A top-heavy public service

Over the last two decades, the federal public service has grown top-heavy and expensive.

Since the early 1990s, top-level management has grown over 50% (1,800 to 2,700) while middle management has more than doubled (18,500 to 41,700). At the same time, entry level workers – APS1 and APS2 employees – have declined 90%.

Salaries are also rising, particularly at the top. Base salaries for top-level managers have grown between 25% and 35% in real terms since 2002, compared to just 15% at lower levels, and 17% in the private sector.

The government today is employing far more managers in the public service, and paying those managers larger salaries.

Workforce costs are one of the largest running costs that government agencies must manage, but it is clear that these are not being managed particularly closely. Agency running costs (such as salaries and office expenses) increased from $32 billion to $52 billion throughout the 2000s, or 23% in real terms. Over the same period, an efficiency dividend of around 1.25% had applied in an attempt to control costs.

Fundamentally, the public service is growing because government is growing. New policies and programs are driving costs up because new initiatives require new funding, and a well-resourced bureaucracy to administer them.

The efficiency dividend is a blunt instrument for cutting public sector costs as it fails to target cuts at waste. The efficiency dividend applies across-the-board, and in doing so, applies to efficient and inefficient agencies alike.

The government should instead conduct independent annual reviews of agency functions. This is a chance to measure performance (both on cost and effectiveness), but it is also a chance to decommission ineffective or inappropriate functions. Too often new programs introduced to tackle distinct problems stay on the books with little evaluation to their effectiveness or cost.

But fundamentally, government needs to be asking if new initiatives are justifiable for government. If, as Treasurer Hockey says, the age of entitlement is truly over; and if we truly want a less intrusive government, we need to limit what government does..

Alexander Philipatos is a policy analyst at The Centre for Independent Studies, and author of Withholding Dividends: Better Ways to Make the Public Sector Efficient.