Rebuilding Australian Public Service capability – Part 2

Feb 23, 2022
Parliament House Canberra
The current mess is the legacy of nearly three decades of ill-advised agency-based remuneration management with no connection to outside labour markets. Repair will take time. (Image: Flickr / Rachel Clarke)

This two-part article sets out the main measures a new Labor Government should take to rebuild the capability of the APS which would not represent a partisan agenda but could attract broad support from the Parliament.

The first part focused on measures the incoming government could take immediately to begin a new constructive relationship between ministers and the APS. This second part sets out some more specific measures that would help to enhance the capability of the APS, some of which will take some time to implement; it also highlights the need to learn from Australia’s handling of the COVID 19 pandemic.

Removal of Staffing Caps

Removal of the staffing caps is essential if APS capability is to be restored, and could be implemented immediately. This was the Senate Committee inquiry’s first recommendation, endorsing a Thodey recommendation. While the Morrison Government rejected the Thodey recommendation in 2019, it has since eased some of the caps and the Senate Committee’s minority report did not explicitly reject abolition. Perhaps there is growing appreciation that such caps are not needed given budget caps on administrative expenses and that the staffing caps undermine value-for-money use of administrative expenses by favouring consultants and contractors even when more costly than public servants.

Removal of the caps could, however, lead to renewed misrepresentation of the ‘size’ of government based on APS numbers alone. To avoid this, the APSC (with assistance from Finance) needs to review how it publishes its data on APS employees, perhaps complementing the data with measures of the number of contract staff and other people paid for by taxpayers.

Replacing the Efficiency Dividend

The efficiency dividend is a very blunt instrument for promoting productivity and containing administrative expenses. It almost certainly hinders the capability of many agencies, particularly smaller ones, and reduces the level or quality of services to the public.

The Finance Department could be asked to review how administrative expenses are set and adjusted over time. Adjustments should reflect relevant output-price movements with incentives for productivity gains. Standard adjustments might be complemented by targeted efficiency programs from time to time.

Such a review should also examine how capital investment is funded, drawing on the audit of ICT across the APS that was agreed by the Morrison Government after the Thodey Review. Thodey suggested the need for much greater investment, but there are risks if such investment is only through major projects with pre-existing efficiency targets. More incremental and continuing advancements may prove more successful in delivering both efficiencies and improved public services.

Use of Consultants and Contractors

With no staffing caps and a more appropriate approach to budgeting for administrative expenses, agencies should look to applying strict value-for-money assessments before employing consultants or contractors. As the Senate Committee inquiry recommended (its second recommendation), the principal mode of employment should be direct, permanent employment under the PS Act: this will generally deliver the competence needed as well as the integrity the public should expect. Where agencies face fluctuating workloads and need the capacity to quickly increase or decrease staff, value-for-money and assurance of competence and integrity will be better achieved in most cases by redeploying staff or by using non-ongoing APS employees as a reserve, trained workforce, rather than labour hire.

The APSC’s ‘professions model’ endorsed by Thodey may over time rebuild internal capability in areas such as IT and data management and ensure that, when external support is genuinely needed and represents value-for-money, agencies have sufficient expertise to be informed purchasers and can enhance their expertise through appropriate contracting.

Pay and Conditions

The Senate Committee inquiry endorsed Thodey’s call to move towards common conditions and pay scales, but neither report sets out how this might be done. The current mess is the legacy of nearly three decades of ill-advised agency-based remuneration management with no connection to outside labour markets. Repair will take time.

The Government needs to task the APSC with advising how to set APS pay and conditions and how to transition to a new APS-wide regime. The task will involve at least the following three steps:

  • A proper review of classification and professional career paths. While the recent APS Hierarchy and Classification Review has yet to report publicly, I fear it has not explored in depth how professional careers have shifted since the current ‘multi-skilled’ APS classification system was introduced in the mid-1980s. I am not convinced we need fewer classification levels (rumoured to be proposed), noting the degree of classification creep over recent decades and the limited use of lower level classifications today; we need a new framework that recognises particular professional skills in demand and emerging career paths and encourages steady development through both experience and formal education and training. The development of such a framework requires analysis of the nature of the work performed as well as recent APS trends and experience in the wider market.
  • Market testing of the remuneration of equivalent work and responsibilities at each classification level. At the major entry levels – trainees, graduates, lateral recruitment of key professionals – the APS must be competitive with the broader market. At more senior levels, the relevant market comparison is probably narrower, focusing in particular on other public sector practice and taking into account other attractions for people to continue their APS careers.
  • Consideration of how to transition to a new APS-wide approach, constraining pay for those receiving more than the market suggests and staging the increases in the pay of those receiving less. The transition needs to take account of costs and the case for reviewing conditions as possible trade-offs.

