Commission of Audit recommends public service job cuts, mergers

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Canberra would wear the lion's share of pain based on recommendations from the National Commission of Audit, which suggests ruthless changes to the federal bureaucracy.

But the commission's chairman, Tony Shepherd, said public servants should look past the unpleasantness for the good of Australia.

Expecting a negative reaction from bureaucrats and their unions, Mr Shepherd said public servants should read the report carefully and "not think of it in terms of my job but in terms of my country".

As many as 25,000 job losses in the public service are feared after the commission recommended the federal government cut deeper than the 12,000 jobs promised by the Abbott government before the election.

The report has recommended a sweeping overhaul of the Australian Public Service and many of its programs, including an attack on top-heavy management numbers, abolishing and consolidating government bodies, as well as privatisations, mergers and staff cuts.

Mr Shepherd, well aware the report would "have an impact" on Canberra, also said it would help the city's economy move away from its over reliance on the public sector.

Chief Minister Katy Gallagher said significant economic harm would be done to Canberra if all the proposals were adopted. The ACT population had a nervous wait until budget night in less than a fortnight, when Treasurer Joe Hockey would reveal the full list of suggestions the government endorsed.

"There's nothing that stands out and says this is a good pathway forward for Canberra or for Australia in terms of a fair go for all," Ms Gallagher said.

"I think it starts segregating socio-economic statuses."

The report said, as a broad guide, 15,000 fewer public servants would be required, although when questioned Mr Shepherd was cautious about a headline figure. He said it was unknown how many of those jobs overlapped with the government's existing commitment to reduce the bureaucracy by 12,000.

Community and Public Sector Union national secretary Nadine Flood said she believed Mr Shepherd had dramatically underestimated the job losses that would flow from his recommendations.

"The estimate on job losses is conservative given the scope of work to be outsourced or privatised [and] we think the real number might be closer to 25,000," Ms Flood said.

Her number included 6000 job cuts already announced in the latter part of last year.

"The Commission of Audit wants Medicare, pension and family payments to be run for profit by private companies. This wholesale outsourcing would lead to massive job losses, and this government wants all the people who do that work to be sacked so that big business can run those services.

"People in Canberra are already scared by the scale of the cuts that may be coming in the budget and we have a huge job to do to protect workers from the worst ravages of this commission."

The report's far-reaching implications target the Public Service Act, saying it should be changed to enshrine the obligation of bureaucrats to be "highly productive".

Prime Minister Tony Abbott's razor gang has also zeroed in on the top-heavy nature of the bureaucracy by saying there are too many mid-level managers who are not looking after enough staff.

The report recommended the eight biggest departments immediately tell Cabinet how this can be fixed.

The report's biggest recommendations include:

• Reduce the staffing size of Defence headquarters in Canberra to 1998 levels.

• Roll the Defence Materiel Organisation into the Defence Department. The DMO's existing staff numbers in Canberra would be reduced to 1998 levels and there would be a renewed focus on contract management rather than project management.

• Of the government's non-principal bodies, it recommends consolidating 57, abolishing 35, merging six, privatising one and reviewing the other 383 with a view to further rationalising.

• Outsource the claims function of the government's multibillion-dollar agency Comcare and getting the private sector to underwrite its workers' compensation insurance scheme.

• Privatise 10 bodies, including Australian Hearing Services, Defence Housing Australia, the Australian Submarine Corporation and Snowy Hydro Ltd by 2016, as well as the Royal Australian Mint, COMCAR and the Australian Rail Track Corporation after 2016.

• Investigate whether the Department of Human Services' payment system can be outsourced now that much of the existing system is outdated and would cost up to $1.5 billion to replace.

• Public Service Commissioner Stephen Sedgwick's job could be done by the secretary of the Employment Department, which would take on all the commission's roles.

• Abolish the role of the Merit Protection Commissioner, who reviews code of conduct and promotion decisions made about public servants. These responsibilities also should go to the Employment Department; the report notes only one of 174 promotion decisions reviewed in 2012-13 was varied.

