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Finance and Public Administration References Committee
The current capability of the Australian Public Service (APS)

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CHIU, Mr Osmond, Senior Policy and Research Officer, Community and Public Sector Union [by video link]

DONNELLY» , Ms Melissa, National Secretary, Community and Public Sector Union [by video link]

TULL, Mr Michael, Assistant National Secretary, Community and Public Sector Union [by video link]


CHAIR: I now welcome representatives from the Community and Public Sector Union. Information on parliamentary privilege and the protection of witnesses in giving evidence to Senate committees has been provided to you. It has been really useful the way that the union has presented its submissions—that is, this central submission but also the prior submissions by agency that included people who work in the agencies themselves. I think it has been a really useful way of presenting the union's submission. It has certainly assisted the committee in our questions and our discussions with the agencies themselves, and with stakeholders in the community who deal with those agencies. Thank you for that. Have you got an opening statement for us?

Ms «Donnelly» : Thank you, Chair. I do. Thank you for the opportunity to appear before the committee. The CPSU represents the people working in the Australian Public Service. Every day, Australians rely on the work of the Public Service. However, the work of the APS is being increasingly casualised, outsourced and privatised, and that is eroding the capability of the APS to deliver what the community needs.

Labour hire is a critical issue. The government's ASL cap has driven an explosion in the use of labour hire. Since 1 July 2015, around $7.8 billion has been spent on labour hire. In 2020 alone, it was $2.1 billion. We estimate that up to one in five of the total workforce of APS agencies are engaged as labour hire and contractor employees, and, with some agencies, double that. Our estimate is that there are as many as 20,000 labour hire employees engaged across the APS. Our submissions document the substantial negative impacts this has on workers, agencies, APS capability and the services the community receives. Our submissions also demonstrate that labour hire costs more than APS employment. This means that, for the money spent, fewer people are doing work for the community.

Not only is this not an efficient use of government money; it also means that services the community receives are not as good or effective as they could be. It means also that thousands of workers are denied access to basic workplace rights and are exposed to the stresses and strains of insecure work. The recent budget acknowledged the problem with the government's ASL cap policy, ending the arbitrary cap and with Finance Minister Birmingham acknowledging that it's more efficient and effective to use ongoing staff. But the budget decisions did not, in our view, go far enough. There are still thousands of labour hire roles across the service, and the 5,000 additional jobs in the budget do not replace the more than 13,000 jobs that have been cut by this government.

The solution in our view is straightforward. The Commonwealth can convert labour hire roles to APS employment. Because labour hire jobs cost more, the conversion of these roles not only shifts insecure jobs to secure ones but also means additional staff can be employed for the same budget cost. Some agencies are now starting to do this, but it needs to be directed by government and applied across the APS. Casualisation is not limited to the use of labour hire. Too often we see departments using long-term APS casual employment for roles that should be ongoing. This too is a problem with a really achievable solution: converting existing casual workers to ongoing employment, to provide job security and strengthen institutional capacity.

The second key issue is the use of consultants. Too often consultants are used for work that could and should be done by APS employees. It happens because there seems to be a tacit preference for privatised advice, provided through consulting firms, rather than public policy advice and a disregard for the skills and capacities of APS staff. The rampant use of consultants erodes the capability of the APS while raising serious issues about accountability, transparency and value for money. The solution is to reduce the spending on consultants and use those savings to rebuild APS capability. Our submission makes practical recommendations from data collection, skills gap analysis, skills transfer and spending gaps to achieve that goal.

A further issue for the APS capability is the current APS bargaining arrangements, which undermine the capacity of the APS to attract and retain employees, while also creating barriers to staff mobility and career progression across the APS. This is why we recommend the Commonwealth act as a model employer and revise its workplace bargaining policy to enable agencies to genuinely bargain in good faith, without restrictions, on pay and the capacity to enhance employment conditions.

ICT is also a critical factor for APS capability. High-quality ICT is essential for APS employees to do their day-to-day jobs and crucial to meeting community expectations for online services. But decades of outsourcing and contracting out and the underinvestment in public sector ICT has resulted in substandard systems, erosion of capability and a complete overreliance on expensive external providers. We need to end the outsource-first mentality and rebuild in-house ICT capacity in the public service. This requires a commitment to ongoing investment in ICT systems, addressing skills shortages and workforce constraints. It also requires a genuine commitment from government to making APS digital services every bit as good as the best of the private sector.

