Big consultancies lose $624m as government cuts ‘shadow workforce’
The government will cut another $1 billion in spending on external labour in the upcoming budget and will introduce an outsourcing tax to secure increasingly fickle savings.
In a bid to rebuild the Australian Public Service, the government has cut spending on big consultants by more than half a billion dollars this financial year.
Compared with a comparable period in 2021–2022, the federal government will spend $624 million less on engagements with the country’s largest consulting firms, according to Finance Minister Katy Gallagher in a statement released on Sunday.
It will save a total of $1 billion on consultants, contractors, and labour hire in the upcoming federal budget, adding to the $3 billion saved on these engagements in the 2022–2023 October budget.
Gallagher said the government is choosing to deliver on the job expected by the Australian people, rather than delegating it to a “more expensive outsourced shadow workforce.”
“While the Liberals talked tough about capping public service numbers when they were in government, in reality they were spending billions outsourcing the work to keep the public service headcount artificially low.”
“The former Government spent approximately one in every $4 on external labour in 2021-22. At the same time as reducing the services Australians rely on, the Liberals employed a shadow workforce of tens of thousands of private consultants and contractors to keep the size of public service artificially low,” she added.
Over the weekend, Minister Gallagher told ABC’s News In-Depth that it is “getting harder” to find ways to save on government expenditure, though external labour is an area of particular interest.
“We think this is an area, as we rebalance the public service and we employ permanent public servants into those roles that were perhaps held by consultants, contractors, and labour hire, that we can also reduce that amount of expenditure,” said Minister Gallagher.
The government will also introduce an outsourcing tax dubbed the “additional external labour levy” which will charge government agencies for relying on external providers. The levy alone is expected to raise $375 million over four years from 2024–25.
Minister Gallagher added that the government will undertake another audit to calculate how it is tracking with its commitment to building a stronger APS.
The pressure to cut back on big four consulting spending has ramped up since the PwC tax leaks scandal broke and witnesses to ongoing parliamentary inquiries have shared evidence of the regulatory and oversight challenges affecting the industry.
Last year, The Centre for Public Integrity calculated that taxpayers had funded $1.4 billion in big four contracts over the preceding financial year; a 400 per cent increase over the decade.
It also found that government spending on big four management advisory services had increased by over 1,270 per cent in the decade leading.
In the same year, Parliamentary Liberty calculated that PwC alone held $453.7 million worth of government contracts.
The fact that nearly half of this figure came from engagements with the Department of Defence, the cost of confidentiality breaches could be potentially devastating.
“These companies that once traded just in audit, have spread so far across society and into government, their tentacles are everywhere, they now consider themselves the power with a government beneath it, a government that they control and have power over,” Senator Deborah O’Neill told ABC’s 7.30.
From 1 July, all federal government departments will be required to publish targets on bringing a certain share of their core work in-house.
Agencies will be expected to prioritise engagements with small businesses, First Nations businesses, and specialist providers where possible.
Prime Minister Anthony Albanese rose to office partly on the promise that his government would reverse the historic gutting of the APS over the previous decade.
The 2022–23 budget lifted the APS headcount to 173,558 and forecast an additional 10,000 over the 2023–24 period.
According to Minister Gallagher, the government has brought 8,700 roles performed by labour hire in-house and has provided for an additional 2,400 conversions in the upcoming budget.
“Two years into the public service rebuild, it’s no surprise that the Liberals are already drawing up plans to cut at least 10,000 public servant jobs and reduce services. It is clear Peter Dutton wants to go back to the era of Robodebt and slash the services that Australians rely on,” she added.
