Vol. 6, No. 1
SUMMARY
Since the Efficiency Dividend (ED) scheme was introduced by the Commonwealth Government in 1987-88, the cumulative yield has been $375m, compared with Commonwealth Budget outlays of $594,087m. The ED has thus "saved" only a tiny fraction of total budget outlays (less than one-tenth of one per cent).
There are reasons for supposing that the ED scheme is an inadequate mechanism, at least on its own, for maximising public sector efficiency and effectiveness. Its uniform application at 1.25 per cent per annum yields up less than half potential productivity gains in some areas and there is in any event a question as to whether half is an adequate objective. Further, the scheme does not address the question of base levels of expenditure. One implication is that there is an on-going accumulation of "fat" in the public sector.
More attention generally needs to be given to the adoption of market-type mechanisms and associated techniques, either as alternatives to the ED scheme or as supplements to it, both as regards the inputs to public services and to their actual delivery or operation.
Market-related mechanisms and techniques being used in the public sector in Australia and overseas include separating the roles of purchaser and provider; simulation of competitive market conditions; annual market-testing of a proportion of expenditure; contracting out (including compulsory competitive tendering); vouchers; user charges; devolution of operations to quasi-independent agencies and/or to lower tiers of government; the setting of performance objectives; the establishment of contractual arrangements between Ministers and Chief Executives; and the publication of Citizens' Charters defining citizens' rights to a defined standard of service.
There should be significant potential for productivity improvement from a greater devolution of, in particular, controls over conditions under which staff are employed, including greater resort to contractual arrangements. Devolution need not result in any basic change to present arrangements by which Ministers are accountable to Parliament.
There is also a need for greater transparency in regard to the "customers" of public services and taxpayers generally. One implication of the ED scheme is that taxpayers have no right to share in productivity gains in the public sector as the dividend is in effect only available to finance additional expenditure by the Government.
INTRODUCTION
The increasing globalisation of the private sector market place, and the slowdown in the growth in demand in major overseas economies, have pushed substantial sections of the private sector in recent years into taking steps to become more competitive in order to survive. These steps have included changes in management structures and methods (involving, particularly, a reduction in the layers of management and an increase in the delegation of responsibility), as well as reductions in staff and an increase in the outsourcing of some services (particularly in the case of larger companies). The forces of competition have thus pushed the private sector into measures to reduce costs and to increase productivity; and as part of that there has been a deliberate move, particularly amongst larger companies, to create a more competitive environment for the supply of some inputs as a means of achieving improved efficiency of output.
As this process has developed, it has increasingly become recognised that the capacity of the private sector to compete is not dependent only on its own actions. It is also importantly influenced by whether government services are provided efficiently. If they are not, the private sector will have to meet higher costs, either in the form of higher charges or higher taxes, and this will make it more difficult to compete internationally. There is thus now a growing acceptance that the public and private sectors have complementary roles in determining national competitiveness and living standards. As the head of the OECD Public Management Service has pointed out, "it is now recognised that the public sector is a vital agent of structural reform as well as being itself an object of reform". (1)
This has increasingly led to a re-examination of the role of the government sector which has embraced a number of aspects. Attention has been focused on the adverse effects on economic growth of the increase in the overall size of the government sector, particularly since the early 1970s, and the potential for improving economic welfare by reducing government outlays and taxation. The OECD report published in 1987 on "Structural Adjustment and Economic Performance" concluded that the growth of public spending has operated, at the margin, to reduce national income of OECD countries by 10 to 15 cents for every extra $1 raised in taxes. In Australia, it has been estimated that every dollar of revenue raised through the progressive tax system generates an additional welfare loss of 65 cents through work disincentive effects; (2) and that a $1 billion reduction in government consumption outlays would lead to an 0.7 per cent increase in GDP (about $2.8 billion). (3)
According to the OECD's 1993 Survey of Public Management Developments, some countries have reacted by putting explicit limits on the size of the public sector. In a number of countries the increasing realisation of the adverse economic effects of the extended welfare state, for example, is leading to a re-examination of the extent of transfer payments and to an increased emphasis on targeting low-income groups (that is, the truly needy) rather than programmes of "universal" benefits (sometimes known as middle-class welfare). More generally, however, there is a growing questioning of the effectiveness of government involvement in the economy, and a growing emphasis on ensuring that any such involvement is implemented efficiently.
