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Last updated: 4 July 2003
The Australian experience of public sector reform
Useful references
Chapter 7-Structural reform
The dynamic economic changes that have been undertaken by governments around the world are evident in Australia. Microeconomic policy reforms, introduced by the federal government progressively since the 1980s, have included: the floating of the Australian dollar in 1983; marked reductions in barriers to trade and foreign investment; commercialisation, and some privatisation, of the government business enterprises which dominate large parts of Australia's economic infrastructure; strengthening domestic competition; and increasing labour market flexibility.
These policy initiatives reflect the belief by successive Australian governments that to compete successfully in the global economy requires Australia to reduce rigidity and prescription in its regulatory frameworks and achieve greater efficiency in its taxation and public spending arrangements.
These reforms have been a key driver in increasing and sustaining Australia's productivity performance. The continuing reform of the public sector has been seen as a vital part of that reform agenda by successive federal governments.
The public sector reforms of the 1980s and 1990s were, in part, heralded in the mid 1970s by the Royal Commission into Australian Government Administration's advocacy of more rational management-stressing the need for a clear focus on objectives and assessing performance on the basis of results-and were carried out against a background of international economic pressures.
Specific structural reforms initiated in the public sector since the early 1980s have occurred on three main levels:
- broad reforms of the public sector, which have influenced the size, composition and functions of the APS
- changes at agency level to reflect changes in program structure inherent in program budgeting, flatter structures, devolution, decentralisation or regional initiatives
- changes at the workplace level to improve ways of working.
As Australian governments have become more tightly focused on their strategic purposes, they have increasingly commercialised, completely or partly privatised, or outsourced functions that are either commercial by nature, or no longer considered the core business of government. As a result, and as noted in Chapter 4, public service employment has shrunk.
Improving strategic planning and use of business plans
Strategic and business planning in federal agencies was an essential part of the reform agenda of the 1980s. While strategic or business plans within the general government sector have not been mandatory, a 1992 evaluation of a decade of management reform found that there was widespread acceptance of, and support for, corporate planning in agencies, and that most saw corporate plans as setting strategic direction and articulating corporate values, and in one umbrella document, providing links to more specific plans within the organisation.
Since that time, the increased focus on outcomes and outputs rather than inputs and processes, as discussed in the previous chapter, has reinforced interest in and application of strategic planning. Since 1997 the Financial Management and Accountability Act has required departments and those agencies within its scope to report on corporate governance structures and process in their annual reports, including on corporate and operational plans and associated performance reporting and review.
The way the federal Budget is organised in Australia creates a strong link between agency strategic plans and their funding.
The outcomes/outputs budgeting framework (described in Chapter 6) involves setting for each portfolio the outcomes to be achieved and the funding to be provided. When all Budget decisions have been made by Ministers, separate documents for each portfolio, titled the Portfolio Budget Statements (PBS) are presented to the Parliament with the other Budget papers. The Statements are signed off by the responsible Minister(s) and describe the outcomes to be achieved along with the Government's priorities and new initiatives. They identify the funding to be provided, and set out performance targets and expected departmental outputs and total price of outputs as well as administered funding.
The PBS provides an important base for agency corporate plans. Typically, agency corporate plans focus on the management strategies to be adopted to help achieve the outcomes and targets set out in the PBS. They also identify the agency's vision and mission, and address agency capability requirements for the future.
Agency performance management systems frequently include business and work plans for each business or work area, flowing from the PBS and the corporate plan. Individual performance plans and appraisal are also closely integrated.
Agency heads are required to report annually to Ministers against the PBS outcome statements and performance targets, and these reports are tabled in the Parliament.
| A FEDERAL GOVERNMENT PERSPECTIVE |
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Department of Industry, Tourism and Resources-Corporate planningOutcomes and outputs are critical to the Department's corporate planning framework. The Department's outcome/output structure is developed through close consultation between senior management and the Portfolio Minister (who ultimately must agree to the proposed structure). Measures of performance against agreed outcomes and outputs have been developed. One of the Department's current outcomes is:
The Department delivers two outputs which contribute to the achievement of the outcome:
Information on quality, quantity and price is used to measure performance against the outputs. To measure the quality of its policy advice, for example, the Department measures elements such as:
The Department also uses a 'traffic light' reporting tool to report on and oversee performance against its outputs. Each month the tool allows a green, amber or red light to be assigned for each key performance area, depending on whether its performance is on track, experiencing difficulty or performing poorly During 2001-02, the Senior Executive Service members of the Department met on a number of occasions to consider the Department's strategic direction, including future policy and service delivery priorities; development of an information technology strategy; and the best approach to financial reporting. These considerations were reflected in the Department's corporate plan 2003-05. Business plans for each policy area of the Department were developed at a level below the corporate plan and the business planning process then cascades down to plans for work units and the performance agreements of individual employees. The Department conducts an annual survey of its stakeholders and has continued its surveys of program customers throughout the year. The survey results are used to assess the effectiveness of our policy and programs in relation to our outcome and output performance and for process improvement. |
Commercialisation and choice
Since the late 1980s Australia has seen an active microeconomic reform agenda aimed at improving the productivity and efficiency of the economy. In terms of public sector reform this took the form of increasing use of market-type mechanisms and of attempting to make state owned monopolies subject to competitive pressures.