The final issue we raise in our submission is around governance and transparency. While billions are being spent on external suppliers, there are fundamental gaps in data collection and reporting about how much is being spent, what it is being spent on and what that spending delivers. These gaps are a barrier to workforce planning and effective procurement and undermine public trust. Our submission makes a number of recommendations for addressing these issues. Thank you, Chair. We would, of course, be happy to take questions.

CHAIR: Thank you very much, Ms «Donnelly» . I just want to take you through some of the propositions in the union's submission. Is the principal driver of increased labour hire the ASL cap, and what does the union say the extent of labour hire employment in the public service is? We heard evidence from the Department of Veterans' Affairs, for example, that 50 per cent of the frontline staff—that is, the people who were engaging with veterans—were labour hire employees. I think most Australians would be shocked to hear that. What's the true extent of labour hire employment across the public sector. Are we in a position to know the answer?

Ms «Donnelly» : I might ask Mr Chiu to respond on the data question.

Mr Chiu : Thanks, Melissa. In terms of how many labour hire employees there are, unfortunately there is no service-wide data on the exact number. We've been able to get information from a variety of publicly available sources, including from Senate estimates and from sources based on AusTender data. The exact extent varies from agency to agency. In the case of somewhere like DVA, there's been talk of 40 per cent, but, even in a traditional agency like Treasury, what we have been able to ascertain is about 14 per cent of their staff are labour hire. So it really depends, and, unfortunately, there's no transparency about how many labour hire employees there are. What is clear is that the ASL cap has been the driver of this increase. We've seen an explosion in labour hire expenditure since 2015.

CHAIR: We shouldn’t gloss over the distinct lack of transparency on this question. I think most people would find it extraordinary that there is a refusal to provide some accountability at public service level on this question. What's your assessment of the value of expenditure as a proportion, and also the number of staff who are in this position?

Mr Chiu : Based on what we've been able to gather, if we look at AusTender data, we can identify that there's been an increase in spending on temporary personnel service contracts from about $289 million in 2013 to, in the 2020 calendar year, that's blown out to $2.1 billion. Roughly, it's been a 612 per cent increase in spending on labour hire since this government came into power. If you compare it against budget data on how much spending on public sector wages and salaries have increased, that's only been about 10 per cent. So I think that alone has shown there's been a massive increase in spending on labour hire compared to ongoing spending on APS staff.

CHAIR: I saw the graph in the Thodey report which shows it's up. But you're relying on the AusTender data, and labour hire is bundled up in some of the other categories there. So that is an understatement of the position, isn't it?

Mr Chiu : That is correct. Unfortunately, we don't have access to an updated version of the Thodey review data, so we've had to rely on what data is publicly available. So our figures are likely to be an underestimate of how much labour hire there is. Especially considering—

CHAIR: How many staff? How many people?

Mr Chiu : How many people in terms of labour hire? Our estimate is 20,000. But, again, there is limited publicly available data on the number of labour hire employees.

CHAIR: So in the tens of thousands, which means billions of dollars a year. Is there any assessment of what proportion of that flows through in terms of remuneration for these tens of thousands of workers and how much of that is rivers of gold for these labour hire companies? What do we know about the proportion of that that is profit for these multinational labour hire companies?

Ms «Donnelly» : We know, and a number of agencies have given evidence to Senate estimates and other processes on this—that there is, absolutely, a premium paid to labour hire companies through these arrangements. This is the reason why they cost more than having APS employees. You have a labour hire company that is, itself, clipping the ticket, if you like, to drive their own profits. There have been examples where some agencies have been forthcoming, in estimates and other places, that there is a significant premium.

CHAIR: So it produces a worse outcome in terms of capability; at the very best, it doesn't represent value for money; and we can see in your submission that it leads to poor outcomes in terms of workplace culture and, of course, the position for those workers themselves. How do agency heads explain why the government has eroded its own public sector capabilities so badly? What's the rational for any of this?