The general approach to reform in the public sector is typified, perhaps, in the review by the current US Government of the US Federal public service, entitled Creating A Government that Works Better and Costs Less. That report argues that
The movement to reinvent government is as bipartisan as it is widespread. It is not driven by political ideology but by necessity. ... Government is broken and it is time to fix it.
The Report proposes a 12 per cent reduction in the US civilian, non-postal Federal workforce over 5 years. But its emphasis is less on cutting staff and expenditure than on radically changing the way in which government operates. The basic thrust is to develop budgets based on outcomes, to delegate authority and responsibility to programme deliverers and, wherever possible, to expose government operations to competition by looking for market rather than administrative solutions. It is emphasised that the overall aim is to achieve customer satisfaction.
In the case of government business enterprises (GBEs), many countries have responded either by privatising such enterprises (and establishing a regulatory framework where monopolistic tendencies remain); or by corporatising them, so that the directors and management operate at arm's length from government, and have an increased capacity to take decisions without being excessively subjected to political directions that can adversely affect cost structures or economic and financial performance. This has been perceived as particularly important in the case of decisions about levels of staff and about the conditions under which staff are employed. The increased managerial freedom under the corporatisation model has been matched by increased accountability through the setting of performance objectives, particularly rates of return on capital. Thus, in the case of services provided by GBEs, governments have moved in the same direction as the private sector in creating a more market-oriented environment as a means of achieving greater productivity and ensuring the efficient delivery of services. They have also involved the extraction of high dividends from GBEs in order to achieve more satisfactory returns on capital employed.
This has naturally also led to attempts to adopt a similar approach in regard to the services (as distinct from the transfer payments) provided by the general government sector; that is, the services in respect of which the government sector does not in general seek to cover costs fully by the levying of user charges. One obvious difficulty here is that there is no bottom line against which to measure and compare performance. Also, because it is more difficult to measure output, it is also more difficult to measure productivity. Indeed, the standard statistical assumption has been that productivity in the general government sector remains constant over time, and that increases in output are a function only of increases in employment. There is also a much greater potential for political interference in the activities of this sector, especially the conditions of employment, which can have adverse effects on the efficiency with which services are delivered. Finally, it is more difficult to subject the service providers to market forces and, hence, to reap the benefits of competition.
It is this general government services sector to which the efficiency dividend (ED) arrangements are directed, and their introduction in 1987-88 can be seen as one of the early responses to the developments outlined above. Other responses -- the so-called public sector reforms -- have involved changes, similar to those occurring in the private sector, designed to devolve greater responsibility and to reduce the layers of management. With this increased devolution has come a perceived need for mechanisms which provide greater accountability and which seek to achieve that more-or-less automatically, rather than through detailed external scrutiny.
The ED approach proceeds on the basis that, contrary to the standard statistical assumption noted above, there is scope for the general government sector to achieve productivity gains, and that at least part of those gains should be available as a "dividend" to the "owner" (identified for this purpose as the Government) in much the same way as the shareholder in the private sector expects to receive dividends. Thus, the Department of Finance states that "the Government should have the ability to redirect a portion of those efficiency gains to emerging priorities in the Commonwealth public sector, regardless of the source portfolio". (4) Currently, the public service is expected to yield a productivity dividend of 1.25 per cent per annum, with the calculation of the dividend being limited to departmental running costs (salaries and administrative expenses). This dividend is about one half of the estimate by the Department of Finance of the average growth in Commonwealth public sector productivity of 2.5 per cent per annum between 1987-88 and 1997-92. (5)
According to Finance, "the objectives of these Running Costs Arrangements (RCA) are to:
- provide a medium term focus for financial management;
- encourage devolution of control and responsibility;
- provide incentives to managers to improve operational efficiency and effectiveness;
- streamline budget formulation by removing Finance from detailed involvement in management decisions. (6)
These objectives seem unexceptionable. The question, however, is whether the ED arrangements maximise efficiency or whether, without detracting from the quality of the services, changes should be made to them. It is submitted that there are three main problems with the arrangements.
