Thu, 13 Jun 2013 - 21:00
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“Efficiency in Government” - Speech to Sydney Institute

It is a privilege to speak to the Sydney Institute tonight on the topic of efficiency in government.

I want to argue that the public sector needs to focus much more intensely on efficiency – as private sector companies certainly do.

Randomly choosing the most recent annual reports of three major companies, Westpac, Qantas and Woolworths, I found explicit references to efficiency in all of them.[1] For example, Woolworths says its major businesses

have shown the benefits of our investment in efficiency improvements, growth and innovation in recent years.[2]

The story from government is rather different. According to a recent report from the Finance Department, it is all a bit too hard, as there ‘…is no accepted or reliable way of measuring the relative efficiency of the public sector.’[3]

If the bureaucrats are unenthusiastic, today’s Labor politicians seem simply uncomprehending. Let me quote a recent ‘dorothy dixer’ question in federal Parliament:

My question is to the Minister for Health. Will the minister update the House on how the government is delivering record funding on health, hospitals and medical research.[4]

In other words, efficiency is irrelevant because spending more money is an absolute good; the more you spend the more you are doing to solve the problem.

And the public sector unions are outright sceptics. A recent paper prepared for the Community and Public Sector Union entitled ‘Decoding Efficiency’ makes that clear: its subtitle is ‘False economies.’[5]

Tonight I will put a rather different perspective from the CPSU. To start with, I want to argue that we have a problem: as we allocate ever more resources to government, we don’t focus on getting the best from those resources. Next I will talk about why this matters. Finally, I want to highlight some approaches we could pursue to turn that around.

We have a problem

Let me start with the proposition that we are allocating ever more resources to government. Between FY2001 and FY2009, Australia’s GDP grew by 64 per cent (after correcting for the improved terms of trade), Australian Government departmental expenses grew almost as much, and expenditure administered by government grew by 98 per cent – well ahead of GDP growth.[6]

As a share of GDP, government spending has risen from 24 per cent in 1972 to over 34 per cent today; in key areas such as health spending is up by 109 per cent in ten years and education 98 per cent.[7]

With more government spending, there are more public servants. From 2006-07 to the current year, Commonwealth staff numbers are up by nearly 20,000.[8]

Across all three levels of government, total public sector employees have risen by 141,000 in the four years to 2012.[9]

Oddly, there seems to be no one single reported figure of all Commonwealth employees. There were 168,500 staff in the Australian Public Service as at 30 June 2012;[10] the budget papers say total Commonwealth staff numbers at this date were 256,631 (including ADF personnel and statutory authorities);[11] and even this number does not include contractors, nor employees of government corporations such as Australia Post and NBN Co.[12]  

If headcount is growing, so too is the number of government bodies. The Australian recently reported that the total number of Commonwealth agencies has risen from 87 to 107 in the last five years.[13]

I have asked every cabinet minister a question on notice: how many new entities had been created within their portfolios since the Rudd government was elected to office. Not all responded; those who did identified some 34 different bodies, with total staff across them numbering 4,700.[14]

The Australian’s report also notes that the precise number of Commonwealth bodies is currently not known. The most recent list was prepared by the Department of Finance four years ago, at which point there were 932 federal government ‘bodies and governance relationships.’[15]

Of course, just because public sector size and expenditure has grown, it does not prove it is less efficient. But it certainly raises a suspicion – reinforced by the lack of clear reporting of the total number of people employed by the Commonwealth, and the number of government bodies.

Evidence from the 2010 review of public service arrangements further adds to the suspicion. It found 63 agencies with less than 500 employees, saying this gave real scope for rationalisation, such as through sharing corporate services. It cited a telling example: an agency with an annual budget of $15 million, of which fully one third went on corporate costs (such as finance and HR).[16]

As the old management adage goes, ‘What gets measured gets managed.’ If we are to have a more efficient public sector, we need to carefully measure the resources the public sector uses – and the outputs it delivers.

Again, the contrast to private sector practice is instructive. The Westpac Annual Report for example has a ‘five year summary’, replete with data on efficiency measures such as return on equity and operating expenses to operating income ratio.[17]

There is some work done on measuring government efficiency. For example, the Productivity Commission produces an annual Report on Government Services.

While a worthwhile exercise, it has significant limitations. In 2011 it covered spending programs totalling $150 billion, less than one third of total spending across federal, state and territory governments.[18] Moreover, the indicators themselves are very disparate and, though informative, are not easy to compare across jurisdictions, as they are not normalised for differences in operating conditions.