Ms «Donnelly» : The primary driver given to staff about the use of labour hire is the ASL cap. Agencies are limited in how many APS employees they are allowed to employ. Therefore, the only option available to agencies is the use of labour hire. And I think that is why, as Mr Chiu outlined, you can plot the significant increase in labour hire costs with the introduction of this policy from the government.

CHAIR: The finance minister conceded that in the lead-up to the budget—he indicated it was more expensive, in fact.

Ms «Donnelly» : Yes. In the budget this year there was the concession from the finance minister that, in a range of circumstances, it's more efficient and effective to use ongoing employees. What we're concerned about is that the budget decisions don't actually address the issue in the whole. We've had an acknowledgement that there's a problem, but the decisions of the government haven't fully addressed the extent of the issue across the APS. We still have, we believe, around 20,000 labour hire employees across the service.

CHAIR: Yes, because it's not a removal of the ASL cap that's happened; it's just an adjustment of the settings of the machine, isn't it? It means the ASL cap's been altered for some departments. In terms of the scale of the problem—20,000 labour hire staff doing core functions—it hasn't fundamentally altered that position. And, I think, in evidence we've received thus far, the new ASL positions are only funded until after the election. Is that right? There is the prospect of very significant cuts to capability following the election, because those positions aren't funded.

Ms «Donnelly» : With what occurred in May, we did see some agencies gain the capacity to increase APS employment, but that's not an across-the-board decision. Therefore, the policy settings that have led to the labour hire usage have not been addressed across all APS agencies. In respect of the settings moving forward and the staffing allocation, I think that arises specifically in respect of DVA. Mr Tull might be able to further add to that.

Mr Tull : DVA is an agency that's had a punishing problem with labour hire. There's a very direct link there because of the massive use of labour hire. More than half of the staff doing processing work with veterans' claims were [inaudible]. We and others campaigned very hard against that. In the last budget, we've seen an increase in funding to the departments so that they can reduce that reliance on labour hire, but it does not appear to be long-term and ongoing. So we do harbour concerns that at some point in the not-too-distant future we will see staffing numbers decline or a return to the use of labour hire.

CHAIR: I think it was the case in Services Australia, too, that positions were only funded for 18 months—not over the full forwards—which does lead you to anticipate what the government is planning to do. And they were all temporary positions—not permanent ASL positions.

Mr Tull : That is correct.

CHAIR: You'd have to have a lot of confidence in the Prime Minister's announcements to think that those positions were going to continue to be funded. I want to go quickly to ICT. What is wrong with the current ICT capability and what needs to happen to fix it?

Mr Tull : ICT is of crucial importance when we talk about APS capability. There are two sets of things there. One is making sure that APS staff have the tools that they need to do their job every day, and then of course there is what citizens and clients get to see and use. On both scores, the public sector ICT is well off the pace. Our members regularly report that they do not have the tools that they need to do their job effectively. Our submissions and the evidence that you will have heard from our workplace leaders give you a number of examples of where people are anchored to legacy systems or have to use multiple systems to get their work done. At the same time, there's a fair bit of public evidence—the Boston Consulting Group have done a lot of work in this space—that really identifies that the community do not think the public sector ICT, that the digital services that the public get to use, is up to an appropriate standard. And the standard is really being set by private enterprise, and the public sector is way behind. The reason for both of those problems is that we've seen decades of underinvestment in public sector ICT, with an outsource-first mentality, leading to this chronic over-reliance on external providers. That's the fundamental problem. This is not a new problem. There have been independent reports. In 2008, the Gershon report, a very thorough major report into public sector ICT, was making exactly the same point that CPSU members are making in their submissions to this inquiry—that we need to rebuild in-house capability.

CHAIR: So the trend to replace public servants, particularly in areas like Services Australia and the NDIA, with a digital capability, undercuts capability. Secondly you're saying that the outsourcing of ICT capability has led to further erosion, so there's a compounding erosion of capabilities as a result of that—is that right?

Mr Tull : Yes.

CHAIR: So it's more than the people who work for the public service complaining about the poor internal ICT capability. It's about what people in the community experience in terms of capability. I think it's proper to be concerned about the internal capability, but it's much more urgent, isn't it, if that's impacting on the engagement Australians have with the public service?