• Forging ahead with shared services, which means amalgamating the IT and other corporate functions of government. Even the Commission of Audit notes this is risky following bad experiences in some parts of Australia at state level, but it recommends a cautious approach.

Mr Shepherd said government spending per person in Australia had increased from $6000 per person a year to $15,000 and the budget could not keep pace.

"This [report] will have an impact on Canberra and I'm aware of that but we've also recommended government do more in big data and IT and I think there are opportunities here [for the city]," he said.

Mr Shepherd said the changes had to happen to keep a lid on spending, adding the business as usual approach would end in unsustainable increases in costs.

"The commission recognises the unfairness of saddling today's children with our debts," Mr Shepherd said.

The report said $1 billion would be saved if all agencies stopped spending above median for corporate functions.

"High-level benchmarking suggests that median spending of $4700 per person in the Australian Public Service is more than double the median in similar private sector organisations," the report said.

When it came to the APS's "top-heavy" middle management, the report said EL1 and EL2 staff across the federal public service were well below benchmarks when it came to the number of staff they were managing – between two and 4.8 staff per manager compared to benchmarks of between five to 10 workers per immediate boss.

About 40 per cent of the public service's 167,000 staff were employed in the classifications between APS6 and EL1, who on average cost between $120,000 and $147,000 in salary and on-costs.

The commission said there were high levels of disengagement among APS management when compared to the private sector.

The bodies it suggested should be abolished included: the Asbestos Safety and Eradication Council, Low Carbon Australia, the Climate Change Authority, and the Export Finance and Insurance Corporation.

In terms of shared services, the commission suggested the government should share all procurement and finance functions as soon as possible, while in the medium term departments and agencies should reform their practices so they are at least using the same functions, in areas such as IT.

Fraser MP Andrew Leigh, who has 8555 civilian Defence personnel in his electorate, slammed the report.

"We have about as many public servants per person as we had when the Howard government left office," Mr Leigh said. "‘Internationally, Australia's public service is of a similar size to other developed nations."

Former Finance Department deputy secretary Stephen Bartos said Mr Shepherd's report was less savage than the one undertaken for the Howard government in 1996.

"It seems to me that this is a report that has been written with an eye to implement-ability," Mr Bartos said.

"It goes further than the government would want but it's nowhere near as extreme as, for example, the Bob Officer report in 1996.

"This one is less ideological and more considered and more pragmatic."

The five-kilogram report also outlined 14 programs accounting for $330 million of spending that it said should be abolished.

In addition, the report said all agencies should review programs to find which could be merged or scrapped in the lead up to the 2015-16 federal budget.

Programs to be scrapped

The suggested programs to scrap were:

• The Department of Social Services $104 million financial management program.

• The Department of Industry's clean technology programs worth $78 million and $9.9 million automotive new markets initiative.

• The Department of Infrastructure's $29 million community infrastructure grants program.

• The Australian Research Council's $20.3 million industrial transformation research program.

• The Attorney-General's Department international film incentive payments worth $20 million and its $19 million national crime prevention fund.

• Tourism Australia's industry regional development fund.

• The Department of Education's $9.8 million improving education outcomes, its $5.6 million school education reforms implementation program worth $7.8 million and its Australian institute for teaching and school leadership program worth $5.5 million.

• The Department of Environment's $7.8 million Australian climate change science program.

• The Defence Materiel Organisation’s skilling Australia defence industry program worth $5.3 million.

• Department of Prime Minister and Cabinet's national congress of Australia's first people congress, which would free up $5 million.

The report also recommended:

• Abolishing the Defence Services homes insurance scheme.

• Assessing the potential of outsourcing the Defence Science and Technology Organisation.

• Consolidating part of the Australian Government Solicitor's office of general counsel into the Attorney General's Department and investigating the possibility of winding up the rest of the entity and selling its client book.

• Rolling audits of audits by the Department of Finance or an independent panel – and the commission said the Defence Department, which already is under the spotlight from a range of audits, should be the first.