The APSC will need to build its IR expertise almost from scratch, having only gained responsibility for pay and conditions less than a decade ago from the Employment Department which had previously shed most of its former expertise in public sector remuneration management. In building this expertise, and limiting its reliance on consultants, the APSC might also look to reverse its ill-advised ‘outsourcing’ of its core HRM responsibilities to the ATO (which currently heads the ‘HR profession’ across the APS).

Reversing the Trend to Politicisation

As the Senate Committee inquiry concluded, restoring APS capability requires addressing the trend of ‘politicisation’ including by adopting some of the key Thodey recommendations the Government rejected.

My recommendations are along similar lines to Thodey’s, but go a little further:

  • To specify in the PS Act the respective roles of the APS Commissioner and the Secretary of PM&C, making the Commissioner the ‘professional head of the APS’ and the PM&C Secretary the ‘operational head’ assisting the PM and Cabinet to marshal the resources of the APS to meet the Government’s policy agenda;
  • To make the appointment of the APS Commissioner subject to consultation with the Parliament (as is the case for the Auditor-General);
  • For the APS Commissioner to take the lead in advising on secretary and other agency head appointments and terminations;
  • To revisit the APS Values and Employment Principles, in particular to place more emphasis on merit and to clarify the distinct role of the APS;
  • To identify the corresponding values and employment principles of other parts of Commonwealth administration outside the APS (requiring GBE boards to do likewise); and
  • To clarify the accountability of ministerial staff, substantially reduce their number, foster greater mutual respect amongst advisers and the APS, and strengthen the role of departmental liaison officers (who would remain apolitical).

These changes will require further enhancement of the capability of the APSC. When next the position of APS Commissioner is to be filled, it will be important to appoint someone who has experience as a secretary and who has proven professional standing in the APS. Also important is for the APS Commissioner to raise the profile and role of the Merit Protection Commissioner who once again should be made a member of the Commission’s executive team.

Learning from COVID

A major independent inquiry into Australia’s handling of the pandemic is essential, but it should be aimed at identifying lessons for the future rather than just what went wrong and who to blame. The lessons for Commonwealth administration hopefully will include lessons for APS capability.

I am not sure a Royal Commission is the most appropriate vehicle for such an inquiry. We do need one into Robodebt where it is indeed important to reveal exactly what happened and why, but a less legalistic approach would be better for reviewing the pandemic response if the focus is on policy lessons for the future. Amongst the policy issues that should be explored are how best to manage risk and uncertainty, how best to manage federal responsibilities and relationships in a pandemic, how to ensure the nation has the necessary resources and capabilities when supply chains are disrupted, and what capabilities are required within the Commonwealth public sector.

One option is to use the Productivity Commission but to broaden its approach beyond its normal economic frame. One advantage of the PC is that it already has credibility with the States and Territories which might, along with the Commonwealth, guarantee access to documents and relevant officials. Leaders of the inquiry could also be agreed amongst the jurisdictions, as has occurred in the past with some PC competition inquiries. The inquiry should also look at international practice, not just what happened in Australia at national and state/territory levels. There is already a wealth of information including in academic journals assessing the performance of different countries and reviewing how the many common public administration challenges involved have been addressed.

Of particular relevance to APS capability is the role played by the (national) Health Department. Initially, there was evidence that the Department had learned from the SARS experience and the scenario planning for possible future pandemics that it subsequently undertook. This helped to establish the role of the AHPPC, chaired by the Commonwealth CMO, which was prominent particularly in 2020.

I was surprised, however, that the Department later seemed reticent or unable to take the lead, even in pressing agreement at the AHPPC on uniform standards regarding social distancing, isolation periods, vaccine use, tracing methodologies and testing procedures. Its expertise in pharmaceutical purchasing seems not to have been successfully used for vaccination or test kit purchasing and its aged care experts seemed reluctant to get their hands dirty working directly with residential care providers; also, the Primary Healthcare Networks did not seem to play much of a role at all, for example in working with State regional hospital networks, despite their links with GPs and pharmacies. The role the Government gave to the military also suggests a capability gap within the Department in emergency management and logistics.

The Commonwealth is the leader of Australia’s national health system providing the majority of funds and setting the overall policy framework including through Medicare. This leadership is not one of command-and-control but has to be earned by its own expertise and by the quality of its engagement with the States and Territories and other stakeholders, many with a considerable degree of professional and financial independence. Critical to this capability is the Department’s strategic policy capacity, a capacity that evidently has waned over the last decade or longer. That capacity is sorely needed not only to address the problems identified during the pandemic but also to address the many new challenges facing the health and aged care system: access to affordable care, the role of private health insurance, the need for more integrated patient-oriented care, quality and choice in aged care, and rising costs.

Sadly, Health is not the only department that needs to rebuild its strategic policy capability. Other lessons for Health from such an inquiry might also have broader relevance, including the use of scenario planning and risk management, how best to engage with the States and Territories (and ensure responsiveness to local and regional circumstances) in areas of shared responsibility, and the skills and information needed to exercise the Commonwealth’s role effectively.


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