Mr Tull : Yes, that's absolutely where the rubber hits the road. We recommend that we need to see a big investment in public sector ICT, a very committed program to [inaudible] internal ICT capacity. Both of those things will deliver to the community digital service of the type and quality that they expect. Bottom line on all of this: we need a commitment from government that public sector digital services will be every bit as good as the best of the offerings from the private sector. There is no reason why public services should be second best.

CHAIR: There's a lot in the submission around capability questions. I wondered about the extent to which you think that government's collective bargaining strategy impacts on capability. Firstly, is there any collective bargaining amongst the labour hire staff? Is that a possible or practical thing that can be achieved, or is it just not possible?

Ms «Donnelly» : Labour hire employees are not covered by the APS bargaining policy or APS industrial relations decisions. So they're not covered by that scheme at all. They would of course have rights under the Fair Work Act, but the kinds of arrangements we see in the APS would not apply. Sometimes this leads to quite problematic outcomes, and an example of that was last year paid pandemic leave was offered to APS non-ongoing employees but the labour hire employees sitting next to them were not offered the same arrangements.

CHAIR: That must have an impact on cohesiveness and culture and people's experience of work. We've heard some evidence that labour hire staff have been told that they may not even disclose their rate of pay to APS staff. That must create a problem.

Ms «Donnelly» : Yes, that's right. It does cause cohesion problems and culture problems within the workplace and in terms of how labour hire employees feel about their security at work. Going to issues like the ability to do your job in a frank and fearless way—that's a hard thing to do if you may or may not be asked back if the labour hire firm gets a complaint about you et cetera. There's a range of ways that the differing conditions and differing job security causes problems in the workplace.

CHAIR: The union made some observations in its submission about the different rates of pay across agencies. Do you have any analysis, or is there public reporting on, the gender pay gap implications of those pay differentials across the service? And, as a corollary to that, do you know anything about the gender make-up of the labour hire staff relative to the APS staff?

Ms «Donnelly» : My internet connection is breaking up a little bit. I might pass that question to Mr Tull, because I missed a lot of it.

Mr Tull : Sorry, Senator: I'm going to have to ask you to repeat your question.

CHAIR: Okay. Sorry. I'm very confident that it's not the internet; I'm confident that it's my microphone, which we're going to replace in the break. I'm sorry about that. I wondered about the different pay rates that the union points to in its submission across agencies—what the implications are from those differentials for the gender pay gap across the Public Service and whether there's any public reporting of that or whether the union has any analysis of that.

Ms «Donnelly» : I think I got it that time. Differing pay gaps across the APS—you can give me a thumbs up or a thumbs down if I got it wrong!—there are very different pay rates across the APS. That arises because bargaining occurs at an agency level. There's not a service-wide component to that. It really arises because different agencies have different capacities to pay—as in: the level of funding security that they have in the budget dictates how confident they are with their budget arrangements and therefore the kind of pay offers and salaries that they can maintain through their enterprise agreement. There are quite significant discrepancies that are detailed in our submission. I think for a Defence EL2 versus an AIATSIS EL2 there's about a $70,000 difference. They're not publicly collated, but obviously the union has done that work in analysing enterprise agreements and understanding those pay differences.

In terms of the capability issues that we're discussing today, we do think these pay differences are a significant constraint on capability, because it limits the capacity for mobility within the APS. It has implications also for career progression within the APS. Many reviews across the APS have identified the need to promote greater mobility across the APS and therefore a more greatly detailed understanding of different policy areas. But the idea that you would move and experience a $70,000 pay cut is not a compelling one, of course, for some employees. So it does have real capacity implications.

CHAIR: Thank you. I'll just ask one last question before I see whether other senators have questions, and I'll try to fix my microphone in the meantime. Does that have implications for the gender pay gap across the Public Service?

Ms «Donnelly» : It can and it does, in part because in highly feminised agencies, often, in the bargaining system that we deal with, issues about rostering, issues about flexibility and issues about the capacity to change hours of work to suit other responsibilities are really important priorities for bargaining. The fact that they are also then bargaining around wages can make securing superior wage outcomes more difficult. The extent of the gender pay gap does differ between different agency rounds. I think Mr Chiu may have the exact numbers on the pay gap as it stands now.

