ACTU SUBMISSION1997/98 BUDGET, APS RUNNING COSTS

1. Unions in our 3 April 1997 response to the draft Government Policy Parameters for bargaining indicated that:

a Adequate funding of pay outcomes must be available so that pay increases are not at the expense of jobs.

b Arbitrary Budget measures are totally incompatible with genuine productivity bargaining.

c There is no case for returns to Budget as part of gain sharing.

2. This submission is in support of the union position that adequate funding should be provided through the Budget for pay increases and improved quality of APS services.

3. We outline the:

A. Financial arrangements associated with APS enterprise bargaining and with State and Territory Public Service pay increases;

B. Analyses of the efficiency dividend and its impact on enterprise bargaining;

C. Quality issues for the APS; and

D. Current situation facing the APS.

A. APS & STATE / TERRITORY ARRANGEMENTS

1. DIR has invited the ACTU to look at previous financial arrangements for bargaining in the APS. Bargaining has taken place at both the service-wide and agency levels in recent years.

2. DIR stated in a letter of 8 April 1997 to the ACTU that:

"The draft parameters envisage improvements in pay and conditions under agency-level agreements in the APS being generally offset by productivity gains achieved by each agency in the context of its own circumstances. That result is best secured through agencies meeting the cost of agreements from within their running costs appropriations, as generally determined in the Budget context (including any adjustment to salary running costs), without recourse to either increased prices or reduced quality of the services delivered by an agency. This is in line with previous arrangements for agency bargaining, except there will be no requirement for any share of the savings from agreements to be placed in a pool to subsidise pay increases in other agencies".

3. The ACTU in our letter of 9 April 1997 noted DIR's:

"... acknowledgment of the important relationship between funding available to agencies through the budget process and the outcome of bargaining".

4. Arrangements for the APS have included either:

- full budget supplementation; or

- budget supplementation for economic adjustment, supplementation for time required to achieve productivity increases, recognition of productivity gains from program, revenue and running cost savings, and recognition of overlap between the efficiency dividend and workplace bargaining pay increases.

5. The "Continuous Improvement in the APS Enterprise Agreement 1995-6" provided for full supplementation directed to promoting secure employment in the APS. The Agreement stated that:

"Accordingly, the application of pay increases under this Agreement will not result in arbitrary job reductions". [p.5]

6. Under the "Improving Productivity, Jobs and Pay in the Australian Public Service 1992-1994"Agreement the Commonwealth Government recognised that "economic adjustment" should be fully supplemented from the budget. Under the Agreement "economic adjustments" of 1.4% in March 1993 and 1.5% in March 1994 were fully supplemented from the budget. A decision is expected soon on the ACTU Living Wage Case.

7. The Commonwealth Government also has recognised that productivity increases take some time to achieve from workplace reform. Under the 1992-94 APS Agreement initial supplementation for the 2% service-wide increase was granted with the commencement of the Agreement.

8. Agreement reached in October 1993 to resolve a Service-wide dispute included that:

- the Government in determining from time to time the functions and funding of the APS was committed to providing funding so that staffing levels are consistent with the workloads of these functions;

- the previously unfunded 2% increase in the second year of the Agreement would be funded in part from the efficiency dividend offset.

9. Under the 1992-94 Agreement productivity gains which contributed to meet pay increases came not only from within an agency's running costs, but also from program savings and revenue generated.

10. The Government in the 1992-94 Agreement recognised overlap between gains used to fund the efficiency dividend and those used to fund workplace bargaining pay increases. The efficiency dividend offset was introduced under which for savings made in running costs that part of the efficiency dividend relating to the sub-Senior Officer salary base could be offset against an agency's contribution to the foldback pool for salary adjustments at the end of the agency bargaining period.

11. Recent State and Territory Public Service pay increases have been either fully or partially supplemented from the Budget - for example, in Victoria and New South Wales there has been full supplementation while there has been 75% supplementation in Queensland.

B. EFFICIENCY DIVIDEND

1. The Efficiency Dividend is a reduction in running costs which each agency must provide for each year, unless specifically exempted. The Dividend was announced in September 1986 as a 1.25% reduction in operating costs to be implemented each year for three years.

2. The Efficiency Dividend has been subject to review by Government and Parliament. The Dividend has been criticised as an across-the-board cut in resources with little regard to outcomes, which threatens service quality. The impact on enterprise bargaining has concerned Committees of the Parliament.

3. The Task Force on Management Improvement in its December 1992 Report "The Australian Public Service Reformed" noted that:

a Many agencies took a very negative view of the efficiency dividend.

b In a survey of views of the efficiency dividend of Senior Executive Service (SES) Officers, 14% of the SES Officers agreed that the efficiency dividend was proving to be an effective device for realising efficiency and productivity gains [p.246].

