Consultants, senior bureaucrats, cash in at your expense

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By Leith van Onselen

History never repeats but it sure does rhyme.

Upon being elected in March 1996, the Howard Government commenced a program of cutting spending and jobs across public sector agencies, only to then hire an army of consultants and contractors.

The grand irony from the Howard Government experience was that many of the contractors were the same former public servants that had received generous redundancy payouts and then were paid much more to do the same job.

It was nice work if you could get it. Not so nice for taxpayers, though.

Over the weekend, The Canberra Times revealed that consultants cashed in on lucrative federal government contracts during the Abbott Government’s reign:

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A Fairfax Media analysis reveals spending on consultants increased by 19 per cent during former prime minister Tony Abbott’s first two years in office.

The splurge coincided with the Coalition cutting public sector jobs to the lowest level in nearly a decade, leaving the departments to turn to the big four firms.

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During Labor’s time in office – when the size of the federal bureaucracy peaked – spending on consultants dropped every year, falling 32 per cent over five years…

I am not surprised by these results. While working at the Australian and Victorian Treasuries in the mid-2000s, I witnessed the questionable use of consultants first hand.

When working on the Australia-US Free Trade Agreement (US FTA), I saw the Howard Government commission the Centre for International Economics (CIE) to undertake the modelling on the agreement, even though the Productivity Commission (PC) was available (and wanted) the job. The PC was inherently skeptical of preferential trade agreements (for good reason), and it was feared that it would provide a poor assessment of the US FTA if commissioned to undertake the work.

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Similarly, while working at the Victorian Government, I saw a lucrative contract granted to a consulting firm to assess the Tasmanian Freight Equalisation Scheme – work that could easily have been done in-house using existing resources.

There are several reasons why governments increasingly prefer to use consultants over the public service.

Most notably, it provides them with cover. They can claim that a given policy is based on “independent advice”, even though the results are often pre-determined and effectively purchased. It also allows governments to deflect blame to the consultancy firm (read cover their arse) in the event that a policy goes bad.

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However, the problems run deeper than merely replacing one set of workers with a more expensive set of workers. It also reflects the broader loss of independence and the politicisation of the public service, whereby governments of both persuasions are now too willing to outsource policy development to consultants or (erroneously named) think tanks.

Add in the seemingly unbridled growth in the number of staffers and advisors in ministers’ offices, and the role of departments in policy formulation and advice has been badly diminished.

Another worrying trend is the obscene blow-out in senior public servants’ salaries, as exemplified by RBA governor Glenn Stevens’ pay rising to $1 million a few years back. We have also seen some top bureaucrats’ pay soar by 70% since the global financial crisis, with the head of the Department of Prime Minister and Cabinet now earning an insane $861,700, and the head of the Australian Treasury paid $840,810, with other bureaucrats soon to join in the gravy train.

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As argued by Houses & Holes last week:

If it is about remuneration rather than service then why bother being honest with the Minister? After all, if you’re there to be paid rather than serve then why offer “frank and fearless” advice and jeopardise the sinecure? Just give the tosser what he wants and go to Europe on your holiday.

The days of “frank and fearless advice” have been usurped, in favour of spin and compromised analysis designed to support a pre-conceived agenda.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.