First, uniform application of the 1.25 per cent ED inevitably means that it is set at a level lower than half the potential productivity gains in a number of areas, and higher than the gains in some other areas. However, whereas there are exemptions from the application of the ED arrangements, there are no areas where a higher dividend is sought. Second, while the rationale for seeking only half of the estimated average annual productivity gains is (as noted) that leaving the other half with agencies provides an incentive to the agencies to pursue such gains, there is a question as to whether this is an adequate objective in the public sector. Greater use of market-related mechanisms should automatically maximise gains to the "owner", including those arising from technological change. Third, it takes no account of the possibility that base levels of expenditure on programmes (including the many new or expanded programmes since the ED scheme commenced) are excessive. (7) This appears to be recognised in the decision in the 1993-94 Budget to put in train a programme of reviews, "extending the Government's normal programme evaluation activity"; and to include benchmarking for best practice in service delivery areas of selected Commonwealth agencies as well as efficiency and effectiveness reviews of a considerable number of other expenditure programmes. (8) The fact that the new workplace bargaining process includes, at least in principle, productivity gains made in relation to total programme savings and revenue increases also suggests that the ED scheme is too narrowly based.
There is a further question as to whether the arrangements take sufficient account of the interests of the taxpayer as distinct from the Government.
Before considering how these problems might be overcome it may be useful to examine some of the arrangements which are being used or developed (both in Australia and overseas) with the object of improving efficiency and effectiveness in the public sector.
IMPROVING THE EFFICIENCY OF THE PUBLIC SECTOR
The main approach to improving public sector efficiency is to introduce market-type mechanisms and/or to simulate market conditions. A technique increasingly being adopted is to separate the roles of purchaser and provider by contracting for the actual provision or delivery of services. This leaves the government with the role of funding the services, and leaves scope, if desired, for the services to be subsidised, to the extent judged to be appropriate for social or other policy reasons, while taking advantage of the benefits of competition to achieve delivery of the services at the lowest cost to the taxpayer. Provided there is a competitive market in such services in the private sector (or that one is likely to develop), this approach allows the public sector to maximise the benefits in terms of service delivery from on-going productivity improvements in the private sector.
Alternatively, it maybe possible to simulate competitive market conditions by requiring public sector agencies to "compete" for funds on the basis of whether or not they meet certain performance criteria. The case-mix system of funding public hospitals in Victoria, for example, seeks to establish yardstick competition by basing funding for public hospitals on the number of patients treated, and the quality and mix of services provided. According to Minister Tehan, "the hospital which cannot attract patients will go out of business, because the money will move with the choice of consumer". (9) The same approach is being adopted in regard to child welfare agencies, disability agencies and nursing homes and, while it is arguably more applicable to State and local government agencies, there may be scope for greater resort to it by the Commonwealth.
The report on "The Australian Public Service Reformed", launched in July 1993, includes a chart (reproduced on the following page) which indicates that less than 20 per cent of Commonwealth agencies have implemented contracting to any significant extent. A major exception is the Department of Administrative Services, about 60 per cent of which is subject to private sector competition.
In the UK, the central government has moved to press departments and agencies to put services to contract by setting targets for testing new areas of activity in the market to see if alternative sources would give better service and value for money. The market-testing targets for 1992-93 amount to some 1.5 billion pounds sterling. In the past, market-testing has been largely concentrated in local government, and, in central government, on traditional support services. The current UK programme seeks to build on this by opening up to competition new areas closer to the heart of government. Experience in UK local government and in the National Health Service has shown that substantial savings are achievable even where bids are won by in-house teams. In local government, compulsory competitive tendering, which has produced savings of up to 30 per cent, now extends to white collar services. US experience suggests the potential for even larger savings by this means. One survey there reported savings from contracting out local government services ranging from 40-90 per cent.
Chart 1: Proportion of Agencies That Have Implemented
Particular Reforms "To A Great Extent"
Source: From Directions in Government, August 1993.