A bigger weakness is that this worthwhile work occurs at a bureaucratic level; under the present government political leaders have had little to say about it.

Perhaps it says something about the personalities of politicians that we get much more excited about the budget for the year ahead – than about reviewing how we have performed against the budget.

You look in vain through the Final Budget Outcome statement for any measures of the efficiency with which the money has been applied to deliver outcomes.  

Two signature policies of the Rudd Gillard Government show a particular indifference towards using government’s resources efficiently: the National Broadband Network and ‘Building the Education Revolution.’

The NBN fails on all three types of efficiency which economists like to talk about: productive efficiency, allocative efficiency and dynamic efficiency. [19]

Productive efficiency would require the NBN to use the lowest cost mix of inputs to deliver the given output, namely the provision of broadband services of a given speed to a given number of people. Clearly the NBN fails this test.

Just look at how NBN overpays for staff. For the year ended 30 June 2011, NBN Co’s average staff costs per employee of approximately $224,000 were more than double those of Telstra ($101,000) and of Westpac ($105,000).[20]

Or look at the way the rollout sites have been scattered around the country for political reasons - rather than taking the lower cost approach of starting in one area and building out an ever larger contiguous network.

Allocative efficiency requires ‘the production of the set of goods and services that consumers value most, from a given set of resources.’ [21] In other words, of all the things you could get if you spent $90 billion, is Labor’s NBN offering 100 Mbps the highest value thing you could get?

The market evidence from broadband rollouts around the world is unambiguous: consumers will pay only a very small premium for higher speeds. When the Coalition’s plan would spend $29.5 billion to deliver at least 50 Mbps by 2019, spending $60 billion more to deliver something consumers do not value commensurately is extremely inefficient. Why spend 200 per cent more when the extra value consumers attach to the speed increment is so much less than 200 per cent?

The third type of efficiency is dynamic efficiency: how well do we allocate resources over time to meet the current and future preferences of the population? Again, Labor’s NBN fails this test: it spends a huge sum now to meet needs which even its strongest backers concede do not yet exist. It is every bit as inefficient to spend too much to soon as to spend too little too late.

‘Building the Education Revolution’ has been similarly grossly inefficient.

In my electorate I know of state schools which were given classrooms when they really wanted a school hall, and vice versa. That’s allocative inefficiency.

The money was spent in a huge rush to meet an artificial deadline – creating further waste, for example in building facilities in schools about to close down. That’s dynamic inefficiency.

Nearly $3 billion was spent on BER in NSW state schools.[22] Yet classroom projects in these schools cost a shocking 53 per cent more per square metre than NSW catholic schools.[23]

If they’d got the same price as the catholic schools, over one billion dollars could have been saved. That’s productive inefficiency. It is also, in plainer language, a scandal.

Why It Matters

I have argued that we have a problem with public sector efficiency; let me now turn to make the case why it matters.

If you believe there are some things that the public sector is better equipped to do than the private sector; if you believe that the demands of the community on government are only going to increase; if you believe in a government which serves the people – then you should be passionate about government operating as efficiently as possible.

It is only if we do more with public resources that we can do more for the things we all care about.

Indeed, the first reason to care about public sector efficiency is because of the ever-increasing demands on public services.

A recent Grattan Institute paper argues that growing demand for government services – in areas like health, the age pension and other welfare programs - will significantly increase pressures on government in coming years.[24]

That does not just mean doing more for the money. It also means delivering better service. As accounting firm PricewaterhouseCoopers points out, around the world citizens expect the same kinds of service improvements from government as they have seen from the private sector:

Driven by these changing expectations, the public sector is increasingly required to redefine its role, strengthen its customer focus and build integrated service delivery models…these models must be based on meeting customer needs more efficiently and more effectively.[25]

Such raised expectations are acute in Australia, where customer service in the private sector has transformed since the 1980s, after twenty five years of bipartisan microeconomic reform.

To take just a few examples, today, air fares are lower and many more Australians can afford to fly; mortgage finance is easier to get with a wider choice of providers; and competition in telecommunications has transformed service from the days of Telecom Australia’s monopoly.

No wonder Australians expect better, more responsive service from Centrelink and the ATO.

The second reason to improve government efficiency is because of the national productivity agenda. To quote from a recent speech by Treasury Secretary Martin Parkinson,

…with the likely peak in the terms of trade, future growth in living standards will now be driven by productivity growth. … As Paul Krugman notes, "Productivity isn't everything, but in the long run it is almost everything.[26]

Government spending is one third of our gross domestic product, [27] and over 16 per cent of employees are now in the public sector. [28] This makes the efficiency of the public sector critical to our national productivity performance.

