The Minister for Defence, Joel Fizgibbon announced that his Department had been ordered to cut expenditure by $10 billion over the next 10 years. This is not an isolated incident. A number of major cutbacks have been announced by the incoming Government, and more are on the way in the May budget.
ICT will not be immune from these cuts, but there are signs that the expected downturn in ICT procurement activity may bring some rationality to a market that has become rather “overheated” in recent years.
The Rudd Government has announced its intention to achieve cuts in the budget of 1.5% of GDP, amounting to savings of up to $4 billion, or even more.
The Government has made it quite clear that some areas of expenditure will be quarantined from budget cuts. The previous Government’s promised tax cuts will be honoured in the budget; the Rudd Government has made a commitment not to cut Defence (opeartional) spending; and it has made an undertaking to implement all election promises.
However, the Government has already imposed a one-off, additional 2 per cent efficiency dividend on all agencies, a requirement to cut administrative costs by 3.25 per cent. The only area that will be exempt will be Defence's operational areas. Although there’s been a commitment to no 'involuntary' redundancies in the Federal public service, it seems clear that the Government intends to reduce staff numbers. One of the areas likely to be most affected by the Defence cuts will be civilian staffing.
Some of these proposed cuts will certainly flow through to ICT. With possible cuts to public sector staffing numbers and cuts to several costly projects including the Access Card, the level of Federal Government ICT spending during the remainder of 2008 is expected to slow.
However, the ICT market was already witnessing a greater than expected drop in some areas during the lead-up to the December 2007 election. This appears to be the result of saturation in an already overheated market.
IT skills shortages as well as market saturation in some areas have contributed to problems with some major projects. For example, when DIAC recently went to the Government for additional funding for its Systems for People project, it cited increased labour costs as one of the reasons that additional funds were required.
ICT cuts of some sort now appear certain, but these cuts will not impact all sectors of the market in a uniform manner. In areas where skills shortages were already evident, these budget cuts may simply moderate overall resource constraints and lower the risk profile of strained project plans.
The Federal ICT is now a very mature market, and we can expect a great deal of resilience despite the expenditure cuts. Long term contracts, in place for outsourcing, hardware and software, are unlikely to be significantly affected by spending cuts.
With ICT now such an integral part of government business, it will not be possible to make large cuts across the board. A significant level of ICT equipment and services are now required for the business of government to continue.
In addition, the new programs promised by the Rudd Government will involve a significant element of ICT. Even those projects that have been scrapped will require provision of some ICT to complete that task.
These days, any change creates more IT work.