An early initiative was the progressive introduction of user charges for a variety of goods and services provided by agencies that had previously been available at no cost to the user. User charges were introduced both between agencies and for external customers of government services. The aim of the charging policy was to make public servants and other users more aware of the cost of public activities, thereby removing any tendencies towards overuse of services because they were seen as being free.
Flowing on from this was the gradual opening up of choice for agencies in their suppliers. Government agencies had, in the past, been required to use services provided by other government agencies. One effect of competition was that providers were forced to be more responsive to client demands and to adapt their services to meet the needs of each customer. In the short term, some of the government service providers found considerable difficulties in meeting competitive prices while constrained by administrative, legislative and financial limitations imposed by their being part of the public sector. In the longer term, some of these government service providers were privatised.
Structures for delivery of government services
Starting in the 1980s, driven by pressures for increased service quality and efficiency and greater community expectations, governments in Australia began to rethink the role of government. Governments at all levels began to make changes to the way they provided services, and to the range of services they provided.
Since the early 1990s, as in many other countries, non-commercial federal agencies have been encouraged to concentrate on core functions and to consider alternative methods of delivery for internal common services or incidental functions. It has been accepted that there are times when governments should fund services, but need not, and perhaps should not, actually provide them. There is also a recognition that some services could be better provided competitively, and that governments could serve public interest better through regulation without ownership.
The intended benefits of this to governments include being able to concentrate on outcomes and outputs instead of inputs, encouraging the new suppliers to provide innovative solutions, and cost savings. An ongoing challenge, however, is to administer these contracts effectively to ensure promised value for money is actually delivered.
Competition and contestability
One of the greatest impetuses' for the application of market principles to government came from the report of the National Competition Policy Review, National competition policy, in 1993. Commonwealth and state governments accepted the principles outlined in the report (known as the Hilmer report after the name of the chairman) and, in their Competition Principles Agreement, agreed not to restrict competition unless it could be shown that restrictions were in the public interest. They also accepted the report's recommendations in relation to competitive neutrality between government and the business sector and the structural reform of monopolies to allow competition.
The policy of competitive neutrality required the removal of state-based impediments to competitive national markets and for government agencies to compete on a 'level playing field' with private sector businesses. Government agencies and trading enterprises were subjected to the same regulatory and taxation regimes as private sector businesses, thereby ensuring that they have no financial advantages over any private sector competitors.
The Competition Policy Reform Act 1995 extended the coverage of the Trade Practices Act to all markets-to public utilities, the professions, agricultural marketing boards and much of the health sector, for example. The natural monopoly elements of GBEs and government trading companies were separated out from the regulatory elements and then subjected to competition. Thus state electricity authorities were split, with the state retaining control of the transmission element and the electricity generating part opened to national competition.
Departments and agencies were required to identify functions or services that could be contestable and transferred, in whole or part, to the private or non-government sectors. It was argued that only when the public service clearly adds more value than might be achieved elsewhere was service delivery to be retained. Agencies were to benchmark themselves against all sectors to determine what they do best, what they can improve, what is more effectively delivered by the private or other sectors, or what should be discontinued.
Nothing was to be excluded. The provision of policy advice by departments, for example, was also contestable.
Contestability is less about ownership than competition, or the threat of competition. The prospect of competition is intended to act as a spur to enhance productivity and program effectiveness, and from the purchasers' perspective, to provide them with greater choice of quality goods and services.
The view was that, as far as possible, funding of government programs should be separated from the actual delivery of the services involved. Service delivery was to be competitive with suppliers required to tender or otherwise compete for the right to deliver government services. Subject to safeguards to protect service quality, enlisting the knowledge and skills of the private sector and other sectors in delivering government services would help ensure service efficiency.
Governments were now exploring and adopting demanding tests of what services should be provided and by whom. Opening the provision of services to competition, being a purchaser rather than a provider of services, and shedding non-core functions, have become global themes.
Corporatisation
Australian governments have always availed themselves of a wide range of governance structures in meeting the changing needs of public administration. While departments of State have been central to the administration of government policy-making, they have, since 1920, been accompanied in the business of managing public affairs by statutory authorities and publicly owned companies. As the federal government began, shortly after its foundation, to undertake a variety of commercial and regulatory functions as well as the more traditional administrative functions, new administrative forms, considered to be better suited to new functions, were created.
