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Rescaling the APS

Ultimately, as noted in last year's State of the Service report, the correct size of the APS is determined by the nature and scale of the activities a government wishes to pursue and its preferred delivery model.

The forward estimates of the previous government contain considerable downward pressure on APS numbers, partly because funding for some programs is coming to an end and partly because of the accumulating impact of efficiency dividends, additional efficiency dividends and similar measures. The new government is also committed to achieving budget savings by reducing the Commonwealth public sector by a further 12,000 positions through natural attrition over two years. It is difficult to predict the accumulating impact on APS employee numbers of these measures and any that may emerge from the work of the Commission of Audit or government decision making in the budget context.2 Even allowing for the uncertainties and the pressure to add people with different skills as new policies are introduced, it is clear the APS will undergo a very significant net downsizing over the next few years. Indeed, in headcount terms, the peak in APS numbers has already passed—it occurred in June 2012.

The last major downsizing of the APS began in 1996 and took place over three years. The APS headcount was reduced by almost 30,000 (20.5%) over this period. The then government sought to reduce the size of the public service through a combination of measures that included a reduction in recruitment of employees from outside the APS (recruitment was confined to filling essential positions), strict controls on the engagement of non-ongoing (or temporary) employees, the avoidance of higher duties allowance as far as possible, and a requirement to use excess employees to fill vacancies, including a central process to place employees seeking redeployment across the service. The government did not implement a ‘recruitment freeze’. Indeed, engagements continued at a rate equivalent to 5% of the APS workforce throughout this period. The overwhelming majority of separations were made through retrenchments.

Importantly, the then government took a number of decisions that changed what government would or would not do, giving shape to the downsizing. John Nethercote's examination of the departmental machinery-of-government changes that took place between 1987 and 1998 is instructive in putting the 1996 to 1998 downsizing in context.3 On taking office in 1996, the government took a number of significant structural decisions that resulted in reductions in the size of the public service. However, these changes can be seen as an extension of what had been a significant period of change for the public service that started in 1987.

Throughout this time the government of the day made structural decisions about the public service that included abolishing, re-shaping, moving and outsourcing public service functions. For example, a large stream of work was removed from the Attorney-General's Department when the Australian Government Solicitor was converted into a statutory authority, and a substantial commercialisation program in the Defence portfolio enabled a downsizing of its workforce. This continued in the late 1990s with the outsourcing of a number of activities previously performed in-house, the so called ‘yellow pages test’. A particular focus of these activities was on outsourcing information technology (IT) infrastructure and ‘back office’ services. However, strategic decisions about the method of delivery of services to the public also contributed. For example, the Commonwealth Employment Service was abolished and Job Network4 established to provide labour market assistance to the unemployed.

Natural attrition in the APS is currently 4.1%. This has fallen significantly compared to the peak, which was reached in 2007–08. Part of the explanation probably lies in the impact of the global financial crisis on retirement savings. Another factor has been that in recent years agencies have sought to reshape their workforces to meet both client expectations and budget targets, and the use of redundancy benefits has increased. Historically, natural attrition is inversely related to the availability of redundancy benefits. The 2013 natural attrition rate is at about the same level as it was between 1996 and 1998.

Engagements in 2013 were running at close to historic lows at the time of the change of government. Indeed, there is only one instance in the past 20 years when engagements as a proportion of the workforce has been lower than it is today, and that was in 1996–97. To minimise the costs of achieving the overall reduction in public service numbers implicit in the forward estimates and other policy statements, the government has introduced temporary measures to restrict new hiring. The arrangements are not a recruitment freeze. Ratherthey require agencies to demonstrate to the Australian Public Service Commmissioner(the Commissioner) that a vacancy needs to be filled and, if so, require that they first seek to fillit from within the APS, with preference given to employees with the appropriate skills who are potentially excess. Critical vacancies that are genuinely difficult to fill from within the APS may still be advertised, with the agreement of the Commissioner, for filling by external applicants. Certain ‘difficult to re-start’ recruitment, such as the annual intake of graduates, will also continue.