Again, this is not unique to Australia. Consulting firm McKinsey argues that

..the public sector is the largest employer in all advanced economies, yet its slow productivity growth has long made it a drag on the economy.[29]

Yet our national measurements of productivity, conducted by the Australian Bureau of Statistics, effectively ignore the public sector. Instead, public sector productivity is assumed to stay constant.[30]

This assumption seems rather optimistic, particularly with public sector numbers growing strongly and the average public sector employee paid nearly 21 per cent more than the average private sector employee.[31]

McKinsey observe that public sector managers can be sceptical of attempts to measure public sector productivity; but it is not impossible to do.[32]

In Australia, the only serious recent attempt to measure government productivity has been by the Auditor-General of Tasmania. These efforts were not welcomed by that state’s government. [33]

In Britain the Office of National Statistics has tracked public sector productivity for some time. In four of six sectors measured, they found falling productivity in the eleven years to 2008.[34]

In a paper citing the UK work prepared for the CPSU by academics at Flinders University, the authors delicately observed,

The union must judge how far to engage with the government about issues of productivity measurement. There is a risk that if productivity measures are devised, they will be …unfavourable to the union’s cause (as the UK experience suggests). [35]

The CPSU might not like it, but in my view Australia should follow the UK’s lead by including public sector activities in our national productivity measurements.

There is another linkage between government efficiency and our national productivity performance: the less red tape government imposes on business, the more productive business can be.

As my colleague Senator Arthur Sinodinos, who is leading a Coalition review in this area, recently commented:

Unnecessary red tape is a contributing factor to Australia’s productivity challenge. The Productivity Commission estimates that reducing red tape will boost national GDP by $12 billion a year. Across industry, it’s believed red tape accounts on average for four per cent of business costs.[36]

A public sector with a greater focus on efficiency would take more care in the information it required and in the cost of compliance it imposes on the private sector.

A third reason to care about efficiency is because of international competitive pressures. Governments may be less exposed to competition than business; but they are certainly not immune, particularly in an era of unprecedented globalisation and mobility of labour.

As a nation we compete with many others in attracting and retaining people. Two key factors which affect that comparison are the quality of government services on offer – and the amount each resident is charged for the provision of those services through the tax system.

Australia charges higher taxes than many Asian countries – and offers much more comprehensive public services. That is a choice which reflects our national values – and we are not about to change them.

But we need to take care to provide such services as efficiently as possible. Lower administration and overhead costs means less upward pressure on the tax system.

As tariffs were removed in the 1980s and 1990s, and our economy became more open and exposed to competition, the costs imposed on business by government became increasingly visible. Reducing these costs, as part of improving our national competitiveness, was a constant concern under the Howard government, which commissioned the Banks review of regulation. Unfortunately, that momentum has been lost under Labor.

Lastly, efficient government matters on moral grounds. Government raises the money it spends largely from tax collected, compulsorily, from citizens. If government is wasteful with that money, it breaches its duty to its citizens.

When a government spends $67 million to administer a program giving away set top boxes at a cost per home of $350 – when equivalent boxes can be bought at Harvey Norman for $168 – that is not only economically inefficient: it is wrong.[37]

When a government spends $1.45 billion on the Home Insulation Program, and does such a poor job that the Auditor General finds nearly one third of installations are deficient; there were substantial quality, safety and fraud issues; there were substantial remediation costs; the jobs created were shorter-lived than intended; the energy efficiency benefits were less than anticipated; and it was a “costly program for the outcomes achieved” – that is wrong.[38]

When the Australian delegation to the Copenhagen Climate Change Convention reportedly contained 114 people, compared to 71 from the UK and 195 from the US (a country fifteen times larger than Australia) - that is wrong.[39]

What can we do

All this might be a bit depressing – but I have an optimistic message as well.

In this final part of my speech I want to show that there is plenty of territory open to any government which is seriously interested in improving efficiency.

It includes stronger political leadership; better measuring and reporting of how government uses its resources; applying principles of competition and contestability; being smarter in determining the dividing line between government and the private and community sectors; reducing administrative costs; using capital more efficiently; and greater online service delivery by government.

As I turn to the first issue of political leadership, let me offer the usual disclaimer that it is not my place to state Coalition policy – simply to suggest some directions that one particular Coalition backbencher thinks have merit.

Stronger Political Leadership

In the annual reports I looked at, the statements about efficiency came from the company’s chair or chief executive; they left no doubt that greater efficiency is a key organisation-wide goal.