The first significant statutory body staffed outside the Public Service Act was the establishment of 'the peoples' bank', the Commonwealth Bank of Australia, in 1911. In the same year, the federal government entered into an inter-governmental agreement with Britain and New Zealand and joined its first multi-member board, the Pacific Cable Board, to construct and operate a submarine cable between Britain, New Zealand and Australia.
The first Australian government company, established in 1920, was the Commonwealth Oil Refineries Ltd in which the federal government joined with what has become British
Petroleum to establish a jointly-owned company, to construct and operate Australia's first oil refinery. While, at the time, this was seen as a one-off arrangement to handle an unusual public-private partnership, it can now be viewed as an early example, not only of such a partnership in the Australian context, but also of Australian use of the company form in government.
Corporatisation is in simple terms the creation of a corporate form, either a company under the general companies legislation, or a statutory authority under its own legislation. In either case, an organisation is established to manage an operation, with its own board of directors responsible for making all decisions about the performance of its functions and the delivery of its services.
Australian governments have used this governance model to corporatise a wide range of government service providers. Some have been longstanding monopolies, like postal services, telecommunications and water and electricity provision; and some have been in areas, like banking, aviation and shipping, where government businesses have operated alongside private operators over many years. National postal and telecommunications services were corporatised to become Australia Post and Telecom Australia, subsequently Telstra, the government owned telecommunications corporation, as early as 1975.
By the middle of the 1980s decisions over many years had led to the existence of more than 250 Commonwealth statutory authorities and 18 government business enterprises. The government decided it was time for a reassessment. In 1987, after considerable consultation, a set of policy guidelines articulated a framework for their oversight by government. The guidelines recognised the diversity of these organisations but called for all of them to pay continued attention to 'bottom-line' performance to maximise resource allocation.
The government of the time asserted a policy of using departments of State where possible, and a commitment to make sparing use of other forms of administration, with proposals to do so to be rigorously examined to guard against unnecessary fragmentation of government administration. But, recognising the size of the corporatised sector of government, the guidelines made clear the importance of their efficiency and accountability to Ministers and Parliament.
Late in 2002, a further review of statutory authorities was commissioned to examine structures for good governance, as well as the relationship between statutory authorities and office holders and portfolio Ministers, Parliament, and the public, including business. The review is focussing particularly on those agencies with close business relationships. An expected outcome is a broad template of governance principles for authorities and office holders. The review is likely to report in mid 2003.
In many recent cases, the introduction of commercialisation of government services has been a first step leading to corporatisation, and the opportunity for subsequent privatisation.
Where services have been commercialised, whether there are private sector competitors or not, governments have used corporatisation as a tool for improving their delivery.
As noted in the previous chapter, the independence of a corporatised organisation will normally be limited by government, which will provide broad policy direction, set targets and use its ownership to ensure community service obligations are met. These requirements are now set out in the Commonwealth Authorities and Companies Act 1997, discussed in the previous chapter, ensuring that authorities and companies are appropriately accountable to Parliament through a Minister. In other respects, however, a corporatised organisation is generally expected to operate in a fully commercial fashion.
Outsourcing and contracting out
Another tool used to improve public sector efficiency and effectiveness is outsourcing. Outsourcing refers to an arrangement where a private or non-government sector provider performs an activity previously undertaken by a government agency. Under outsourced arrangements the agency retains overall responsibility and accountability for the activity, function or service irrespective of the service delivery method. Outsourcing may involve market testing through a competitive tendering and contracting (CTC) process.
In association with the introduction of the national competition policy, government agencies reviewed their activities to see how performance tools, such as benchmarking, business process re-engineering, purchaser-provider arrangements and CTC, could be used to improve efficiency and effectiveness. The use of CTC was advocated as a means of delivering more client-focused services while achieving savings and maintaining accountability. Guidance to agencies was issued to provide an overview of the key issues that need to be considered.
| A FEDERAL GOVERNMENT PERSPECTIVE |
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Commonwealth propery managementLike most other governments, Australia's federal government owns and manages property within its borders and overseas. Property within Australia includes commercial office buildings, law courts, laboratories and heritage properties, totalling over 165 properties valued at more than A$948 million. The overseas property consists of offices as well as residential properties primarily associated with Australia's diplomatic and consular activities and comprises 141 properties in 49 countries with an estimated market value of A$1.19 billion. Day-to-day management of both the domestic and overseas property portfolio was outsourced in 2000 to a commercial service provider. Current contractual arrangements are intended to give the government access to international best practice in the domestic property management arena and meet set performance indicators to:
Under their contract, the Department of Foreign Affairs and Trade, the agency responsible for overseas property, directly manages and measures the service provider's performance-its global portfolio management, long-term assets management, day-today property management, day-to-day facilities management, and management of the divestment program and capital works. Through this systematic approach to property management the government is aiming to optimise investment return on its property, whilst also acknowledging public interest considerations, the need to maintain tenant satisfaction and the condition of the portfolio. |
Specific government decisions have since been made to promote CTC in the areas of information technology (IT) and corporate services, recognising that the markets for these services are well established.