Mr Chiu : My understanding is that the most recent data on pay gaps identified it as about 6.6 per cent. So there is that data provided in the APS remuneration survey that I think the APSC releases.

CHAIR: Okay. I might see if Senator Roberts or Senator Chandler have any questions for the CPSU at this stage.

Senator CHANDLER: I have had plentiful opportunities to ask the CPSU questions over the last few hearings that we've had, so I'm happy to hand over to Senator Roberts.

Senator ROBERTS: Thank you, Ms «Donnelly» , Mr Chiu and Mr Tull for attending today. Ms «Donnelly» , I've been very concerned about the use of labour hire and casual employees in the Hunter Valley in particular and now, increasingly, in Queensland, so I'll ask questions with that in mind. The figure, Mr Chiu, for 2021 that Ms «Donnelly» quoted was $2.1 billion on labour hire in the Commonwealth Public Service. Is that correct?

Mr Chiu : Yes.

Senator ROBERTS: What was the percentage of the workforce that you quoted, Ms «Donnelly» ? I missed that.

Ms «Donnelly» : We estimate that it's one in five.

Senator ROBERTS: Twenty per cent, okay. Just for your own knowledge, we understand that Chandler Macleod Group, which is part of the Japanese owned Recruit Holdings, the world's largest labour hire firm, was paid $2.4 billion by the Commonwealth government over four years. I've forgotten the exact four years. Are the pay rates for labour hire generally lower or higher than for Public Service people doing the exact same work?

Mr Tull : Thank you for the question. [inaudible] is the short answer.

Senator ROBERTS: Sorry, what was that? I missed that because I couldn't hear it properly.

Mr Tull : It varies. In some agencies, in some workplaces, we will see labour hire workers being paid less than the comparable APS worker. There's an example in our submission of the Commonwealth Director of Public Prosecutions, where the DPP told the Senate that they pay 25 to 28 per cent more for labour hire workers than it would cost for APS employees, while at the same time those labour hire workers are paid less than the APS employees. The Commonwealth is paying more in total costs because of labour hire fees, and workers are getting paid less. That's obviously a terrible situation. Elsewhere, in other agencies, we see labour hire pay rates very similar or based on the enterprise agreement rates of the agency that the labour hire workers are working in. The Department of Veterans' Affairs would be one example; Attorney-General's is another. The labour hire workers are paid according to or pretty closely matching the pay rate in the enterprise agreement. But then what gets put on top of that, of course, is the premium that the Commonwealth then has to pay to the labour hire company. That's one of the reasons why labour hire costs more than APS employees. The extension of that, of course, is that, where you're using labour hire, you are getting fewer employees for your salary budget than you could if you were just employing APS employees. When you put that out across $2 billion worth of spending, the numbers really add up. When you put that out across $2 billion worth of spending, the numbers really add up. We are talking about a lot of jobs and a lot of money going to labour hire profits that should be going into Public Service jobs and capability.

Senator ROBERTS: Thank you, Mr Tull. Let me just go through a list that I've written down here from memory of the issues we've been dealing with in the Hunter Valley and Central Queensland. First of all, using a labour hire firm and casual employees, there's a lack of institutional memory, so some of the things that people learn on the job are lost when the casual leaves. There can be conflicts of interest—for example, the ATO was using a labour hire firm, and a caller who was calling about his employer was an employee of the same labour hire company. So you can see the conflicts of interest, potentially, if he's giving advice. There's also lack of harmony in some workplaces when we've got two people are doing an identical job but getting difference rates of pay. That causes problems, especially in Australia, and we know why.

Ms «Donnelly» , perhaps we can just go through a list of reasons as to possibly why the Australian government is doing this. First of all, it can lead to a cut in pay, reducing payroll. Secondly, it might be because they genuinely need flexibility. Thirdly, it might be to cut the union power or a lack of accountability. It might be, as you say, because of the average staff level cap. It might be because of poor management skills, and that puts pressure on the casuals. It might be because of the tax system, because that has led to increased gross pay just so that the worker can get a decent take-home pay. It might also lead to greater control over the workers because then there's the possibility of, as you said, not getting frank and fearless advice because of intimidation. Are there any other factors? Could you comment on those and any other factors?