From the language – and in the behaviour – of Rudd-Gillard Government Ministers - we have received a very different message. Value for money, doing more with less, innovating to keep costs down and service levels up – none of those things are celebrated or encouraged.

On the contrary, we have a Treasurer openly opposed to the principle of contestability – with Wayne Swan criticising the Queensland government for suggesting patients whose needs are not being effectively met in public hospitals should be given the option of treatment in private hospitals.[40]

Stronger political leadership on efficiency would make an important difference. As Tony Abbott has said:

In the longer term, though, we have to rely less on bureaucrats and put more trust in the common sense of the Australian people. We need smaller, more efficient government…[41]

This is not just political rhetoric: it is backed up by solid economic research. A recent paper comparing the performance of OECD countries finds that the public sector is more efficient in countries with centre right governments and governments in strong control (as opposed to minority governments.)[42]

Better Measurement and Reporting

Management experience teaches you that what you measure and report on is very important – it drives what you do. If we want more efficient government, we should do a better job of reporting to taxpayers about how their money is spent.

Shadow Treasurer Joe Hockey has long argued that every Australian’s tax statement should contain a breakdown of how many dollars went to each function of government: Defence, Social Security, Industry Assistance and so on.

I think this is an excellent idea; you could go even further using modern information systems. Imagine if you could produce for each citizen a statement showing the amount the citizen had paid into the government sector in taxes and other payments, and showing the amount of money expended by government on behalf of that citizen.

This would comprise payments paid directly to or on behalf of the citizen – for example, Medicare payments or childcare payments; an estimate of the value of services consumed by the citizen and provided by government – for example, the value of one year’s education of your child at the local state school; and an estimate of the value of services provided to all in the community including you as an individual citizen. These would include items such as police, defence, the Australian Institute of Sport, and subsidies provided to Ford, Holden and Toyota. The ABS regularly estimates the distribution of consumption of public services;[43] making this information more widely available to taxpayers could only enhance accountability for public expenditure.

Such reporting could, I think, be a useful counterweight to the way in which spending decisions are often reached today. Politicians and public servants often face pressure to spend in a particular area, from groups whose interests are served by such spending.

Consider, for example, the role of the union leaders like AWU boss Paul Howes in pressing for industry assistance.[44] Such advocacy has contributed to decisions like Julia Gillard’s to pay $34 million to Ford in early 2012, supposedly (but as we now know unsuccessfully) to save the jobs of Australian manufacturing workers.

Whether this is a good way to spend taxpayers’ money is a classic question of allocative efficiency. If we give taxpayers a better idea of where their money is going , we can help bring questions like that to the surface.

Another option - combining better reporting and better political leadership -would be for a senior economic Minister to deliver an annual statement to Parliament on the efficiency with which the Commonwealth government has used taxpayers’ resources in the year just passed.

The exact form could be devised based on expert advice, but you could imagine a statement which set out key areas of expenditure – and key productivity or output measures showing what had been delivered with that expenditure.

In education, for example, the efficiency statement might show metrics such as number of students in schools, number of teachers and other staff employed, retention rate to year 12, literacy and numeracy levels on standard tests, and so on. [45]

Producing such a statement would make the efficiency of government much more visible. Comparing outcomes to dollars spent – and particularly how each was changing over time – would give an indication of whether government efficiency in an area was getting better or worse.

For example, if the court system this year determined 10 per cent more cases than last year, but expenditure was only up 3 per cent, this would show greater efficiency – assuming, of course, no observable change in quality.

Second, it would drive more careful thinking within government about what the outcomes and objectives of government spending truly were. Is the Newstart allowance, for example, really intended to get people back to work? If so, you need to provide a measure of Newstart recipients who return to the workforce each year and remain there.

Most importantly, such a statement at Parliamentary level would show that political leaders have a focus on efficiency – in turn sending a clear signal to managers in the public service about the attention they should give to this objective.

Principles of Competition and Contestability

A defining difference between government and the private sector is that government is much less directly exposed to competition.

In competitive markets, participants get more efficient – or they die. Innovations introduced by one company are rapidly copied, as consulting firm Deloitte noted in a recent paper:

Driven by competitive pressure, private firms have a strong incentive to track what other firms are doing and to use that intelligence to produce better products. Government agencies lack that built-in incentive…[46]

For governments wanting to drive efficiency, looking for ways to replicate or simulate the effects of competition must be a key design principle.

