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'Savings' from Australia's public service efficiency dividend don't add up - we should scrap it

TJ Ryan Foundation Research Associate, John Quiggin, comments in The Guardian (18.5.22) on the Coalition's proposal to make budget savings through cuts to the federal public service. The author argues that, in effect, the 'cumulative effect of unplanned cuts is to hollow out the core capacities of government'.

'As the election approaches, and with both parties committed to large tax cuts for high-income earners, the difficulty of financing even modest electoral commitments is becoming evident.

'As a result, we are seeing a resort to time-honoured expedients for saving money in ways that appear painless. Labor has promised to reduce spending on consultants and conduct an “audit” of government waste. The government has responded in kind with a plan to increase the annual efficiency dividend imposed on the public service, from 1.5% to 2%.

'The efficiency dividend was first imposed under the Hawke government in 1987. Officially, the idea was motivated by the then-nascent information technology revolution, which was expected to yield spectacular gains in productivity. Behind this rhetoric was a belief held by many in the government that there was plenty of slack in the public service, and that managers could find savings if they had to.

'Three and a half decades on, the cumulative impact of the efficiency dividends is a real reduction of between 40% and 50%. That should have produced a massive saving.

'But the reality is quite different. As with most office-based businesses, the actual costs of running the public service have risen over time, even after adjusting for inflation. The number of public service employees has risen, as has the average real wage they earn. What has gone wrong, and what are the lessons that should be learned about efficiency dividends?'

 

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