Ms «Donnelly» : Thank you for the question, Senator. In respect of that list that you have gone through, I think there are a range of factors in there that can lead to why we are seeing this increase in labour hire arrangements under the government's policies. We really do think the ASL cap is an absolutely key driver, and that's consistent with information and discussions we've had with senior agency managers as they make decisions to increase labour hire. In terms of the potential factors you listed around a cut in payroll or a cut in the cost of labour, I would say that the evidence outlined in our submission and the evidence that a number of agencies have themselves provided to various committees indicates that it is actually not cheaper. So if that is one of the reasons the government is pursuing these employment strategies, I think it is entirely debunked.

Senator ROBERTS: You've also mentioned consultants. Could it be that the increased use of consultants is because consultants can give the advice the government wants?

Ms «Donnelly» : One of the many concerns we have around the use of consultants is about the impact it has on frank and fearless advice and the capacity of the Public Service to play its role in properly advising government. The lack of accountability and transparency and the risk that you have identified about getting the advice you want rather than the advice that perhaps should be given is absolutely a concern.

Senator ROBERTS: Because the consultant will be more likely to give the government the advice he or she knows they want in order to get their next gig as a consultant.

Ms «Donnelly» : It's absolutely right to identify that as a key risk here. The lack of accountability and transparency in this process really amplifies those risks because we can't even properly analyse or evaluate what these consulting firms are providing to government.

Senator ROBERTS: Did you hear my questions of Professor Halligan in the previous session this morning?

Ms «Donnelly» : I heard the last couple of minutes of that.

Senator ROBERTS: The question in particular that I'd be interested in your comments on is a very broad question. I was listening to someone who is retired now but who was a former senior public service manager, and a very well regarded one, in the New South Wales sector. He wasn't being critical of either Labor or Liberal individually; he was critical of both governments over many decades. He was talking about a trend. The area in which he worked had been very well regarded. It had been gutted over the years by various management consultants coming in and giving advice to ministers, both Labor and Liberal. They'd gutted the capability of that area of responsibility—I won't mention where—and as a result accountabilities were eroded because they were no longer reporting directly to a customer, providing a service to a customer. They were providing a service to Treasury, and they didn't have the authority to do their job. They lacked the resources, the in-house capability, to do their job—not numbers but actual skills, engineering and other skills. The process by which they worked, which was world renowned, had been gutted. So what we've got is a destruction of the functions as well as the numbers of people required to do those functions. The process by which they delivered their work had been smashed. The systems on top that were put in over the years were not process based, and they were a mishmash. And then they had rampant politicisation as well. That would seem to me to be an ideal recipe to have a mess in a public service.

Ms «Donnelly» : Yes, I agree that it is an ideal mess. I think what we see in the APS, particularly around the use of consultants and the impact that has on capability across the service, is the opposite of a virtuous circle. Decisions to outsource and to go to consulting firms are made. The internal capacity of the APS is affected because they are not using, developing or prioritizing skills and capacity in that regard. The circle goes on and on. ICT—and Mr Tull spoke to this earlier—is a prime example of that, but it is far from the only one. That's why we need to see a genuine commitment and investment in building the capability. I did hear at the end of Professor Halligan's evidence earlier this morning him talking about it actually taking time. It absolutely takes time, and it takes a genuine commitment and investment to achieve that.

CHAIR: I might just interrupt. While I'm enjoying this rare moment—it's not always that Senator Roberts's views and my views overlap, but I'm enjoying this moment when they do—I do want to try and keep to time, Senator Roberts. One more question, if you don't mind.

Senator ROBERTS: One brief question. Is all of the mess that I just alluded to driven by excessive politicisation of the Public Service over recent decades?

Ms «Donnelly» : Politicisation is a problem for the Public Service. Our members identify concerns around being able to provide frank and fearless advice, and those kinds of issues are ones that are dealt with also by the Thodey review about how we deal with issues between ministers and the Public Service. It is part of the problem. I don't think it explains the whole problem. I think an underinvestment in Public Sector staffing and resourcing and a preference for privatisation and outsourcing are absolutely key drivers of what we now see in terms of APS capability.

CHAIR: I would like to thank the CPSU for their submissions today. As I said earlier on, the submissions by agency were very instructive for the committee. Thank you very much. We'll let you go know.