Former head of the NSW Cabinet Office Gary Sturgess, in a thoughtful paper for the NSW Business Chamber, points out the productivity and efficiency benefits which can be captured through the use of competition in government service delivery:

The limited evidence that is available suggests that the potential for productivity improvement is considerable – perhaps as much as 20-25% where services have not been previously exposed to competition.[47]

Sturgess argues that there are several models available for the introduction of greater competition into the supply of public services. He cites choice based models, such as ‘personalised budgets in disability care’; commissioning models, where governments purchase services through competitive tendering and contracting; and contestability, where the organisation supplying a service is subject to a credible threat of a competing organisation being given the contract to supply the service.[48]

As he points out, in many sectors services are delivered by both private and public sector providers – including schools, hospitals, aged care and even prisons. [49]

Government therefore has two quite distinct roles. The first is government acting as regulator and source of funding; the second is government as the provider of the service.

In the school system, for example, we have a mixed system in which government provides funding to all types of schools and also operates one type of school. In 2009 state schools had average income per student from government (state and federal) of $10,600; catholic schools $7,700; and independent schools $6,200.[50]

One option to increase efficiency is to have other combinations of funding and control. Increasingly, state governments are looking at independently managed public schools. A typical model is for such schools to receive the designated amount of funding, but be governed by a local board, and run by a principal reporting to that board. In some models the principal will have greater power over staffing matters – and admitting and rejecting students – than in standard public schools.

Such schools can offer an alternative in the market, between pure independent schools on the one hand and pure public schools on the other. This means greater choice for customers – school students and their parents. It also puts some competitive pressure on both public schools and on conventional independent schools. In other words, you can change the market structure - without changing the amount of money government puts in.

Western Australia is a good example. The adoption of what they call an ‘Independent Public School’ model has seen a reversal of a longstanding trend of private school numbers growing faster than public schools. ABS figures show WA public school enrolments rose 3.6 per cent in 2012, while private school enrolments grew 1.6 per cent.[51]
Similarly, there is scope to more clearly separate the two roles of government when it comes to hospitals: funding and operating. Why should private hospitals not be given more opportunity to compete to serve public patients, on the basis that they would receive the same payment for doing so as would a public hospital in providing the same treatment?

If the public hospitals were subject to greater competitive pressure – if the work was contestable between the two sectors to a greater degree – that might very well spur innovation and efficiency across the board. Indeed, this was an important consideration in the Howard government’s determination to ensure private health insurance, and the private hospitals it helped fund, remained a source of choice for consumers.

The right dividing line

When you consider contestability, it raises the inevitable question: what is the right dividing line between the role of government and the role of the private sector?

The Rudd-Gillard Government has reflexively assumed that every policy must be executed through establishing a government instrumentality to deliver it.

I have already mentioned its decision to establish a government owned company to build and operate the national broadband network. New Zealand’s government has a very different strategy for that country’s broadband network, spending a lot less money and getting a better outcome.

The two rollouts began at approximately the same time, but by December 2012 the Kiwis had passed 134,000 homes with fibre, compared to 72,400 in Australia (a country with a population over five times as large).[52]

Rather than doing everything itself, the government’s role in New Zealand has been to allocate funding through a public, competitive process. The actual roll out is being done by experienced network operators – including the former network business of Telecom New Zealand, now called Chorus, which won the competitive process for about 60 per cent of the country.

This is a key insight in driving public sector efficiency: you need a clear idea of what functions government is best placed to carry out, and what functions will be more efficiently done by the private or community sector.

As Gary Sturgess argues, in the paper I cited earlier,

Policymakers have given little thought to the appropriate mix of providers (public, private and not-for-profit) in most sectors, and the extent to which they can or should be exposed to user choice, competitive tendering and performance benchmarking. [53]

The Howard Government delivered some important reforms by moving key functions away from government. For example, it replaced the old Commonwealth Employment Service with contracted private sector players under the title Job Network.

A 2002 Productivity Commission review found the total costs of the program were much lower than previously and competition between providers and the use of outcome payments had created incentives for improved efficiency and better outcomes.[54]

There is exciting work being done, in the UK, Australia and other countries, to involve private sector investors in delivering social policy outcomes.

As one example, the NSW government has made a trial issue of ‘social benefit bonds.’ These are ‘financial instrument that pay a return based on the achievement of agreed social outcomes’, such as for example a reduction in the rate at which former prisoners re-offend and return to prison.[55] The idea is that if the intended benefit is secured then government will save money because, for example, fewer prisoners need to be housed, and out of the savings it can fund the return on the bonds.

This approach seeks to use market based incentives for activities traditionally carried out by government. If it works as expected, government will be able to secure better outcomes with the money spent. Particularly attractive, in my view, is that it forces government to define what the desired outcome is – something which is not always clear!