In 1997, the Commonwealth government announced its in-principle agreement to the outsourcing of IT infrastructure across budget-funded agencies through the undertaking of a competitive tendering process to increase efficiency and provide broader access to technical expertise and technology support. From 1997 to 2001 this program was run centrally to manage market approaches, and agencies were grouped together to take advantage of economies of scale. Contracts included industry development commitments to promote the domestic IT market.
A series of reviews-including an Auditor-General performance audit, and an independent inquiry-endorsed the Government's policy to market test and outsource the Commonwealth's IT infrastructure requirements. The reviews also recognised that the policy delivered benefits and savings, and the establishment of a more sophisticated IT market and development of the Australian IT and telecommunications industry.
The reviews also identified that outsourcing presents a number of implementation risks that must be managed, and were critical of aspects of the administrative processes. This led to a change in the program. Since 2001, responsibility has been devolved to agency heads within a whole-of-government framework, and agency heads have flexibility to tailor their IT procurement to meet their specific business needs.
Australian governments have also been using contracting out to introduce market competition, empowering consumers and providers with choice, increasing access to innovation and international networks, and using prices to guide production and consumption decisions.
| A FEDERAL GOVERNMENT PERSPECTIVE |
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Job NetworkThe Job Network, established in 1998, is one of the first comprehensive attempts internationally to apply market principles to the provision of active labour market assistance for disadvantaged job seekers. The mechanisms used to supply publicly subsidised employment services include contracting the provision of training, client management and other services to competing agencies in the private and nongovernment sectors, flexibility in the way services are delivered and rewards for the better providers. The Department of Employment and Workplace Relations has contracts with more than 109 non-governmental organisations to provide employment-related services to the unemployed (such as job-search assistance) in 986 locations across Australia. Within the Department's guidelines, the Job Network providers tailor their services to meet specific client needs, offering a greater degree of flexibility and choice than was previously possible. A Productivity Commission report on Job Network in 2002 supports the use of public-private providers and notes that the total costs of the program are much less than previously. Competition between providers and the use of outcome payments have created incentives for improved efficiency and better outcomes. Job seekers have some choice of provider, and employers are more satisfied. |
State and territory governments have also embraced outsourcing to varying degrees. During the early 1990s the state government in Victoria was one of the most enthusiastic supporters of outsourcing. It outsourced major toll road construction and operation, hospitals, prison construction and operation, and the city train and tram public transport services. As well as public sector outsourcing, Victoria introduced competitive tendering legislation to apply to municipal councils.
Not surprisingly, considering the newness of the policy of outsourcing, many of these initiatives at federal or state level have been hotly debated and not all have been equally successful. The costs of implementing outsourcing include the immediate costs of staff retrenchments; the inflexibility that can occur in contracts; the need for high level commercial, project and contract negotiation and monitoring skills in the public service; a lack, in some areas, of competition in the bidding process; and in some cases, the difficulties of meeting accepted standards of accountability. On the other hand, the process has successfully challenged internal providers with longstanding monopoly arrangements. While figures on the savings made by governments by outsourcing are hard to come by, a wide number of services are provided on a contract or outsourced basis throughout Australia, ranging from rural postal services to the operation of prisons.
Privatisation
In recent years, Australian governments have gradually withdrawn from the provision of some services, and privatised the government agencies involved. This has applied particularly to the corporatised businesses operating in the commercial sphere. Several corporatised functions such as the Commonwealth Bank, Qantas airline, defence industries and dockyards, have been privatised, sold either through listings on the stock exchange or through competitive trade sales. Changes in government regulation of rapidly changing areas of the economy, such as telecommunications, meant the introduction of new privately owned competitors, and led to the partial privatisation of the government owned telecommunications corporation, Telstra.
Australia has had one of the largest privatisation programs in the OECD countries, second by value to the UK and, relative to GDP, to New Zealand. Sales of federal government assets and businesses began in 1986 and escalated during the late 1990s.
The proceeds of these asset sales are paid into the Commonwealth's consolidated revenue, thus benefiting the taxpayer. Where government ownership was previously seen as essential, succeeding governments have argued that the public interest can be protected by better regulation. This allows the sale of the asset without risk of the monopoly being abused. The asset or business could be expected to have better management, with less constraint on its capital needs, and to be more focused on the needs of its customers. The federal government has sold the major city airports on that basis, and many utilities have been sold by state governments.