Another way in which competition is being introduced into the public sector is through voucher schemes which allow those eligible to use government services to switch to private sector sources. The OECD's 1993 Survey of Public Management Developments reports that in Sweden, for example, as part of the action taken to deal with the severe economic crisis which emerged at the beginning of the 1990s, measures have been introduced to reduce the increasing cost of social security benefits and to let private initiatives contribute to public production of care and education services. As part of measures to decrease total public spending by 5 per cent of GDP and to eliminate the structural budget deficit, freedom of choice, and competition between public and private producers of services, have been increased by "providing people with tax revenues -- a kind of society cheque -- to let them choose freely between different producers of services, public and private, in the spheres of child care, care of the elderly and care in the case of sickness." (10)
The introduction or extension of user charges also creates an environment conducive to focusing attention on the efficiency of services. As the foregoing chart indicates, user charging has been implemented to a significant extent in less than 20 per cent of Commonwealth agencies. However, all legal services provided by Attorney-General's are now charged for, as are a large proportion of services provided by the Department of Administrative Services. Property operating expenses were also added to the running cost budgets of departments and agencies in 1992-93.
According to the head of the OECD Public Management Service, an analysis of selected experiences with market-type mechanisms (such as internal markets, user charges, vouchers, franchising and contracting out) shows "significant potential to economise resources and generate reliable indicators of performance. But they are quite sensitive to the manner of their implementation: the benefits can quickly disappear if they are inadequately designed or under-funded. At the risk of over-simplifying, the bigger the number of market features incorporated, the higher the gains, the fewer the surprises and the easier the control". (11)
A further approach is to pursue the agency model, which keeps ministries small and focuses on policy functions while separating off (and giving considerable managerial freedom to) their operational arms. The head of the OECD Public Management Service points out that this approach is "already well established in Nordic countries" and "is now being adopted by other OECD governments. ... In the United Kingdom, over 300,000 civil servants -- over half the total -- are now working in semi-autonomous agencies, each headed by a chief executive reporting directly to a minister, with whom performance targets have been agreed". (12) The 1992 Review of the so-called "Next Steps Agencies" in the UK covered 76 Executive Agencies together with 30 Customs and Excise Executive Units and 34 Inland Revenue Executive Offices. They included agencies responsible for paying social security benefits and whose heads are appointed on the basis of open competition. Generally, the Chief Executive has responsibility for management of the operation, and the freedom and flexibility to manage effectively and efficiently. Eight agencies are now operating as trading funds, which allows them to manage their finances as nearly as possible on private sector lines. A number of agencies have implemented their own pay and grading systems and larger agencies will be expected to assume responsibility for pay bargaining by April 1994.
As part of this decentralisation move, there has been an increasing devolution of responsibilities to lower tiers in government. The OECD's 1993 Survey of Public Management Developments reports that devolution of responsibilities in the Netherlands to municipalities, provinces and regional bodies has produced significant savings to the central government. In Spain, there has been a major transfer of responsibilities in 1992 to regional authorities, including education. In Sweden, employer responsibility for teachers has been totally decentralised to local authorities.
The Commonwealth has moved some distance down the agency model track, judging by the following table included in the OECD 1993 Survey of Public Management Developments.
All "Public Service Act" Staff
| June 1980 | June 1985 | June 1992 | |
| Departments | 123,456 | 138,737 | 93,682 |
| Agencies attached to Departments | 29,973 | 34,927 | 55,353 |
| Total | 153,429 | 173,664 | 149,035 |
Even so, there appears to be some reluctance to develop this model further. In part, this may reflect a judgement that the framing and development of policy will benefit if those responsible for policy-advising also have close connections with those responsible for the delivery of services. However, this may, in part at least, reflect the relative paucity of performance objectives for programmes. There has also been a reluctance by the Commonwealth to devolve responsibilities to the States, resulting in continued overlap in the financing of activities and duplication of administration. (The duplication between the Commonwealth and the States is, of course, a major subject on its own.)