4. The Task Force observed that:

"There is a strong body of opinion that the future of the efficiency dividend lies in resource agreements and workplace bargaining, not in fixed arbitrary annual reductions in running costs. Resource agreements could form the basis for an increase in the amount available for performance pay, and, through enterprise bargaining, the gains in efficiency could be shared with the Budget. Such an approach could address many of the objections to the existing arrangement, including its "blunt instrument" quality, the differential impact among various agencies (including, possibly, dividend evasion), and differing capacities to make productivity improvements". [p.250]

The Task Force concluded that:

"The future of the inevitably unpopular efficiency dividend will need to be resolved with decisions about workplace bargaining". [p.267]

5. The Joint Committee of Public Accounts in its December 1992 Report "Managing People in the Australian Public Service" concluded that:

"The introduction of workplace bargaining is planned to result in work conditions based on productivity and may render the concept of efficiency dividends irrelevant, if not invalid. In view of productivity gains associated with the introduction of workplace bargaining the Committee regards it as timely to review the need for continuing the efficiency dividend, with a view to abandoning it altogether.

The Committee recommends that :

  • the efficiency dividend be abandoned" (p.105)

6. The Joint Committee reported that:

"The Committee regards the efficiency dividend as having been very damaging not only to the APS as a whole, but to smaller agencies in particular which have found it impossible to continue to achieve. The Committee is concerned that the arbitrary imposition of a flat rate of 1.25% per year, regardless of the capacity of the agency to meet it, as one of the most damaging aspects of the efficiency dividend. The Committee views the continuing application of the efficiency dividend as a serious danger to the provision of services by the APS and its efficiency". (pp104-105).

7. The Efficiency Dividend also was reviewed by the House of Representatives Standing Committee on Banking, Finance and Public Administration, with David Simmons as Chairman and Peter Reith as the Deputy Chairman.

8. The Committee in its March 1994 Report "Stand and Deliver" noted that:

"2.50 Workplace bargaining was raised in the majority of submissions and two issues dominated: that the efficiency dividend inhibits agencies in their ability to successfully conclude workplace bargains; and that workplace bargaining is an alternative to the efficiency dividend".

"2.51 When workplace bargaining was introduced, the potential to double count in terms of efficiency gains was recognised and the efficiency dividend offset arrangement was devised to address this potential problem. One difficulty the Committee has with the offset arrangements is that the offset is limited to the sub-senior officer salary base, which seems to be rather restrictive". [p.25]

9. The Committee commented that:

"4.28 The Committee does not see a long term future for the efficiency dividend in its present form. The variable capacity of organisations to meet the efficiency dividend obligations will ensure that some agencies will begin to lose their capacity to maintain the quality of the services that they are meant to provide. It is imperative that alternative approaches be developed to ensure that managers have an incentive to continue search for efficiencies and to ensure that the government is able to access a portion of those gains for other Budget priorities.

4.29 The first and most important step to changing the current approach will be to put more effort into developing a means to enable realistic assessments to be made of the output of the public sector in both qualitative and a quantative sense". [p.46]

10. The CPSU in its October 1993 Submission to the Committee had noted that:

"The efficiency dividend has a particularly negative impact in agencies where other agreements have been reached over the relationship between resources and workload and/or the introduction of technological change, and in the context of agency bargaining". [p.11]

11. The Committee's recommendations included that:

"The rate at which the efficiency dividend is levied be reduced from the current 1.25% to 1% and that this rate be reviewed at the end of the 1995-96 financial year"

and

"An efficiency dividend continue to be applied to running costs appropriations until 1996-97 and that it be reviewed immediately at the end of the 1995-96 financial year".

and

"All section 35 receipts be exempt from the efficiency dividend".

12. The Government agreed in response to the Committee's Report to:

- lower the efficiency dividend rate to 1% per annum for departments and agencies, as they settle outstanding property matters;

- exempt all Section 35 and external receipts of agencies. Receipts from large commercial activities of agencies would be subject to specific dividend arrangements; and

- review the efficiency dividend again after the 1996-97 Budget.

C. QUALITY ISSUES FOR THE APS

1. Quality of service is important for the APS. The need for a focus on quality has been raised both by the House of Representatives Standing Committee on Banking, Finance and Public Administration and by the Joint Review of the 1992-94 APS Agreement.

2. The House of Representatives Standing Committee recommended in its March 1994 Report that :

"The Department of Finance and the Department of Industrial Relations examine the options available to develop a process for measuring productivity which takes account of the quality of output in the Australian Public Service."

3. The Government responded to the Committee that :

"the Departments of Industrial Relations and Finance, in consultation with the Australian Bureau of Statistics, will be re-examining the issues associated with measuring productivity and quality of service in the Australian Public Service."