Reducing Administrative costs

In the private sector there is a relentless focus on reducing administrative and overhead costs. Large corporates typically have quite small head offices: staff whose roles cannot be linked directly to profit-generating business are minimised. As consultants McKinsey point out, General Electric has over 300, 000 employees around the world – but only 550 work at the corporate centre.[56] This stands in stark contrast to the Commonwealth Department of Health – which employs over 6,000 people but runs no hospitals.

In the Commonwealth public service, the main policy tool used to reduce administrative costs is the annual efficiency dividend: funding provided to government departments is reduced by 1.5% each year to force them to find savings.[57] While certainly better than nothing, this is a crude measure.

The evidence I cited earlier about high corporate costs for small agencies suggests that more forensic scrutiny would yield significant results. This could be fruitful territory for the Commission of Audit, which the Coalition has committed to establish should we come to government.

Capital Efficiency

In business there is strong focus on using capital efficiently. Return on capital employed is a key business metric; and businesses aim to minimise the amount of capital they use. For example, airlines often lease aircraft rather than owning them. The success of so-called ‘value based airlines’ – such as JetStar – arises not from lower labour costs, as is commonly believed, but in making much more efficient use of scarce capital – for instance, by reducing loading and unloading times.

Yet such thinking is quite rare in government. The extraordinary profligate use of capital for Labor’s NBN – which the Coalition estimates will cost $90 billion to build – is an extreme example. But there are plenty of others.

One is the reluctance of state governments to realise the capital currently tied up in their infrastructure assets – ports, electricity networks, water and other plants – even though doing so would allow that capital to be allocated to other pressing infrastructure needs. The O’Farrell Coalition government in NSW, notably, has bucked the trend, no doubt reflecting the business literacy of key senior figures in that government.

Another is the way that many assets are not used as intensively as they could be. Schools, for example, are left largely unused outside of the core period of 9 am-3 pm, Monday to Friday, 40 or so weeks a year. Are there opportunities to use this capital more effectively by varying school terms or by allowing schools to be used for other purposes outside of school hours?

Greater Use of Online Services

Finally, I want to touch on the scope for government to use online service models to operate more efficiently.

The internet has revolutionised business. If you want to book an airline ticket or a hotel, you can do it online – and instantly compare prices across multiple providers. If you are looking for a new house or a new job, the online search process is vastly quicker and more informative than in pre-internet days.

Compared to the private sector, government has not done such a good job in using the internet to transform the way it serves citizens.

There’s been a bit of talk – such as the paper on Government 2.0 issued by former Finance Minister Lindsay Tanner in 2009. Just today Ministers Conroy and Dreyfus announced a new ‘roadmap’ for government agencies to deliver services over smartphones and tablets – but it seems the target date for actual services (as opposed to preparing ‘plans’, ‘frameworks’ and ‘guidelines’) is not until June 2015.[58]

There are modest signs of progress in some areas. Over 2.6 million Australians lodged their tax return online last year. But we are a long way from seeing a ‘one-click’ mentality in government.

Imagine for example if you could update your address once when you moved – and it would update your records with every government department at state and federal level, from the Tax Office to Medicare to state departments responsible for your car registration and your driver’s licence.

Imagine if you could complete a 100 point ID check in person just once at a bank or post office – and this linked to a secure online identity which you could use for multiple purposes, allowing you for example to open a new bank account online?

In New Zealand, the igovt logon service lets you use the same logon details to access online services from many different government departments – at both national and local government level. Recently passed legislation will let New Zealanders use their electronic identity with multiple government agencies – rather than having to provide paper documents.[59]

In Australia we have talked about these things for a while, with the Department of Finance releasing the National e-Authentication Framework in 2009. But the user experience does not match the rhetoric.

Yes, there is now a site called ‘MyGov’ – but it connects to only five services, all Commonwealth government. The Tax Office – an agency virtually every Australian deals with – is not included.

While you can lodge your tax return online – if you want to notify the Tax Office of your change of address, its website directs you to their call centre. And while the Tax Office might know who you are, you have to prove your identity afresh when you want to get a passport.

Earlier, I cited work by PricewaterhouseCoopers. Another paper by that firm, issued last year, calls for a one stop shop approach for government services – noting that this has been a priority for the O’Farrell Government in NSW and the Cameron Government in the UK. It suggests key principles including listening to your customers; breaking down silos; offering multiple service channels; using customer feedback to improve; and setting service standards from a customer perspective.[60]

The UK government is doing important work in this area. In a recent report, it estimated annual savings of up to £1.8 billion from greater use of online channels.[61] At the UK Driving Standards Agency, for example, in 2011/12 it cost £6.62 to conduct a transaction with a citizen by mail; £4.11 by telephone; but digitally it was a mere 22 pence.

