Yes, the public service can be more efficient. But it won’t solve all our woes

Even though the words of Auld Lang Syne have disappeared once again into the leaking sieves of our collective memory, there is still time for some new year’s resolutions. Given Australia’s rather concerning economic and fiscal situation, it seems only right that we focus our resolve on ways to improve the fortunes of our spluttering economy.  

The biggest economic concern at the moment is our productivity stall. Keeping that in mind, there are bold steps a politician could take to deliver real gains in economic performance, both in the public sector and the private sector.  

First, how to improve public sector performance.  

The public sector represents a significant proportion of our economy, too high a proportion one might argue but that is for another time. It is also growing rapidly, especially in terms of the health and aged care sectors.  

Unfortunately, in Australia a lot more focus has been given to how much is spent and too little to how it is spent. Indeed, even among critics of the expanding public sector, a lot of the focus has been simply on cutting spending at the aggregate level rather than on improving service delivery.  

As former New Zealand Prime Minister Bill English demonstrated, substantial budget savings can accrue over time by making the public service better, rather than just cheaper.  

There is an increasing body of work that focuses on how to deliver better services, including by experts like Gary Sturgess, who recommends focusing on empowering front-line staff.  

Another issue, at least in areas like education, is to introduce more tools that measure performance. A necessary corollary of this, contrary to the recent approach of a number of state government, is to use those measurement tools and connect them to pay.  

Blanket pay increases across the board increase the bottom line substantially while doing little to improve performance. 

Of course the productivity issues are not constrained to the public sector. Private sector productivity has lagged for years as well. 

The government believes that the answer to this problem is competition policy, but it seems increasingly obvious that the best thing that government could do in fact is just get out of the way.  

Competition would be vastly improved if the government stopped placing its hand on the scale – for example protecting small businesses from competition with larger ones, or through the use of industry policy.  

Beyond this the answer is deregulation. However it is important to understand why recent attempts at deregulation have failed to deliver returns similar to those of the 90s.  

For example the previous government frequently boasted of the pieces of legislation they had removed from the books. Why did this not boost productivity? 

The answer is simple: the volume of legislation repealed is less important that what specific obligations are reduced. An effective deregulation agenda would involve a team going industry by industry and talking to the leading businesses. Ask them what government requirements cause them the most trouble and take the most time. Repeal those. Then move on to the next industry.  

That approach will take time, will deliver only incremental gains, and likely be quite politically challenging. Vested interests in the sector will defend those regulations ferociously. Over time however the impact will be significant.  

There are also several important areas where deregulation would boost broader productivity across the whole economy in the medium term. 

The first and most obvious is overlapping regulation at the state and federal level. It makes little sense for businesses to have to deal with competing legislation passed by different levels of government, which often works as cross purposes.  

A good example of this is environmental protections, where proponents of major projects are hit with a wall of requirements at both levels. 

Indeed, environmental regulation is in need of greater reform than just removing or resolving conflicts between jurisdictions. One of the biggest concerns in this area is the misuse of regulatory protections in order to cause delays and thereby kill projects. 

Reasonable people can disagree on the appropriate level of protection for environmental concerns, particularly in the context of major energy and infrastructure projects.  

Some may favour a stronger regulatory regime, others would argue in favour of a regime that prioritised nationally important projects. 

Regardless, once those levels of protection are agreed upon, the process of compliance should be quick and simple. The process itself should not be another slow and expensive hurdle to pass through.  

Another area needing reform is financial services regulation. Since the GFC, and certainly since the Banking Royal Commission, there has been a significant focus on re-regulating the financial sector to avoid any and all risks.  

Some of these attempts to protect consumers have made it harder for people to access finance. A good example are responsible lending restrictions, where the government stands between willing lenders and borrowers to prevent mutually beneficially transactions. 

A completely riskless financial system lacks the dynamism necessary to drive growth. 

Beyond this, a federal government could do much to encourage further action on housing and zoning reform at the State level. This too would have a big impact on overall productivity. 

If we are to combat our economic woes the starting point is not just to adopt resolutions but to develop the resolve to fix the problem. We have been far too passive, for far too long, choosing to rely on favourable terms of trade and our ability to muddle through in the end. We can do better and now it seems we must.  

Of course, given we are about to begin an election campaign, don’t expect economic resolve from either side of politics until the new parliament convenes later this year. 

Simon Cowan is Research Director at the Centre for Independent Studies.  

Photo by Vi Nguyễn Hoàng Duy