Don’t Just Tinker With Government – Reduce It

There are few concepts more nonsensical in Australian politics than the “efficiency dividend”.

Yet in the politics of public service cuts, few are more heavily relied upon.

You’d think that an efficiency dividend was a financial benefit that came once efficiencies were found. That’s what it sounds like, after all. Nope: it’s the other way around. By cutting the public sector, governments take the dividends first – in the form of reduced payroll costs – and just hope the efficiency comes later.

The reasoning is pretty crude: with fewer staff, the public service will simply have to be more efficient. How, exactly? They’ll figure it out. Efficiency through adversity.

Of course, there’s nothing wrong with reducing the size of the public service. It’s worthwhile.

The Commonwealth employs 160,000 people; the states and territories around 1.2 million. These are huge figures. So while it sounds pretty extreme that the Federal Coalition might cut 12,000 jobs over two years, that’s a small part of the whole and roughly the pace of natural attrition.

Campbell Newman’s target of 20,000 jobs is more ambitious, but even then that comes out of Queensland’s public service pool of 207,000.

In any organisation, labour costs are among the biggest costs. Governments that need to balance budgets tend to look at public service size first – particularly conservative governments, who don’t see bureaucrats as a voting constituency.

Public service cuts have their own little ritual. “Frontline staff” will be fine, assures the government. “Essential services” will disappear, counter public sector unions. Bureaucracies – for whom size is a measure of success – shift around staff and threaten to eliminate their most politically popular functions. The press speak of promises broken and everybody tries to divine in the entrails of Newspoll and Essential what it all means.

By the end of this, the poor old government will be lucky if it gets its dividend. It certainly won’t get any “efficiency”.

Because these big job cuts – a dozen thousand here, a dozen thousand there – are like taking a baseball bat to a photocopier: briefly satisfying, perhaps, but it won’t make it copy better.
The only way to meaningfully reduce the size of government is to reduce what government does.

There are, no doubt, inefficient elements within the public service. But those inefficiencies will not be identified through orders from on high about across-the-board workforce reductions.
Cutting jobs without cutting the tasks which those jobs exist to perform will – in every likelihood – undermine service delivery, without sustainably lowering the burden on the taxpayer.

This is an uncomfortable reality. Far easier to insist the public service goes on a diet.

The vast majority of public finances are tied up in health and welfare. Take the Commonwealth, for instance. Its largest agencies are Centrelink, the Taxation Office and Defence. These agencies harbour between 20- and 27,000 staff each. The next largest agencies are substantially smaller: immigration has a labour force of around 7,000, Medicare just over 5,000.

You can see why for new governments, it is appealing to shave these departments by a fraction.

But they are also the departments most closely integrated within the political system. Welfare and defence are two of the central features of the modern state. You can tell how serious an opposition is about reducing the size of government by whether they talk about these biggies, or whether they just rabbit on about marginal things like foreign aid, which are, in truth, a tiny fraction of the budget.

So if governments want to reduce the public sector permanently they’ll have to be creative and courageous. Want Centrelink to be a lighter load? Then your priority has to be welfare reform, not public service cuts. Want the Defence Department to be less of a money pit? Then reassess our defence strategy, or our wasteful acquisitions program. Simplify the tax system if you want to shrink the tax office.

It’s not completely hopeless. There are many things that could be done. For instance, a truly cost-cutting government could get the Commonwealth out of education – that is, return education to the states where it is constitutionally allocated. (And, because they actually run schools, the states have a far better idea than Canberra about where money should be spent.)

In other words, find the efficiencies, and then take the dividend.

Of course, there is no government or opposition in the country that wants to seriously rethink what the public service does. There’s a lot of tinkering planned, but no reform.

Targeting the bureaucracy mistakes the symptom for disease. If you really want smaller government, you need to reduce its functions.