To my mind the savings are important; equally important is that the citizen will generally have a better, more rapid and more reliable service experience transacting online rather than by mail or by phone. How many such win-win opportunities do you get in government? Why are we not seizing them eagerly with both hands?


I have argued tonight that, while few people will march in the streets for the cause of public sector efficiency, it is nevertheless a topic of great importance.

While Australian business has transformed itself, following twenty five years of bipartisan economic reform, government has not done as well.

Under the Rudd Gillard Government, little attention has been paid to public sector efficiency. By contrast, public sector efficiency is a topic the Coalition is strongly interested in.

This is not because we are hostile to the public sector; it is because we believe in the public sector.

We want government to do a better job of serving its customers: the people of Australia.

Tonight I have argued that there is significant territory for policy innovation when it comes to improving the efficiency of the public sector – and in turn having it better serve the people of Australia.

Should the Coalition come to government, I am confident that there will be considerable focus, across a wide range of portfolios, on doing a better job with the resources to hand.

To listen to this speech in full, click here.

[1] ‘Our strong focus on efficiency has resulted in cost savings of $238 million in 2012…’Westpac 2012 Annual Report, p 6. Qantas says the costs of its present business change programme ‘will be far outweighed by the long-term advantages of greater efficiency and competitiveness.’ Qantas 2012 Annual Report, p 5

[2] Woolworths 2012 Annual Report, p 11

[3] “Commonwealth of Australia, Department of Finance and Deregulation, Review of the Measures of Agency Efficiency Report.”, March 2011, p viii

[4] Mr HAYES (Fowler—Chief Government Whip) (14:51) Hansard, Thursday, 30 May 2013, Page: 57

[5] Christopher Stone, Centre for Policy Development, ‘False economies: Decoding Efficiency’, paper prepared for CPSU, April 2013

[6] All figures are nominal not real. “Commonwealth of Australia, Department of Finance and Deregulation, Review of the Measures of Agency Efficiency Report.”, March 2011, pp 13-14

[7] Centre for Independent Studies, Towards Smaller Government and Future Prosperity, pp 5-6

[8] Staff numbers have risen from 238,623 in 2006-07 to 257,376 in 2013-14. Budget Paper No. 1: Budget Strategy and Outlook 2013-14; Statement 6: Expenses and Net Capital Investment, Table 22.

[9] ABS, 6248.0.55.002, 2007-08 and 2011-12.

[10]Australian Public Service Commission publication Statistical Bulletin 2011–12, page 4.

[11]Budget Paper No. 1: Budget Strategy and Outlook 2013-14; Statement 6: Expenses and Net Capital Investment, Table 22.

[12] These are known as Public Non Financial Corporations. Budget Paper No. 1: Budget Strategy and Outlook 2013-14; Statement 9: Budget Financial Statements, Table A1

[13] D Crowe, ‘How Colossus of Canberra weighs down the budget’, The Australian, March 09 2013

[14] Responses to questions on notice received by Paul Fletcher MP from Rudd Gillard Government Ministers

[15] D Crowe, ‘How Colossus of Canberra weighs down the budget’, The Australian, March 09 2013

[16]Ahead Of The Game: Blueprint For The Reform Of Australian Government Administration, March 2010, p 30

[17] Westpac 2012 Annual Report, p 76.

[18] Productivity Commission and Forum of Federations 2012, Benchmarking in FederalSystems, Roundtable Proceedings, Melbourne, 19−20 December 2010, eds A. Fenna and F. Knüpling, Productivity Commission, Canberra. Ch 9, ‘Benchmarking and Australia’s Report on Government Services’, p 199. Total spending across these governments in 2012-13 totalled over $500 billion: Budget pressures on Australian governments, Grattan Institute, April 2013, p 58

[19] Productivity Commission 2013 On efficiency and effectiveness: some definitions, Staff Research Note, Canberra, pp 3-4. (This is the source of the definitions of the three types of efficiency; the application of these definitions to the NBN Co is the author’s.)


[21] Productivity Commission 2013 On efficiency and effectiveness: some definitions, Staff Research Note, Canberra, p 4.

