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Despite public service cuts, there will be public service growth

Normally we could dismiss reports of coming public service cuts as budget speculation. What is different today is that the cuts are already being implemented in several departments including climate change, resources, and education.

There is more behind these cuts than the additional 2.5% efficiency dividend (on top of the existing 1.5% annual cut to departmental expenses) already announced in the mid-year economic and fiscal outlook. If that were the only influence, then cuts of the size being implemented at present would not be needed.

The Canberra Times’ public service reporter Markus Mannheim has been counting the numbers. He estimates 1500 jobs are to go in coming months, with more to follow after the budget.

He lists the reported cut of 300 at the Department of Climate Change and Energy Efficiency and roughly 10% of staff — about 66 — to go from the Department of Regional Australia, Local Government, Arts and Sport. In addition there are “the departments of education (500 jobs), treasury (150), resources (100) and veterans’ affairs (90), as well as the Bureau of Statistics (75), the Fairwork Ombudsman (70) and ComSuper (50)”.

The Australian also reported the government was taking the “axe to green bureaucrats” in the coming budget.  But this is not random axe swinging.  As the story later points out, the main driver is that a number of greenhouse spending programs are ending this year — staff won’t be needed to run them.

What is different this year is that the department is not keeping on those staff in the hope that its many terminating programs will be reinstated.

The introduction of the carbon tax will overtake direct spending programs — so there is a logic to terminating the programs. In recent years, that sort of logic could well have been ignored by cabinet. Up to now programs generally had a high chance of being rolled over, no matter how outdated they were, or how carefully a sunset provision had been built in at their inception.

This year it seems the government is sticking to its guns and resisting pressure to keep superseded programs going.

The Treasurer said recently in a speech to business economists that the government will be cutting programs. We are yet to see what those cuts will be. If the patterns of past budgets are any guide, they may not be as extensive as the Treasurer’s hints suggest, but there will definitely be a large number.

Still, this is actually a better approach to public sector management than the far worse alternative of cutting staff while leaving programs in place. The second route is a recipe for overwork, spreading too few staff too thinly to be able to manage the programs effectively.

One reason we are seeing announcements about the cuts now, especially in departments that are offering voluntary redundancies to staff who put their hand up for a payout, is that the cost fall this year (when there is already a huge deficit) rather than next year where the government is aiming for a surplus.

The thing is, redundancies are costly. They save on staffing bills over the longer term, but in their first year the paying out of leave and other entitlements together with additional incentive payments mean they are a net cost. So departments will be trying to squeeze these payments into this year, 2011-12, rather than next year.

It makes the deficit this year worse, but by an amount that in the general scheme of things is hardly noticeable. The mid-year outlook already projects a deficit this year of $32 billion ($37 billion on the underlying cash measure). Slower revenue growth is likely to make that deficit number worse by the time a revised figure is announced in the May budget.

While stories about staff cuts are attention-grabbing, we should also take into account that there will be other some other areas of the public service that will grow.

We already know, for example, that Ausaid is to expand enormously, with (roughly) a doubling of the aid budget over the next five years. One of the fastest-growing areas of the public service has been ASIO, and it needs more staff to fill a monstrously huge building under construction that occupies a large swathe of prime waterfront land on Lake Burley Griffin in Canberra. The carbon tax has new regulatory and oversight agencies that are expanding.

Senator Kate Lundy — unsurprisingly, as an ACT Senator and government minister — has argued the talk of job cuts is misleading because it does not add back in the growth from these areas of new policy.

The agencies that are growing remain silent not only because of normal budget confidentiality, but also because they don’t want to appear to be gloating over their good fortune while others are cut.

When the budget comes down, I doubt that the size of the cuts in total will be quite as high as is currently forecast. Vague talk about public service cuts is popular in many electorates.

But as Essential research earlier this week showed, when it comes to services and regulation delivered by the public service, we actually want more.

The challenge for governments is to make cuts in a strategic fashion, by ending whole programs and not renewing those that lapse. That way it has a chance of maintaining the services that the public wants, with enough staff to deliver them well.

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  • 1
    Jenny Haines
    Posted Thursday, 5 April 2012 at 2:46 pm | Permalink

    I see the hand of Sir Humphrey Applebee at work.

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