4. The CPSU indicated its major interest in consideration of these issues, not the least because of their interaction with pay bargaining processes. The Government in June 1994 indicated that the scope and resource requirements of the examination were being considered.

5. The Industrial Democracy and Workplace Reform Sub-Committee of the Joint Council of the APS in its October 1994 Joint Review of the 1992 - 1994 APS Agreement noted that unions were concerned that a narrow 'accounting' approach to productivity gains within the lifespan of the agreement was being taken, which was seen as inconsistent with continuous improvement (pg. 21).

6. The Sub-committee noted that:

'If the full impact of productivity improvement is to be understood, it will be critical for performance measurements to comprise a balance between quantitative and qualitative measures' (p.22)

7. The Sub-committee noted that issues of concern from agency bargaining in the APS had included:

'an exclusive focus on quantitative rather than qualitative measurement in relation to workplace reform' (page 41)

8. The Sub-committee recommended that in considering any future arrangements to apply to the operation of productivity bargaining in the APS greater consideration be given to :

'the particular features distinguishing the public sector operating environment to that of the private sector' (page 42).

9. Some differences in the approach to quality in the private sector and the APS are recognised by the Department of Finance.

10. Mr Owen Donald, First Assistant Secretary in the Department, in a May 1994 address 'Workplace Bargaining and Performance Improvement in the APS' argued that :

"The fundamental difference between the private sector and most of the APS is the existence of markets which determine both the price and quantity of outputs. This means that arrangements for distributing the benefits are relatively straightforward in the private sector. Not only are private sector enterprises under competitive pressure to match the market in terms of wages (therefore establishing the gains going to employees), but they also need to compete in terms of output. This means that in the private sector market forces will provide powerful signals to help the bargaining parties determine how gains are distributed to consumers (in terms of lower prices or higher quality output), to labour, and to capital (in terms of profits to the owners of the enterprise). Most importantly, consumers can choose to pay higher prices for improved quality which, in turn, can fund wage bargains based on changes in work practices which lead to higher or more consistent standards of quality.

While in many senses much of what we do in the APS is contestable and there is some market pressure determining gainsharing, the relationship is nowhere near as direct. There is generally no specific price paid for our products. The allocation of resources, and therefore the level of output, cannot be determined by market forces. Resources are in effect rationed by government through the budget process." (p.3)

11. Mr Donald also stated that :

"I understand that there is support among some APS Departments and agencies for the inclusion of improvements in the quality of service in the next APS Agreement." (p.4)

12. The Government envisages improved quality of services for the APS.

13. The Government December 1996 Discussion Paper 'Towards a Best Practice Australian Public Service' envisaged that a Charter of Government Performance will work to 'improve the quality, effectiveness, efficiency and accessibility of services'. (p.10)

14. The Discussion Paper also envisages that:

"the proposed introduction of Government Service Charters will improve the accessibility, transparency and responsiveness of the APS', with objectives including 'putting service quality alongside efficiency and effectiveness as a key evaluative criterion". (p.13)

15. The ACTU response to the Government's discussion paper indicates that:

"APS unions support the concept of Government Service Charters. These charters should include a commitment by Government to properly fund and resource services, through the progressive taxation system. They should also include a guarantee of fairness and equity in access to services, and of training, pay and working conditions for public sector workers which enables high quality services. Finally, they should include involvement of service users in design and evaluation of services, and in the development and monitoring of performance standards". (pp.10&11)

D. CURRENT SITUATION FACING THE APS

1. The case for re-investment is productivity improvements in improved quality of service to citizens is strong.

2. There are limitations on the productivity improvements which can be gained in the APS. The Management Advisory Board which includes senior Government officials in its June 1993 Report 'Building a Better Public Service' noted that :

'There is reason to expect further productivity improvement although perhaps not at the annual rate of the immediate past because many one-off gains have already been realised. The distribution of these gains will remain a matter for the Government, but there needs to be room for incentives and the proper working of agency industrial bargaining." (page 15)

3. The APS is restricted in its capacity to deliver quality services by past across-the-board cuts. In the 1996/97 Budget these cuts were severe involving :

  • a 2% reduction in running costs imposed on departments and agencies, although in the Defence Department funds are redirected to fund capability enhancements.
  • In addition, payment by running cost agencies, except Defence, of an annual 1% efficiency dividend to reflect public sector productivity improvement over time.
  • in addition, larger cuts in many agencies.

4. The impact is falling on APS staffing. The 1996/97 Budget stated that it was expected that the total number of people employed (full-time and part-time permanent and temporary staff) under the Public Service Act will decline by some 10,500 between 30 June 1996 and 30 June 1997. (p.3-42)

5. The Government should make provision in the 1997/98 and subsequent budgets for APS salary increases and improved quality of APS services.

Peter Moylan Officer, ACTU. April 1997. [D31 of 1997]