Regulation of privatised assets by the federal government may include controls on prices and anti-competitive behaviour. Owners of a monopoly asset are required, for example, to provide access to other operators on reasonable terms and conditions. The new owners of airport terminals, for example, must give reasonable access to new airlines, and transmission networks must be open on reasonable terms to operators wishing to transmit from existing towers.
Similarly, governments have determined that community service obligations can be delivered by direct budget funding rather than cross subsidies hidden in prices. In the telecommunications area, for example, the standard of service to be provided in rural Australia is determined and telecommunications companies tender to provide that service. The cost of the successful tender is met directly from the federal budget.
Governments have not only privatised operations where external customers are involved, but they have also privatised some of the services where they themselves are the customer. Areas such as government printers, transport services and staff canteen operations have been sold to private operators. Governments normally now buy those services from the private sectors as they need them, often using competitive tendering to obtain best value for money.
Sales of government organisations are typically managed by central agencies, usually treasury or finance departments, with contracted support from specialised professional advisers. Sales have normally been by initial public offer on the stock market or competitive tender for trade sale of a business. In a few cases, governments have agreed to management buyouts. The organisations themselves are involved in the preparation for the sale, but do not control the sale process.
There are considerable costs involved in privatisations-the cost of specialist advice; the administrative cost of the tender or stock market offer; and the ongoing costs involved in regulating private monopolies, if they eventuate. But, as shown above, they have significantly assisted governmental balance sheets and allowed Australian governments to finance new priorities and programs.
Private financing
Traditionally, infrastructure development has been undertaken by governments in Australia. With the trend to privatisation during the 1980s and 90s, however, the introduction of private financing and operation of infrastructure projects has been a reasonably natural progression.
Since 2000, almost all Australian states and territories have developed private financing policies, recognising that, used appropriately, public/private partnerships can offer governments the opportunity to deliver public services more efficiently.
The term 'private financing' refers to the use by governments of private sector capital to finance, wholly or partly, investment in infrastructure or other assets or services that would normally be funded or provided directly by government. Although financed by private capital but ultimately funded by government, the private funding is often acquired through a process of repayments or long-term leases.
As such it is another form of government procurement. The main attraction of private financing for governments is that it may allow the achievement of better value for money. In particular, it may offer opportunities for efficient risk transfer and access to more innovative solutions and best practice project management. There is a perception that private financing can assist governments that are hampered by debt levels or that are keen to avoid debt. However, private financing arrangements are recognised in the public sector's balance sheet, which demonstrates that financial structuring is not the primary motivation for their use. In many privately financed projects the ownership and operation of assets will eventually transfer to public hands after an agreed period when it is expected that private investors will have recouped their initial outlay and made a profit on their capital.
Most Australian states and territories have been using private financing to help them deliver public services requiring large investments in infrastructure (for example, the provision of hospitals, schools and arterial roads and water treatment plants). The states' greater scope for use of private financing results from their greater responsibility for services involving substantial infrastructure-the type of service shown to date, in Australia and internationally, to be most amenable to these public/private partnerships.
An example of a private financing arrangement used in Victoria is the Country Court project, which was one of the first to be completed under the Victorian government's Partnerships Victoria policy. The Victorian government sought the involvement of the private sector to overcome difficulties experienced by the public sector in providing best practice judicial administration in the outdated County Court facilities. In June 2000, a private consortium was contracted to provide accommodation and other services at a new A$140 million County Court building, which is located in Melbourne's central business district. The consortium, which owns the facility, provides essential services related to the effective functioning of the building, such as building security, maintenance and information technology. The government provides all services relating to the administration of justice, notably case and list management, and custodial operations in the facility.
As at November 2001, New South Wales had contracted the private sector to build, own, operate and transfer over A$5.5 billion of capital infrastructure, covering over 20 projects. The majority of this expenditure, A$3.4 billion, has been associated with transport projects. A prominent example of a privately financed project in this regard is the Sydney Harbour Tunnel. Similarly, in Victoria, the Melbourne City Link project, which is one of the largest infrastructure projects ever undertaken in Australia and cost approximately A$2 billion, was privately financed.
At the national level, the Department of Finance and Administration released the federal policy framework, Commonwealth policy principles for the use of private financing, in 2001. The three core principles for assessing whether private financing should be the preferred procurement method used are:
- Value for money-should be assessed on a whole-of-life and whole-of-government basis. Factors which add value to a private financing proposal include innovation, risk transfer, improved asset use, ownership and management synergies, and improved project management. They also include qualitative criteria, such as the quality of service delivery.
- Transparency-the use of private financing should not diminish the availability of information to Parliament, taxpayers and other stakeholders on the use of government resources.
