percentage rise, rather than at the raw numbers.
On this basis, the Climate Change Authority, derided and cut
by the Coalition, has been brought back in from the cold, reflecting the new
government’s priorities in this area. Although the numerical increase is minor
(69) the percentage boost (430.8%) is the highest of all departments and
agencies.
Other notable changes, reflecting the changed political landscape, include the much-criticised Aged Care Quality and Safety Commission, the Human Rights Commission, Veterans’ Affairs, the NDIS (again) and the Murray-Darling Basin Authority.
There are not many losers, but those apparently chosen to be
on the outside raise some interesting questions.
Why, for instance, has the Office of National Intelligence lost 46% of its public service staff? The Trade and Investment Commission? Cancer Australia? The Inspector-General of Taxation? Or the National Mental Health Commission?
The economic
impact
The National
Accounts show that government spending is keeping the economy afloat.
Household consumption, usually the main driver of economic growth, is flat.
People are saving, not spending. Overwhelmingly, household spending depends on
wages and jobs. If they’re not growing, neither is spending.
Employment is being propped up by all levels of government.
An industry-by-industry breakdown of jobs growth over the Albanese government’s
first two years shows how private-sector industries have largely stalled, with
two – manufacturing, and accommodation and food, shrinking. Agriculture and
mining have done well but together they employ only five per cent of the
workforce.
On the other hand, industries aligned to the public sector have seen strong and enduring jobs growth. The standouts have been health and social support (up 16%) and education (up 14%).
In a regular employment
report, Deloitte Access Economics confirmed that job creation in the private(market) sector was all but comatose
and public (non-market) sector employment alone was keeping the unemployment
rate down.
“Employment has still been growing at a healthy rate over
2024, said the report’s lead author, David Rumbens.
“Since the end of 2023, employment growth has averaged
45,400 new workers every month – an excellent achievement. However, detailed
labour market data shows that the private sector engine room of the economy has
been sitting idle for a while.
“According to the ABS Labour Account, employment gains in
the year to March 2024 totalled 322,000 people. Of this, 316,000 people came
from the non-market sector. As a result, non-market sector employment grew by
7.6% in the year to March 2024, compared to just 0.1% growth from market sector
industries. It is clear the resilience of employment growth is being driven by
the non-market sector, while private sector hiring is stalling.”
That’s reflected in the amount of money going into the economy in the form of wages. Over the past year, total public-sector wages have grown twice as fast as those paid by private employers.
But federal government jobs have driven only a fairly small part of this. In 2024, state governments employed 77% of the total public sector workforce; the Commonwealth only 15%. So an increase of 7.7% at the federal level yielded only 26,000 jobs against 133,000 for the states.
And there’s an interesting disparity between job growth and wages between the federal and state sectors. Wages grew significantly faster at state level, even though the Commonwealth proportionately employed more people. That means average wages paid to federal employees went up more slowly over the two years than for their state counterparts.
It's only
the beginning
It’s easy to over-estimate the significance of the 25,874
extra jobs created in the Australian Public Service in the new government’s
first two years. After all, it’s just 0.18% of total national employment. And
while there is a welcome economic impact, that’s not the main point.
The measure of success or failure will be not in the direct
economic boost but in whether the government succeeds or fails in its attempt
to rebuild the capability of the public service, and whether it is able to
minimise its reliance on expensive and sometimes compromised external labour.
We discovered the extent of the Morrison government’s
largesse towards outside providers only when the new government commissioned an
audit of its predecessor’s extravagance. Mr Albanese and his colleagues may be
less eager to conduct a similar examination of their own performance.
The biggest challenge will be reining in the biggest and
most recalcitrant outsourcer of all. Under Morrison, the Defence Department was
responsible for 77% of the cost of all government outsourcing. At a time of
AUKUS and massive spending on ships and aircraft, it doesn’t look hopeful.