Government outsourcing: There’s gold in them thar hills!

May 21, 2022
Street sign pointing to outsource and inhouse
There are some notable instances of privatisation where we have to question whether the Australian public is actually better served. image: iStock

Government outsourcing in Australia occurs in many ways. It can provide the best outcome for the community. But at the other extreme, it could mean a case of outright corruption. If there is inadequate monitoring and accountability, the Australian public at large could be short-changed due to dubious contracts and too much profiteering.

What is the value of outsourcing?

Outsourcing relates to tasks that conceivably could be performed by government, including traditionally government ones. For it to be justified there need to be definite benefits in the form of cost savings and better outcomes.

Implicit should be that any outsourcing is unbiased, made through a tendering system and that the successful provider is monitored closely and fully accountable.

Risks and problems include loss of control, communication problems, privacy and security issues, unacceptable quality, cost overruns and subcontractors who rort or who go bust.

Poor outcomes can result if outsourcing is done by politicians for ideological reasons or to garner votes, or by them or public servants bowing to lobbying, rewarding family members or acquaintances, or personally profiting from a contract.

Australia’s federal LNP government is clearly in the neoliberal camp of lower taxes, smaller government and a reduced public service. In the last 10 years of their control, the problems of outsourcing have been laid bare. But their practices go back further. In the meantime the public service has been transformed, according to some points of view, from serving the public to having to serve the political party in power.

From a subcontractor’s point of view, if you can win a government contract you may well make a fortune. Governments often under-scrutinise. They pay well and they pay on time! There is plenty of taxpayers’ money on offer and not surprisingly there are plenty of snouts waiting at the troughs. Do the opportunists “see gold in them thar hills”?

Outsourcing Australia

Outsourcing by privatisation

There are some notable instances of privatisation where we have to question whether the Australian public is actually better served, for example, privatisation of major airports, the Commonwealth Bank, Telstra, Medibank and Victoria’s SEC.

This 2015 submission on privatisation by The Australia Institute advises that where a market is a ‘natural monopoly’, … the community can be held to ransom and be forced to pay much more than the cost of delivering the service.

Apart from whether our national security is compromised we need to ask whether it makes sense that significant profits for foreign investors is generated from our daily activities like switching on a light, turning on the gas to cook dinner, catching a train, telephoning a friend, dropping off your toddler at childcare, visiting the doctor or having an x-ray?

Outsourcing to individuals via tax cuts

Coalition ideology is that individuals are best able to manage the money they earn. Thus former treasurer Costello gave a series of income tax cuts in the 2000s, as did treasurers Hockey, Morrison and Frydenberg since 2013. Implicit in cutting taxes is the assumption that there are certain services that could be provided by government but are best handled by the individual in the open market.

However, there is a case for more services to be provided by government, for example dental care and childcare and better access to elective surgery. Higher income earners have easily benefited the most from tax cuts and can afford such services; those on low incomes can’t and too many miss out.

Tax cuts have an opportunity cost. An obvious alternative use, in the face of climate change, is to prepare the country to cope better with the inevitable fires, floods and cyclones that will occur more severely and more frequently. And have us well-prepared for the next pandemic too!

Outsourcing via grants to community groups and local government

Rather than build new sporting club rooms, fix up cemeteries or erect a memorial, governments can provide grants for community groups and local governments to undertake the work themselves.

With the so-called sports rorts: “Liberal electorates received three times more taxpayer money than Labor-held seats, as a detailed analysis of more than 19,000 grants reveals a highly politicised system rife with uneven spending.”

And with the car park rorts: “the projects were selected in private and announced by press release” and “It was later revealed that many of the projects were located almost exclusively in Liberal held seats, or in marginal seats.”

Outsourcing education and training

Under Coalition governments the well-off have significantly better education opportunities. Investigations revealed private school funding has increased at five times the rate of public schools, with government funding for independent schools increasing by $3,338 a student over a decade, compared with $703 more per student for public schools.

At a time when Australia suffers from a shortage of skilled workers, the TAFE area and VET (vocational education and training) are not geared up to fill the gaps. This analysis in P&I explains how TAFE has been drained of funds in favour of poorly performing and dodgy private providers and that despite a decade of a failure, governments continue to pursue this ideological path.

Similar problems exist with delivery of employment services to job seekers by some hundreds of private providers.

Outsourcing for infrastructure projects

The old public work departments have effectively vanished. Tunnels, power schemes, railway lines, ports and telecommunications facilities require enormous amounts of government and private money. The cost of infrastructure projects underway in Australia is up towards $100 billion.

For energy and climate change policies, questioning is imperative. The Coalition’s apparent financial support for fossil fuels over renewable energy could be construed as a misuse of government power and funds, if it means Australians are worse off and endangered as a result.

Outsourcing aged care and disability services

The final report by the royal commission into aged care in February 2021 found an industry in crisis. An earlier interim report from October 2019 had already reported “A Shocking Tale of Neglect”. Six months later, residents began dying from Covid, mainly in Commonwealth regulated facilities.

The problems highlight possibly the worst instance of outsourcing in Australia. This analysis reports that the federal government funded $13 billion in 2019. The vast majority of nursing homes in Australia are not government owned but owned by a mixture of small and large for-profits, not-for-profits and charities.

So how much does greed and the profit motive play in the misery experienced in too many of these facilities? The Aged Care Royal Commission included this research from 2017 on the cost to feed aged care residents in Australia. It showed an average spend of $6.08 per resident per day on raw food and ingredients. That was 36% less than for those in prison!

The extra funding thrown at the providers must end up somewhere. The SMH reported that in 2020 not-for-profit aged care homes were making big money, but crying poor and that “the financial reports of the largest church and charity-run nursing home businesses show they are generating substantial incomes“.

There are similar problems in the disability support system: “The care economy is now one of the fastest growing parts of the economy; it is the sector which is forecast to generate seriously large numbers of new jobs, yet we know very little about how it is structured or who actually runs it”.

Outsourcing healthcare, quarantining and refugee centres

The ABC Four Corners program of 2 May, 2022 was entitled profiting from the pandemic. The program highlighted how disasters can provide “golden” opportunities for potential providers, with potentially lucrative contracts on offer combined with minimal accountability, and even bad performance.

Outsourcing refugee detention by the government is costly yet much of the system is possibly redundant. For example, a year ago The Guardian reported that a Brisbane company was paid $1.4bn to run offshore processing on Nauru despite no arrivals since 2014.

So does outsourcing work for Australians?

Certainly not always. The pointers are for less outsourcing rather than more. There is a clear need for an investigation into how not-for-profits and charities are treated by the tax system.

The private sector is there for investors and owners, and that effectively rules out that it has the well-being of Australians overall at heart. Greed and easy money come into play.

The argument that the private sector (always) does a better job than the public sector is a hollow one. Through modern management practices the public service of today may significantly outperform private industry. Even in our daily lives, service from the private sector is too often indifferent, sub-standard and even shocking.

In summary, there are too many examples of government outsourcing where there may have been extraordinary waste and rorting. Every organisation that receives government funding should be accountable. As a minimum we need a strong national audit office and a strong anti-corruption commission. It would more than pay for itself by saving Australian taxpayers countless billions of dollars.

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