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Efficiency dividends increased, tightening the screws on ICT budgets

by Staff Writers •
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In the lead-up to a tough 2011 Federal Budget, the efficiency dividend applied to government agency budgets has leapt again, to 1.5 percent, a 0.5 percent increase from its original level of 1 percent in 2004, and 0.25 up from the then ‘temporary’ 1.25 percent dividend introduced in 2005.

The 1.5 percent dividend will be applicable in 2011-12 and 2012-13, with a winding back to 1.25 percent promised for 2013-14 and 2014-15.

A shift in focus of the dividend’s application will mean that cuts will decided at the portfolio level, rather than being applied to each individual agency as was previously the case.  The beauty of an efficiency dividend, from a central government perspective, is that the decision making as to where the cuts must be taken is left with the Departmental Secretary of the portfolio’s lead agency.  The Secretary will be the arbiter on how deeply the pain of the cuts is felt in the portfolio and in what areas.  

The shift in application of the efficiency strategy to a portfolio level is a key recommendation of the Review of the Measures of Agency Efficiency report, released by the Finance Minister Penny Wong on 21 April.

The Government has said that it will adopt this recommendation, and that it will be included in the budget to be released on 10 May.

“The Government acknowledges that some agencies have been concerned about the current efficiency dividend having an unequal effect on some agencies.  Adopting this recommendation will provide portfolios with more flexibility in applying the efficiency dividend, including to smaller agencies,” said a press release from Minister Wong.

The review was commissioned by Wong’s predecessor Lindsay Tanner, following the release of the Ahead of the Game: Blueprint for Reform of Australian Government Administration report, and was compiled through consultation with over 160 bodies.

This move to portfolio level decision making means that the impact on the ICT operations and procurement of agencies is likely to be quite different portfolio to portfolio, with some CIOs potentially coming out of the process with their ICT budgets relatively unscathed while others suffer significant cuts. 

The 2008 Gershon Review’s $1 billion savings target was to be achieved via the application of a 15 percent cut to 28 agencies with an annual ICT spend over $20 million and a 7.5 percent cut to agencies with an annual ICT spend between $2 million and $20 million.

Agencies which perceived themselves to be able administrators of ICT, running lean shops felt that they were unfairly dealt with by having to offer up the same percentage saving as inefficient agencies which had the scope to make the improvements against the benchmarks used by the Gershon review. 

These agencies, particularly if their ICT systems are ‘mission critical’ to the delivery of key government programs and services should be able to make compelling arguments to their Department Secretaries that they cannot bear the brunt of another round of cuts. 

Ultimately, the fate of CIOs when it comes to the efficiency dividend will come down to the power of their arguments and the degree of importance the agency attaches to its ICT environment. 

In environments where efficiency dividends are high, certain types of ICT projects will be offered up before others. 

Desktop and even server fleets can be retained for longer than their normal depreciation cycle, and projects such as electronic document records management system implementations, which are perceived as important but not mission critical will be shelved.

Other recommendations of the Review of the Measures of Agency Efficiency report include a push toward shared services for back office functions, and a rationalisation of agency numbers.

Both of these are measures that have been pursued by many of the state jurisdictions, with mixed success, as the report acknowledges.

The efficiency review report references the 2009 Australian Government report on the Strategic Review of Future Directions for Shared Services, saying “The report noted that shared services should not be seen to represent easy or quick savings, that effective implementation can require considerable upfront investment, and that case studies show a tendency to underestimate the cost, time and complexity involved in such a project.”

The final recommendation of the review was that the Department of Finance and Regulation develop a road map for making greater use of shared service models across government in the medium term.

The focus on generating efficiencies and capability from the portfolio rather than agency level is in keeping with the sentiment of the recently released Draft ICT Strategic Vision.

The vision document recommends an increase in the in the kind of portfolio integration and information sharing currently practiced at the Department of Human Services, in order to generate the greatest possible value from ICT investments across government.


Related Articles:

Gershon Report with Minister: Challenge for Government to Act on Recommendations

Efficiency dividend continues to impact APS numbers

Preliminary Results Show Federal ICT Market Slowed Dramatically in 2007-08

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  • Federal
  • Treasury
  • 2011-12 Budget
  • Department of Finance and Deregulation
  • efficiency dividend
  • Gershon Report
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  • Penny Wong