- Accountability-government agencies continue to be responsible for the delivery of their outputs even through the use of private financing. Agencies are not able to transfer accountability to a private sector organisation, irrespective of the procurement method.
Private financing should be used by Commonwealth agencies where it is able to provide better value for money than other available alternatives. The federal government is yet to conclude any private financing arrangements.
There can be considerable risks associated with private financing, and proposals must be adequately analysed for long-term value for money. One of the main reasons for private financing is that it can transfer risk from the taxpayers to the private sector. However, this is not always the case. The NSW state government, in the late 1990s, was forced to assume the risk of the Sydney Airport Rail Link after the private firm did not meet creditor payments. Private financing involves a long-term commitment, typically lasting 15 to 30 years and contracts need to be augmented by a cooperative relationship between the parties. It requires, therefore the public sector to invest in contract management and relationship building over the long-term.
Purchaser/provider arrangements
During the last decade, the federal government has increasingly involved other sectors in the delivery of government services and in implementing policy through establishing contractual arrangements involving a wide range of providers. For some departments this has become the standard way that many of their services are delivered. As an example, the Department of Family and Community Services, one of the largest Commonwealth portfolios, responsible for family and social welfare policies, currently spends A$730 million on partnership arrangements with 15 000 non-government organisations.
By drawing on the capabilities of many providers it, and other agencies working in similar ways, can encourage greater experimentation and innovation where one solution is unlikely to successfully address the whole problem. As a result, government agencies have been able to concentrate on setting out the standards of service that the contracted provider will deliver and oversighting performance, without directly delivering the service.
The major partnership administered by the Department of Family and Community Services is with Centrelink, the Commonwealth's one-stop service delivery agency (discussed in more detail in the next chapter), which provides services on behalf of federal and state government agencies under purchaser/provider arrangements known as Business Partnership Agreements. The agreement between the Department and Centrelink to provide income support payments is claimed to be the largest purchasing agreement of its kind in the southern hemisphere and one of the largest in the world.
The agreement recognises the simultaneous independence and interdependence of the two organisations, specifies what services each agency will purchase from Centrelink, at what standard, and specifies standards for measuring whether services provided meet those standards. It incorporates business assurance principles that define levels accuracy in administering client payments and covers ways of making sure the levels are met. A rolling program of random samples which measure payment accuracy using the agreed definitions provide continuous information on Centrelink's performance. Nevertheless, the agreement relies on communication, mutual understanding and trust, rather than being a legalistic and prescriptive contract.
The provision of programme delivery services and rehabilitation programmes for people with disabilities is another example of a Department of Family and Community Services purchaser/provider arrangement. The Department has a service level agreement with CRS Australia, a commercial business unit of the Department of Health and Ageing, to provide rehabilitation services.
CRS provides disability and rehabilitation services and programs to around 18 000 Australians at a cost of around A$100 million each year in accordance with legislation and under the terms and conditions set out in its service level agreement.
| A STATE GOVERNMENT PERSPECTIVE |
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CasemixThe Australian casemix system was developed in the late 1980s in the context of Commonwealth-State agreements on hospital funding. Casemix uses classifications to place together similar streams of health care as a way of measuring hospital outputs. Adapted from U.S. experience, the Australian system was initially used for reporting on the levels and types of outputs from both public and private hospitals across Australia. Casemix reporting provides a basic framework for assessing the efficiency of hospitals. The casemix system also aims to encourage a more patient-focused approach to hospital management while recognising the diverse range and complexity of hospital procedures. The Victorian state government introduced a casemix funding scheme for all its public hospitals in July 1993. It was the first Australian government to do so, but now all states now have some form of casemix funding for hospitals. These involve funding hospitals on the basis of expected outputs, using prices determined by casemix weightings. The degree of purchaser/provider separation varies between states, as do the detailed processes for managing risk of complex cases and funding medical research. There has been some limited experience in using casemix as a basis for competitive tendering amongst hospitals for public patient care. There is evidence that casemix has contributed to improved hospital efficiency, for example by increasing the extent of day-of-admission surgery and reducing average length of stay. Some concerns have been raised, however, about incentives for early discharge and inefficient incentives for good post-operative care. |
| A TERRITORY GOVERNMENT PERSPECTIVE |
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ACTEW Corporation Limited -Australian Capital TerritoryACTEW Corporation Limited (ACTEW) is a government-owned holding company with interests in providing water, wastewater, natural gas, telecommunications and energy services to the people of Canberra, the national capital, and beyond. This private public partnership aims to allow the private sector to finance needed infrastructure, to remove the necessity of the ACT government to carry debt and, at the same time, improve the delivery of service to the public. In Canberra, the Australian Capital Territory government owned multi-utility, ACTEW Corporation, entered into a joint venture with a major private company, Australian Gas Light (AGL), in late 2000. The challenge was to combine the service delivery capacity of ACTEW with the commercial skills of the Australian energy giant, AGL. ACTEW Corporation became a holding company and ActewAGL was formed as the operating company. All electricity and gas assets were vested in the joint venture partnerships but ACTEW retained ownership of the water and sewerage network. As a result of the new Canberra model
ACTEW Corporation has emerged as a hybrid holding company involved in four types of private public partnership:
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The regulators as protectors of public interest
The changing structure of Australia's government administration has impacted on the role of regulation, and increased the importance of some of the regulators. In place of government assistance for certain industries, and substantial intervention into various markets, more emphasis is now on regulators protecting the interests of consumers and prohibiting anti-competitive practices.
