The Government’s efficiency dividend

I was amused to read in the Australian about moves to bring back Kevin Rudd on the basis of Wayne Swan’s performance

And his budget process is farcical. Finding savings by increasing the efficiency dividend is the last refuge of the economic scoundrel. It’s not a hard decision,” the source said.

Was this ‘source’ complaining in 2008 under Prime Minister Rudd when there was a one-off increase to the efficiency dividend?

In fact the Rudd-Gillard Governments seem to have a love affair with the efficiency dividend.

In its first Budget (2008-09 in May 2008), in its ‘Responsible Economic Management’ section, the Government

applying a one?off 2 per cent efficiency dividend to the departmental funding of most Government agencies to improve the cost effectiveness of the public sector, generating savings of $1.8 billion over five years (Budget Paper 2, 2008-09)

Then in this year’s May Budget (2011-12) there was a ‘temporary increase’ to the efficiency dividend

The Government will deliver savings of $1.1 billion over four years by increasing the rate of the efficiency dividend to 1.5 per cent in 2011?12 and 2012?13, and 1.25 per cent in 2013?14 and 2014?15, before reverting back to 1 per cent in 2015?16. (Budget Paper 2, 2011-12)

Then in this year’s MYEFO, a further one-off efficiency dividend

The Government will apply an additional one-off efficiency dividend of 2.5 per cent in 2012-13 to departmental appropriations excluding departmental capital funding. This measure will not apply to: public sector entities already exempt from the ongoing efficiency dividend, the Australian Communications and Media Authority or to specific cultural agencies; courts and tribunals; and Aboriginal and Torres Strait Islander organisations exempted by the Government. This will result in savings of $1,490.0 million over the forward estimates.

Yes, once again lazy budgeting.

Do Treasury and Finance consider that ad hoc one-off changes to the efficiency dividend are to be preferred than a predictable efficiency dividend? Should the Government disclose whether there are costs to unplanned changes to the efficiency dividend (which must make it difficult to plan an agency’s future budget?

One-off arbitrary changes to the efficiency dividend are hardly efficient.

Surely further evidence that increases to Ministerial salaries and to departmental secretary salaries are not justifiable? Surely Treasury and Finance can do better in proposing savings measures than one-off increases to the efficiency dividend?

As a result of these decisions, the efficiency dividend schedule has been:

2008-09: 2 per cent

2009-10: 1 per cent

2010-11: 1.5 per cent

2011-12: 1.5 per cent

2012-13: 4 per cent

2013-14: 1.25 per cent

2014-15: 1 per cent

This means that (in real terms) $100 in expenses in 2007-08 would fall to $88.34 in 2014-15.

The same end result could have been achieved by an efficiency dividend around 1.75 per cent per year from 2008-09 to 2014-15. Not only would this have been more predictable, allowing planning and better management of the application of the efficiency dividend, but it would also continue at the higher predictable rate beyond the forward estimates.

In conclusion, the efficiency dividend is lazy budgeting. But arbitrary one-off changes to the efficiency dividend is super-lazy budgeting.

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22 Responses to The Government’s efficiency dividend

  1. Skuter

    Damn straight Sammy J. How on earth can these pricks have a primary vote over 20 per cent? There must be some really stupid, tribal arseholes in this country. Great post (once again).

  2. Budgie

    Absolutely agree that a predictable and consistent efficiency dividend would make a lot of sense.

  3. Vance

    Thanks Samuel!

    Makes sense and is terrific. Of course, the budget “surplus” figure is the highest.

  4. Mk50 of Brisbane

    In conclusion, the efficiency dividend is lazy incompetent budgeting. But arbitrary one-off changes to the efficiency dividend is super-lazy

    proof of blithering idiocy and the

    budgeting

    of people unfit to lick a window

    .

    Fixed that for you…

    Mk50
    Brisbane

  5. Mk50 of Brisbane

    Blasted nested tags…

  6. Sweet cheeses on a stick Samuel it’s worse than i could have imagined. Thank you for putting this in plain english.

  7. Louis Hissink

    In the mining industry we would got to goal for that bit of creative accounting – as might others in similar circumstances. This leads to the not so novel insight that perhaps we elected a bunch of morons; an unkind view is that this is expected from a population of morons. It’s hard to come up with a sensible alternative explanation, that is, one to counter the axiom that we always get th government we deserve.

  8. amcoz

    Samuel J, the guvmint’s dividend maths are idiotic as the annual production of more laws would imply the need for more bods, which makes the efficiency target impossible as they would need to reduce the number of bods just to achieve such aim, without more laws, let alone paying them higher wages – more and less or more for less, oh what a mess.

  9. Skuter

    people unfit to lick a window

    Finest description of these pillocks I’ve ever seen…Economic vandals doesn’t even come close…

  10. Biota

    Is there any evidence that the efficiency divident is ever realised? Where can it be shown that costs have been reduced as a result. Looks like smoke and mirrors to me.

  11. Skuter

    Is there any evidence that the efficiency divident is ever realised?

    The thing is, the larger agencies get around it by developing ‘new policy proposals’, so the efficiency dividend actually contributes to the expansion of government as the rent-seeking bureaucrats put up their empire building ideas to their (underpaid???) political masters. Of course, they seize the opportunity to look ‘visionary’…

  12. Samuel J

    Biota – Skuter is right. The incentive is to develop new policy proposals and hope that they offset the efficiency dividend. It leads to interesting behaviours by public servants. Further – if you’re lucky enough to be in a department which is in vogue (such as AusAID now) the money flows in like there’s no tomorrow.