[22]Building the Education Revolution Implementation Taskforce: Final Report, July 2011, p79

[23]Building the Education Revolution Implementation Taskforce: Final Report, July 2011, p46

[24] Budget pressures on Australian governments, Grattan Institute, April 2013, p 1

[25] PricewaterhouseCoopers, ‘The road ahead for public service delivery’, p 3.

[26] Challenges and opportunities for the Australian economy, Speech to the John Curtin Institute of Public Policy, Breakfast Forum, Perth, Dr Martin Parkinson PSM | Secretary to the Treasury | 05 October 2012

[27] Centre for Independent Studies, Towards Smaller Government and Future Prosperity, pp 5-6

[28] ABS 6248.0.55.002, released 11/12/2012, reports 1.892 million public sector employees in June 2012. ABS 6202.0, Labor Force Australia June 2012 reports 11.507 million total employed persons.

[29] McKinsey, ‘The public sector productivity imperative’, March 2011, p 1.

[30] To put it more technically, OECD guidelines say that output in the public sector should be measured by expenditure (so of course this uses an input to measure an output.)

[31] ABS, 6302.0 Average Weekly Earnings Australia Nov 2012, table 1 [Private sector all employees average weekly total earnings 1038.30; public sector all employees average weekly total earnings 1255.50]

[32] McKinsey, ‘The public sector productivity imperative’, March 2011, p 1.

[33] Gary L Sturgess, Diversity and Contestability in the Public Service Economy, NSW Business Chamber, p 12

[34] ‘Public Sector Pay and Productivity’, Hancock et al, June 2011, National Institute of Labour Studies

Flinders University. Downloaded 2/6/2013,

[35] ‘Public Sector Pay and Productivity’, Hancock et al, June 2011, National Institute of Labour Studies

Flinders University. Downloaded 2/6/2013,, p 7.

[36] Senator Arthur Sinodinos, blog post, ‘Productivity and the impact of Red Tape’,, downloaded 10/6/13.

[37] Little Big Book of Labor Waste, May 2013,

[38] ANAO Audit Report No.12 2010–11, Home Insulation Program, pp 26-27

[39], downloaded 10/6/13

[40] “Everything we can to stop Newman: Swan”: The Australian, February 28, 2013.

[41] ‘Julia Gillard, Tony Abbott reveal their election year visions’,Adelaide Now, Dec 30 2012, our-leaders-election-year-resolutions/story-fndo1sx1-1226545406338, downloaded 11/6/13

[42] Adam, Delis and Kammas, ‘Public Sector efficiency: Leveling the playing field between OECD countries, 2009. Public Choice, January 2011, Volume 146, Issue 1-2, pp 163-183


[44]Labor captive to drivel, says union boss Howes, M Franklin, :The Australian, May 23, 2012, downloaded 2/7/12,

[45] Much of the necessary data is already collected in the Report on Government Services I mentioned earlier. SCRGSP (Steering Committee for the Review of Government Service Provision) 2013, Report on Government Services 2013, Productivity Commission, Canberra, volume 1, chapter 4.

[46] The Public Innovator’s Playbook: Nurturing Bold Ideas in Government, By William D. Eggers and Shalabh Kumar Singh, Deloitte Research, 2009, p 49

[47] Gary L Sturgess, Diversity and Contestability in the Public Service Economy, NSW Business Chamber

[48] Gary L Sturgess, Diversity and Contestability in the Public Service Economy, NSW Business Chamber, p 7-8

[49] Gary L Sturgess, Diversity and Contestability in the Public Service Economy, NSW Business Chamber, p 13

[50] Gonksi Review, Final Report, p 15

[51] ABS, 4221.0, Schools – 2012, p 16

[52] UFB and RBI continues good progress, 24 Feb 2013,, downloaded 10/6/13; 34,500 Australian homes and businesses now using the NBN, 29 January 2013,, downloaded 10/6/13

[53] Gary L Sturgess, Diversity and Contestability in the Public Service Economy, NSW Business Chamber, p 7

[54] Australian Public Service Commission, The Australian Experience of Public Sector Reform, 2003, p 127

[55], downloaded 11/6/13

[56] McKinsey Global Institute, Toward a More Efficient Public Sector, 2011, p 21.

[57] Senator Penny Wong, Driving efficiency savings within government, Media Release, 29 November 2011

[58] ‘Australian Public Service Mobile Roadmap’, p 10., downloaded 13/6/13

[59] Electronic Identity Verification Act (NZ), December 2012

[60] PricewaterhouseCoopers,Transforming the citizen experience, One Stop Shop for public services, February 2012, p 7

[61] UK Cabinet Office, Digital Efficiency Report, November 2012, p 2