As government business enterprises have been transferred to the private sector there has typically been a splitting of the regulatory function, retained in the public sector, from the trading function. Rigorous regulation and open disclosure of performance information is also crucial to the accountability of privatised companies and private sector providers. To ensure that privatised companies live up to their community service obligations and that private service providers live up to their contracts has required the active involvement of independent specialised regulators and regulators with wider responsibilities like the Australian Competition and Consumer Commission and the Auditor-General.
The Australian Competition and Consumer Commission was formed in 1995 as part of the implementation of the national competition policy reform program agreed by the Council of Australian Governments. The Commission is the key national regulator dealing generally with competition matters, and promotes competition and fair trading while monitoring and reporting on prices. It investigates anti-competitive and unfair market practices, and supports consumer protection.
A growing number of national, specialised, regulatory and complaints authorities have also been established covering such issues as national food standards, pharmaceutical safety, and financial services monitoring.
Experience has not been without problems. Some regulators have proved to be too slow or not firm enough in protecting consumers or stakeholders, and some contracting arrangements have been subject to strong criticism by the Auditor-General. In some cases, the separation of the regulatory function from the trading function left significant difficulties that need to be resolved (one example being civil aviation safety, now firmly in the public sector).
Regulatory controls
Effective and efficient regulations facilitate the achievement of a range of community objectives. Excessive government regulation, however, imposes considerable costs on business and the community, as well as involving enforcement costs for government.
Over the last two decades, governments in Australia have found that many regulations were inhibiting healthy competition, increasing business costs and prices, and hindering growth in living standards. In some cases, consumers' choice of supplier and products was being unnecessarily constrained. In response to these concerns there has been a major reorientation of the regulatory framework in Australia.
Review of legislation
Around 60 federal departments and agencies and 40 national standard-setting organisations and Ministerial Councils have powers to prepare or administer regulations. In 1995, as part of the Commonwealth-State Competition Principles Agreement, the Council of Australian Governments agreed to a program of review by all governments of around 1800 pieces of existing legislation that potentially restricted competition.
The Commonwealth's own comprehensive review program of more than 100 separate pieces of legislation encompassed both legislation restricting competition and legislation that could impose costs or confer benefits on business.
Regulation impact statements
Since 1997, a major element of the Commonwealth government's strategy for reviewing and reforming regulations has been to require that new or amended federal regulation that affects business or restricts competition is to be accompanied by a regulation impact statement. In 2001-02, of the 1900 Bills and other regulations that came into effect, 145 required the preparation of a regulation impact statement.
The statements are designed to assess and balance a wide range of economic, social, environmental and technological issues and impacts in the consideration of policy options. New regulation is required to be pro-competitive and outcome focused.
The Office of Regulation Review, within the Productivity Commission, provides advice on whether these statements meet the government's requirements, including whether an adequate level of analysis has been undertaken. The Commission, which is the government's principal review and advisory body on microeconomic policy and regulation, also has an obligation to report annually on compliance with these requirements across federal departments and agencies. Its 2001-02 report notes that while some agencies have integrated consideration of regulatory issues into their broader policy development processes, others have yet to do so.
Cost recovery
Sound principles of cost recovery are also fundamental to good regulatory development and reform. Until recently, most government activities, other than those of government business enterprises, were largely funded from general taxation revenue. However, governments increasingly have been recovering by more direct means some or all of the costs-the fees and charges relating to providing government goods and services (including regulation) to the private and non-government sectors-of particular activities.
In 2002 the Productivity Commission reviewed cost recovery arrangements across the government's regulatory, administrative and information agencies. A new cost recovery policy has been established to improve the consistency, transparency and accountability of cost recovery arrangements and promote the efficient allocation of Commonwealth resources. Guidelines have been issued to assist the application of the policy. The policy applies immediately to all new and significantly amended cost recovery arrangements and will be phased in over five years, in line with an agreed review schedule, in respect of existing arrangements.