  13. John A

    And of course in true Federal style, the “dividend” is pronounced from the heights of Mount Sinai, by Moses the prophet of the Most High God_of_Budget_Surplus.

    Whereas, it should have been done by asking every department to find savings of say 10%, by cutting whole programs intelligently (I take it on faith that there is intelligence in the Australian Public Service, or at least, exceeding that in the Parliament).

    There could have been even better results if they had been given the incentive that if they found more they could keep it for themselves (or, as Bob Townsend “Up The Organisation” puts it: “to feed their own starving tigers”).

    The only other proviso was that the CEO (Treasurer) was also to find 10% savings – even if it was a cut in his own salary.

  14. Skuter

    it should have been done by asking every department to find savings of say 10%, by cutting whole programs intelligently (I take it on faith that there is intelligence in the Australian Public Service, or at least, exceeding that in the Parliament).

    Unfortunately departments are not going to cut whole programs as that would mean whole teams of public servants are no longer required. Senior public servants gain status by increasing the funds and staff under their control (and they ultimately decide how the efficiency dividend is met), so they aren’t going to sacrifice anything if they can avoid it. Plus, as alluded to above, intelligence in the public service is applied to maintaining or building empires. The bureaucrats do generally outsmart the politicians, but not in a good way…

  15. I worked for 11 years in PNG’s Treasury Department (1988-1999), and never did we ever indulge in the systemic corruption of Australia’s since the ALP came to power in 2007. Apart from the rubbish noted here, we never produced the garbage of the Henry-Swan mineral resource rents super tax(based on the sub-economics of Ross Garnaut’s various “additional profits taxes”), and by the time I left we had abolished that for the gas projects that will transform PNG’s prospects (if it can get past Garnaut’s former paymasters’ current standoff).

  16. Mick Gold Coast QLD

    This made up term, “efficiency dividend”, is dead set sophistry.

    Public service and efficiency are mutually exclusive notions. Public servants do nothing other than help themselves to other people’s money, and this week the dills at the top saw their wages soaring up to over $800,000 – that is over $15,000 per week. To attend lots of meetings with each other.

    About 30% of the Australian workforce comprises otherwise unemployable public servants, which means every private sector employee carries half a non producer on his back and gets to pay his wage.

    One cannot seriously measure what these sloths contribute to GDP, trade figures and the like. They sell nothing of worth and cost taxpayers a fortune.

    The Navy in the 2000s gets to play un-war exercises 24/7 off Christmas Gift Island, practising welcome to country cocktail functions for illegal Centrelink seekers.

    Primary Industry does analyses of how it helped destroy live beef exports. The Productivity Commission writes critiques on business it has never conducted and does not understand.

    Coppers spend their substantial time off the road inventing ways out of their miserable job via the compo route. Firemen I know use their time to manage their cleaning businesses and day care sentres.

    Senior Health Department blokes attend financial management seminars on the juicy juxtaposition of fake signatures and a lazy million falling into their personal savings account – and the clever one they nabbed in just two and a half days didn’t rate real high on the “efficiency” scale, eh?!

  17. Louis Hissink

    Perhaps we should all pray for a general fiscal collapse?

  18. Mick
    Agree with you saying efficiency and government without adding lack of in the same line muast be an editrorial error.

  19. Johno

    Efficiency dividends are a bad joke. If the government announces it will reduce department budgets by, say 2%, departments will simply increase there budget bids by 2% so they can pay the dividend.

    If government doesn’t pre-announce how big the dividend will be, departments will still factor in a contingency to pay whatever it is.

    If departmental programs are to be cut, this requires a political decision by Ministers. It will be interesting to see whether the Victorian government will reduce the functions it expects the Victorian Public Service to undertake in line with its announcement of a 10% cut in the number of public servants.

  20. Tiddly Pom

    A couple of years ago in South Australia the Rann government included in its efficiency dividend for the year a reduction of public sector FTE employee numbers of 1200, and proudly announced the next year that this had been achieved. A cursory glance at the budget papers though showed that FTE numbers had actually increased by 1300 over the year.

    The explanation? No contradiction, we cut employees as we promised, but new policy proposals required the additional larger numbers to be hired. No-one ever loses a job in this sleight of hand either: by an amazing coincidence the new policies require exactly the same skill sets and experience in employees to implement as the old dropped ones did.

    As others have pointed out, an x% efficiency dividend across government makes no sense whatever x is anyway. Some departments have more scope to cut than others, largely because they have been more successful in the past in accumulating fat but also because some have more programs that have passed their use-by date and can be sensibly cut. A flat slice across everybody is the definition of inefficiency, in fact, because it forces some departments to cut useful (in relative terms of course) activity while less useful stuff in others is preserved.

    And the traditional way to take some small account of this – exempt departments with sensitive frontline services, usually Health and Police, from all or part of the dividend – is a cure worse than the problem, based as it is purely on the political expedience of avoiding accusations of cutting however many hospital beds or plods on the beat x% can be simplistically equated to. Health and Police precisely because of their political sensitivity are usually the least efficient agencies, as they have used that clout to accumulate fat.

    Complete farce.

  21. Bring Back Tillman

    If we can’t have Birdian mass sackings, (and this will work fine with departments like Climate Change) then Razor gangs going over individual departments line by line is the only way to cut the public service.

    I think there is a lot of fat and incompetence in the higher levels of the PS. I’d take the chainsaw to the SES and the EL2 levels first. Better accountability for time spent, managed by team leaders, would probably see a 30% productivity increase at lower levels.

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