As noted, the Next Steps initiative in the UK has involved the development of performance objectives for the various agencies which have been created. As the head of the OECD Public Sector Management Services points out, "often formal performance agreements are established -- between ministers and their chief executives, as in New Zealand, or chief executives and their staff -- designed to bring about the desired volume of output and standard of performance. These agreements formalise the obligations of the organisation, chief executive or staff member, and are often backed up by rewards or sanctions. Developing systems for performance measurement and monitoring will be an on-going challenge, but is an essential part of ensuring a performance-based culture". (13)
An interesting development is the conclusion in New Zealand of formal "Purchase Agreements" between Ministers and Chief Executives covering the policy advice which is judged necessary to contribute to the Government's objectives. This recognises that, while there is an almost inevitable tendency in an increasingly complex world for Ministers to seek increasing amounts of policy advice and for Departments to respond by seeking increased staff, the provision of such advice is far from being a "free good". Such agreements may thus act as a restraining influence in this area.
Yet another development in improving the performance of the general government sector has been the increased emphasis on transparency and on the "customer". The Citizens' Charters in the UK are one example of defining citizens' rights and setting out mechanisms for redress. By the end of 1992, there were 28 separate charters covering a wide range of public services. The former South Australian Government established a Citizens' Charter Office to oversee the development of charters for each agency by June 1994.
The development of such charters necessitates, of course, the development of performance objectives and standards which exert a form of competitive pressure on government agencies. The Next Steps Agencies in the UK produce an annual report on achievements, with the 1992 report claiming that three out of four targets were met.
The publication of Programme Performance Statements by Commonwealth Departments, together with extended departmental annual reports, has increased the transparency of Commonwealth programmes and activities. But this has not been accompanied by any emphasis on citizens' rights to particular standards of service.
THE EFFICIENCY DIVIDEND SCHEME
The 1993-94 Budget Statements included the following table showing a large real growth in running costs over recent years.
Running Cost Budgets
(% Increase on Previous Year in Real Terms)
| Running Costs | Staffing Levels | |
| 1989-90 | 0.4 | -4.6 |
| 1990-91 | 7.0 | 2.7 |
| 1991-92 | 6.4 | 3.5 |
| 1992-93 | 3.1 | 2.1 |
| 1993-94 (est) | 2.9 | -3.1 |
| Ave increase per annum | 3.9 | 0.1 |
Source: 1993-94 Budget Paper No. 1, page 3.26.
These figures for running costs and average staffing levels reflect, however, changes in administrative arrangements (such as the charging for legal services commencing in 1992-93) as well as in policy (such as increased training and labour market programmes in 1992-93 and defence cutbacks in 1993-94). It is, therefore, difficult to assess the significance of the large real growth in running costs.
It should be noted, however, that the total cumulative efficiency dividend realised since 1987-88 is estimated in Budget Paper No. 1 (page 3.26) at only $375m, including $70m in the current financial year. Over the same period Commonwealth Budget outlays increased by about 15 per cent in real terms and totalled $594,087 million cumulatively. The ED has thus represented only a tiny fraction (less than one tenth of one per cent) of total budget outlays.
Of course, it is not the stated purpose of the ED arrangements to restrain overall expenditure levels per se. Even so, there is a question as to whether, whatever the intrinsic merits of the ED scheme, it is having a sufficient impact on improving the efficiency of the public sector or whether alternative approaches should be considered. The wider use of such other techniques may open up the potential for significant savings. Indeed, there is a danger that, by concentrating so much on the ED, the opportunity is being missed to apply techniques which would produce significantly faster and more extensive improvements in the efficiency and effectiveness of services.