Increasing productivity
Australia's economy continued to grow strongly during the 1990s, with an annual average real GDP growth of 3.4 per cent over the decade. This strong growth persisted during the 1997 Asian financial crisis and the 2001 global downturn.
High productivity growth, particularly in the 1990s has underpinned much of this good economic performance.
While well-crafted macroeconomic policy settings and workforce skills and education were important, there is general agreement that microeconomic policy reforms have played a central role in Australia's productivity surge through three main avenues:
- incentives to be more productive have been sharpened, chiefly by strengthening competition
- the economy has been opened to trade, investment and technologies developed overseas
- less regulatory restriction in labour markets has given businesses the flexibility to adjust production processes and the structure of their organisations to improve productivity.
There is considerable evidence of increased productivity in the public sector also over the last decade and more. Nevertheless measurement remains difficult.
A 1990 Australian report, The size and efficiency of the public sector, recognised the difficulty of valuing or measuring the output of public administration in objective terms, but found that meaningful measures of performance and efficiency are more readily available for GBEs. It concluded, after some careful economic analysis and caveats, that in the second half of the 1980s there was a marked improvement in efficiency in many areas of the public sector. The data suggested that growth in productivity had been at a higher rate than in the private sector, it was estimated at 3 per cent per annum from 1987-90, and that there had been substantial productivity increases in telecommunications and electricity supply. The report concluded that the intensive, expenditure reviews, program budgeting and efficiency dividends, and considerable management reforms have led, in general, to substantial efficiency gains, while maintaining the quality of services.
Between 1984-94 government trading enterprise profitability rose by 23 per cent, real price levels fell by 3 per cent while productivity rose by 67 per cent. A subsequent report by the Productivity Commission covering 1994-95 to 1998-99 indicates that the financial management of trading enterprises has continued to improve over recent years, resulting in higher returns to the community. However, performance varies within and across industries, with many still not achieving an adequate rate of return-despite a decade of reform.
Since 1995, the Steering Committee for the Review of Commonwealth/State Service Provision has published information on the performance of Commonwealth, state and territory governments in delivering specific government services. Its annual Report on government services uses a range of agreed performance indicators to allow assessment of both the effectiveness and efficiency of those government services not normally subject to competition, including education, justice, emergency management, health, community services, and housing. The work of the Steering Committee is assisting governments in all jurisdictions to identify better ways of delivering these services to the community.
There is also evidence of improved effectiveness, such as in employment services provided through Job Network, and in health outcomes through clinical and pharmaceutical programs as well as preventive programs.
Meanwhile, a Productivity Commission report, Microeconomic reform by Australian governments governments, 1997-98, finds accumulating evidence-although it is harder to evaluate-that microeconomic reform is lowering costs in both state and Commonwealth public sectors.
In some of the most complex fields, such as social security and child support, the public service has lifted its performance in providing quality service to its clients while meeting the strict requirements of legislation.
While it is not possible to state unequivocally the factors behind these improvements, it is fair to suggest that the management reform agenda of the last two decades-focusing on managing for results and involving considerable devolution-has had considerable positive impact on the budget and on the clients the APS serves. The reform agenda has facilitated improved business and corporate planning, better performance management, increased use of competition, and better management of people as well as finances.
Further information:
Department of Finance and Administration reports are on their web site at http://www.finance.gov.au.
Department of Industry, Tourism and Resources http://www.industry.gov.au/
Productivity Commission's reports are on their web site at http://www.pc.gov.au.
The Review of Government Services is at http://www.pc.gov.au/gsp
The Productivity Commission's 2002 report on cost recovery arrangements is at http://www.pc.gov.au/inquiry/costrecovery/finalreport/index.html
Finance Circular no.02/2002, Cost recovery by government agencies, and the Commonwealth cost recovery guidelines for information and regulatory agencies can be accessed via the Department of Finance and Administration’s website at http://www.finance.gov.au/cost_recovery/
Australian National Audit Office http://www.anao.gov.au
Job Network www.workplace.gov.au
Department of the Parliamentary Library 2002, Public private partnerships: an introduction, http://www.aph.gov.au/library/pubs/rp/2002-03/03RP01.pdf
ACTEW Corporation Ltd. http://www.actew.com.au/
References not on theinternet:
Economic Planning and Advisory Council 1990, The size and efficiency of the public sector, AGPS, Canberra.
Singleton, Gwynneth ed. 2000, The Howard Government: Australian Commonwealth administration 1996–1998, (Australian Commonwealth Administration 1996–1998), UNSW Press, Sydney.
National Competition Policy Review 1993, National competition policy (FG Hilmer, Chairman), AGPS, Canberra.
Royal Commission on Australian Government Administration 1976, Report (HC Coombs, Chairman), AGPS, Canberra.
