Public service needs to improve productivity

Public service departments' policy advice has become politicised under ALP governments.

Increasingly, departments have hidden and distorted data to prevent it being used to criticise their ministers' decisions.  Some departmental heads even complained about being forced to do this.

Though not immune from such politicisation, the Productivity Commission has so far remained an impartial federal agency.

For 40 years, federal governments have accepted the discipline of seeking analysis and advice from the PC before embarking on policy actions.  That advice is rigorously developed and made public.

The PC's messages have not been unblemished.  Its examination of housing under-estimated the crucial effect of government land restraints on prices.  And in its gambling review, the PC sails close to the "nanny state" solution of having government protect people from their own poor judgments.

But such flaws in hundreds of pearls are inevitable.  Most of the reports have clinically analysed issues and showed how we can get better value by improved policy approaches.

This week's release of its report on Murray-Darling water was no exception.  It criticised the confusing objectives and poor targeting of the Federal Government's environmental buy-back plan.  And it demonstrated that, if irrigation water usage was to be reduced, direct purchases would be the least expensive approach.

In the words of PC chairman Gary Banks, its key approach "is to free up the supply side of our economy to enable it to respond more effectively to opportunities on the demand side".

Stripped of jargon, this means that lighter regulatory burdens on business bring productivity improvements by lowering costs and increasing competition.

In the case of tariffs, successive PC reports have resulted in Australian trade restraints becoming confined to relatively isolated areas like cars.

Comparable reforms have stemmed from recommendations covering non-traded services like the professions, hospitals, and airports.

Allied to the deregulation in product and service markets, the Howard government substantially reduced labour market controls.

It became easier for firms to dismiss workers who were not up to the job, fostered greater scope for wage incentives and generally allowed management to manage.

The combinations of these reforms brought a productivity boost to Australia during the 1990s and since then they have allowed us to benefit from China's economic expansion.

However, the reforms have largely been confined to the private sector and the number of public servants has sharply increased.  Although it is difficult to measure public sector productivity, this doesn't seem to have improved.

In fact, in its report "Blueprint for Reform of Australian Government Administration", the federal public service acknowledged its poor coordination capabilities and a deterioration in its internal policy analysis skills forcing an outsourcing of tasks to private consultants.

But, rather than calling for lower pay for under-performance, the blueprint recommended increased pay!

This illustrates the deficiencies caused by the public sector's lack of market competition in setting appropriate rewards and penalties.

And the much enlarged role of the public sector under the Rudd Government intensifies the difficulties of achieving future productivity gains on which higher living standards depend.

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