Of particular interest in this regard is the emphasis being placed in OECD countries on the use of market-type mechanisms, as the following chart included in the OECD's 1993 Survey of Public Management Development shows:
Chart 2: Initiatives affecting the size/structure of the public sector
It is acknowledged that these market-type mechanisms and the various techniques and approaches being adopted to improve public sector efficiency, as outlined in the preceding section, are not necessarily to be seen as substitutes for or alternatives to the ED arrangements in terms of improving the efficiency of the general government sector. In principle, each of these techniques and approaches can be used under the ED arrangements, and it may be argued that the ED provides an incentive to adopt them in appropriate cases. Indeed, as indicated, some of the techniques are already being used to some extent. The Department of Defence, for example, has contracted 43 activities, of which 24 have gone to commercial suppliers and 19 to in-house bidders. Projected recurring annual savings to date are reported to be about $79 million and projected annual savings as a percentage of current costs total 32 per cent. (14)
However, because the ED arrangements do not, for the reasons outlined at the end of the Introduction, necessarily maximise efficiency gains, there is a need to consider the wider use of other techniques/approaches either alongside the ED or in lieu of it. Given that some agencies have been exempted from the ED arrangements on the ground that the scope for productivity gains is negligible, there does not appear to be any in-principle reason why other agencies and/or departments should not also be exempted, but on the ground that there could be scope to achieve greater improvements in efficiency through the use of other techniques. Equally, there may be a case for requiring that certain inputs which are widely used in the public sector should either be open to private sector competition (as legal services have now become) or should be subject to compulsory competitive tendering throughout the public sector.
The most important input for the Commonwealth Public Service is, of course, labour and there should be significant potential benefits from greater devolution of responsibility for the management and control of employees and from allowing greater flexibility in the conditions under which they are employed. The development of enterprise bargaining in the Commonwealth Public Service can be regarded, in principle, as a step in this direction, (15) as can the shift to contract-based pay systems for departmental heads. But the facts that the Australian National Audit Office (ANAO) can claim to have identified 4,300 "under-performing" officers in 32 public service agencies, and that, notwithstanding some improvements, it is said that "agencies have not generally established an organisational environment conducive to good performance management," (16) indicate the need for a much greater degree of devolution of control over employment to heads of agencies in order to change public service "culture" and the capacity of unions to hold back improvements in productivity. The National Gallery Director, Betty Churcher, was recently reported as stating that "the government then doesn't stand by you when you try to [implement the efficiency dividend]. If you try, immediately the unions move in -- so the government is trying to have its cake and eat it, trying to insist on a more efficient Public Service but you can't sack anyone". (17) One possible step, at least in some areas, would be to legislate specifically to prevent Ministers from intervening in regard to the terms and conditions of employment, as has been done with the "trusts" established by the UK National Health Service to operate hospitals. These NHS Trusts are specifically empowered by the Act "to employ staff on such terms as the Trust thinks fit".
The farcical situation which has emerged under the performance pay system for senior public servants, which appears to have resulted in more-or-less automatic near-maximum performance bonuses to almost all such officers, does not necessarily indicate that the contract system cannot successfully be extended more widely in the public service. Performance-based contracts may not be suitable in some areas of the public service and, to the extent that they are utilisable, would need to be based on clear performance objectives.
Of course, together with any such devolution of responsibility to heads of agencies and beyond there would need to be an increase in accountability of agency managers. Further, potential difficulties obviously arise in regard to Ministerial accountability. If Ministers are to remain accountable to Parliament for the departments and agencies which come within their portfolios, can increased devolution be consistent with the retention of such Ministerial accountability? In principle, at least, there seems no reason why it cannot, provided that it remains clear that Ministers (and the Government) are primarily responsible for policy and the programmes to implement that policy while the public service is primarily responsible for the implementation of the policy and programmes decided by Ministers. (In any event, Ministers no longer appear to accept responsibility -- in the sense of submitting resignations or being asked to resign -- when there are implementation failures by their departments.) The extension of performance objectives is an important part of accountability in any devolved framework and, as appropriate, should cover volume of output and standard of performance.
CONCLUSION
From the taxpayers' viewpoint, any procedure, such as the ED scheme, which results in better value for money is to be welcomed. Nevertheless, the complexity of the scheme, its minuscule yield in public expenditure savings, and the bureaucratic resources devoted to it (both in the Department of Finance itself and in client Departments and agencies), raise a question as to its overall value in cost/benefit terms. More importantly in one sense, there is a danger that excessive concentration on this scheme may result in other possible approaches being neglected.