The objective is to restrict new hiring while preserving the capacity of the APS to meet legitimate business needs. The arrangements to seek approval to advertise are intrusive and not sustainable for a prolonged period. If such restrictions are sustained over the longer term this could have unpredictable impacts on the capability of the APS. It is hoped that the need for such centralised controls will be reduced in time as the shape of future decisions about which areas of activity the government will withdraw from (or scale back) become clearer, including in light of the report of the Commission of Audit.

Machinery-of-government changes

After the election, the government changed the structures and functions of Commonwealth departments in support of their policy agenda. Three departments (the Department of Education, Employment and Workplace Relations, the Department of Resources, Energy and Tourism and the Department of Regional Australia, Local Government, Arts and Sport) have been abolished, two new departments created (Department of Education and Department of Employment) and a further nine departments renamed, in part to reflect functional changes.5

Some of the more significant changes include the:

  • consolidation of Indigenous policy, program and service delivery functions previously performed in a number of departments into the Department of the Prime Minister and Cabinet
  • responsibility for customs and border control policy moving from the Attorney-General's portfolio to the (renamed) Department of Immigration and Border Protection
  • settlement services for migrants and humanitarian entrants moving from the immigration department to the (renamed) Department of Social Services, which also assumed responsibility for ageing and aged care, all programs for people with disability, and all income-support arrangements for working age people
  • climate change policies and programs moving from the industry department to the (renamed) Department of the Environment, with the Department of Foreign Affairs and Trade assuming responsibility for leading Australia's participation in climate change negotiations.

The government also signalled its intentions to abolish some statutory bodies (for example, the Climate Change Authority) and announced that the Australian Agency for International Development would be integrated into the Department of Foreign Affairs and Trade.

Substantial machinery-of-government change is not a new experience for the APS. These types of adjustments to the structure and function of the APS occur periodically. These are times when the professionalism, resilience and responsiveness of the APS workforce are especially apparent.

Machinery-of-government changes present an opportunity to bring ‘like functions’ together to exploit economies of scale and scope. They also allow a government to give organisational expression to its priorities. At the same time, they are disruptive and can be expensive and need to be managed with considerable care.

One source of cost pressure is the considerable variation in the terms and conditions available to APS employees in different agencies. For example, employees will often move onto the salaries of the gaining agency when these are more generous. Another is the cost of moving employees onto IT and other systems that are different to those of their original agency. There is legitimate debate at the moment about whether these differences continue to be justified. The original rationale for such differences was to give agencies scope to introduce employment arrangements and systems and procedures that best meet their business needs. Work is in hand within the APS, however, to revisit some of these assumptions. An example is work currently getting underway to examine the case for fewer (in some circumstances, a single) enterprise resource management systems to provide financial management or human resource management information to agencies. Any such move will take time to implement efficiently. Moreover, the scope to exploit economies may be restricted by the extent to which agencies preserve significant differences in employee conditions or business processes. Small steps were taken in the 2011 enterprise bargaining round to achieve greater commonality in terms and conditions. It remains to be seen how much scope is currently available to pursue such an agenda in the tight financial environment agencies now face.


Footnotes

2 It is harder still to predict the impact on headcount, that is, the measure of APS size reported in our official statistics (including this report) rather than on average staffing level (ASL). An example may illustrate the difference between ‘headcount’ and ‘ASL’. Headcount is a point-in-time count of the number of individuals employed. ASL is an average measure of the number of people employed on a full time equivalent (FTE) basis throughout the year. A person employed on the census day (say end June) on a part-time basis (in this example for half the week) registers as one for headcount, but they count as half of a FTE. If that person were employed on that basis for the whole year they would be recorded as half an ASL, but if they only joined the APS half way through the year they would contribute the equivalent of one-quarter of an ASL for that year.

3 J Nethercote, ‘Departmental Machinery of Government Since 1987’, Research Paper No. 24 1998–99, Department of the Parliamentary Library, Commonwealth of Australia, Canberra, (1999).

4 Known since 2009 as Job Services Australia, and currently funded through the Department of Employment.

5 The State of the Service Report 2012–13 is based on 2012–13 financial year data; machinery-of-government changes that occurred after June 30, 2013 will be reflected and discussed in detail in the State of the Service report for 2013–14.