The object should be to adopt those mechanisms which are most likely to maximise the efficiency and effectiveness of government programmes and services, not maintain the ED scheme per se. The notion that one half of productivity gains needs to be retained by departments/agencies as an "incentive" highlights a major problem with the scheme. In the private sector the retention of a portion of profits is a procedure which shareholders "allow" to happen because they recognise that such funds are required for investment to ensure the on-going development of the business. The ED scheme can have no such objective, however, given that such capital funding as is required in the general government sector is provided separately. In fact, there seems no intrinsic reason why the whole of the productivity gains should not be returned to the "owner" and then be available for sharing between the taxpayer and public sector employees. The implication of retention is that there is an on-going accumulation of "fat" in the public service.
Some of the possible alternatives to the ED scheme (which admittedly are of necessity merely alternatives) have the potential to reap greater dividends for the taxpayer with no greater (and probably less) use of bureaucratic resources, though their applicability in various situations would need to be the subject of more detailed analysis than is possible for an outside observer.
Indeed, from the outside, it is difficult to assess the precise potential for more extensive use of the various alternative techniques either as an alternative to the ED or alongside it. However, the wider adoption of performance objectives based on best practice should offer potential for significant improvements in efficiency and effectiveness. Where the use of such objectives can appropriately be combined with use of the agency model, that should further enhance that potential.
It is argued that more attention needs to be given to the adoption of market-type mechanisms and associated techniques either as alternatives to the ED scheme or as supplements to it. Such mechanisms and techniques should be applied both to the input side of the public service (especially to the employment of labour) and to the actual delivery or operation of services and programmes. It should be possible to develop an approach along these lines which provides, at least in some areas, a basis for obtaining, more-or-less automatically, the whole of productivity growth and, at the same time, meets best practice objectives.
Consideration also needs to be given to becoming more transparent in regard to "customers" of public services and taxpayers generally. The UK approach of a Citizens' Charter, linked to performance objectives, appears to be a worthwhile initiative to this end, as well as exerting a form of competitive pressure on public services. From the viewpoint of the taxpayer generally, there may also be something to be said for treating the products of productivity growth and economies from best practice and other objectives as part of Commonwealth revenue available to be allocated for either expenditure on new programmes or tax cuts. At present, the implication of the ED scheme is that the 1.25 per cent dividend is available only for spending. Any such implication assumes that the taxpayer is not entitled to share in productivity growth in the public sector even though, in reality, it is the taxpayer rather than the Government who "owns" the public sector.
ENDNOTES
1. Derry Osmond, "Improving Government Performance", OECD Observer, October/November 1993.
2. C. Findlay and R. Jones, "The Marginal Cost of Australian Income Taxation", Economic Record, September 1982, pages 253-62.
3. P. Dee, "The Effects of Government Size on Economic Performance: A Quantitative Assessment of a Budget Reduction", Australian Economic Review, Vol. 89, No. 1, 1989, pages 23-37.
4. Department of Finance, Application of the Efficiency Dividend. A Technical Paper By Officers, September 1993.
5. Submission by Department of Finance to the House of Representatives Standing Committee on Banking, Finance and Public Administration, Efficiency Dividend Subcommittee, November 1993, para. 34.
6. Department of Finance, Application of the Efficiency Dividend. A Technical Paper By Officers, September 1993.
7. Excessive having regard to the objectives of the programme.
8. Budget Statements 1993-94, Budget Paper No. 1, pages 3.13-3.14.
9. "New Directions for Victorian Health, Welfare and Aged Care Services", Speech by Health Minister Marie Tehan, 30 May 1993.
10. OECD, Public Management Developments Survey 1993, page 164.
11. Osmond, op. cit., page 7.
12. Ibid., page 6.
13. lbid., page 7.
14. Directions In Government, November 1993, page 23.
15. From the outside, however, the practical effect of this bargaining process since its introduction in December 1992 appears largely to have been to have provided pay increases to employees on the basis of either promised productivity improvements or "improvements" (such as reduced absenteeism) which should have been part of employees' obligations ab initio.
16. Audit Report No. 17, 1993-94, page XII.
17. The Weekend Australian, 18-19 December 1993, page 22.
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