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Federal Budget ICT impacts: more pain for agencies and suppliers but substantial opportunities on the horizon

by Helen Flint •
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The 2014-15 Federal Budget outlines a number of tough measures which will have major impacts on how agencies conduct the business of government not just for this year, but over the four year ‘forward estimates’ period.

However the Budget also points to substantial ICT opportunities on the horizon with major transformational ICT projects likely to be announced even before the end of this financial year.

As anticipated the majority of recommendations made by the National Commission of Audit did not get mentioned in the Budget, but a few important ideas have been adopted.

The Government is aggressively pursuing its Smaller Government Reform Agenda and key new measures announced in the 2014-15 Budget include an increase of 0.25% in the efficiency dividend, further rationalisation of Government agencies, and the development of a Contestability Framework to identify opportunities to outsource Government activities.

Chief among the agency rationalisation announcements is the merger of the Australian Customs and Border Protection Service (ACBPS) with the Department of Immigration and Border Protection (DIBP), to form a single operational border group, the Australian Border Force (ABF).

The budget also announced that the Australian Public Service will drop back to 2007-08 levels over the four years to 2016-17. Treasurer Joe Hockey said in his budget speech “A smaller, less interfering Government won't need as many public servants. 16,500 staff will leave over the next three years without compromising frontline services.”

These measures will each impact ICT demand and funding, especially as the Budget had almost no major new funded initiatives – a traditional source of increased ICT activity.

Efficiency Dividend Increase

The 0.25% efficiency dividend increase compounds the pain of the previous efficiency dividend rise to 2.25% announced by the previous Labor Government in its swan song August 2013 Economic Statement. The increase creates an efficiency dividend of 2.5% for the years 2014-15 to 2016-17, reverting to 1.25% for 2017-18.

The initial 2.25% efficiency dividend was expected to save $1.8 billion over three years, and this additional 0.25% component is slated to save a further $569.0 million over four years.

The budget papers say “savings to be targeted in areas such as reduced advertising, consultancy and travel costs and deregulation efficiencies”, but it is difficult to see how sufficient savings could be found by targeting these areas given the cost cutting that has already been implemented in these areas in previous years.  If agencies cannot save enough from these areas to live within their dividend-reduced budgets, their only mechanism is to shed staff.

Agency Rationalisation and Back Office Consolidation

Research by the National Commission of Audit and the Department of Finance found that there are close to 1,000 different government bodies.

The Abbott Government reform of the public service “ will involve the abolition or merger of Government bodies where possible, to eliminate duplication, remove waste, streamline Government services and reduce the cost of government administration for taxpayers,” according to a statement by Finance Minister Mathias Cormann.

Phase one of this reform process was implemented after the 2013 election and reduced the number of government bodies by 40. The second phase outlined in the 2014-15 Budget will reduce the number of bodies by a further 36. The extent of the third phase of agency rationalisation has yet to be determined but clearly it will be substantial.

The Cormann statement says “The third and most comprehensive phase of consolidation in the number of government bodies will be considered by government in time for inclusion in the MYEFO 2014-15.”  The Mid Year Economic and Financial Outlook is typically released in the first week of December, and while it usually does not contain major initiatives, Cormann’s statement suggests that this year it could be major.

This streamlining of the public service is expected to achieve savings of about $500 million over the forward estimates.

A reduction in the number of bodies will likely lead to a reduction in the volume of Business-as-Usual (BAU) ICT requirements as there will be fewer agencies issuing contracts but will commensurately likely lead to higher value contracts issuing from the newly constituted ICT business units.  It will also lead to ICT integration opportunities as agencies and their systems are merged.

Australian Border Force

The merger of the ACBPS and DIBP into the Australian Border Force is one such opportunity. Each of these agencies is a significant purchaser of ICT in their own right and Intermedium’s Analyse IT database shows these two agencies had a combined total ICT contract value of $548.2 million for the 2012-13 financial year.

Commenting on the potential impacts of the merger Intermedium’s Principal Analyst Judy Hurditch says “the IT services implications will be significant, generating immediate opportunities arising from staff relocation requirements, communications, security and access and networking requirements.” 

“In the longer term, it is likely to also generate significant system integration opportunities, and greater data analytics requirements. With this number of staff (approximately 17,000), and the IT support required to support its functions, the new agency will also firmly cement its position as a Tier 1 agency from an ICT expenditure perspective, and the IT functions and hierarchy of the three impacted agencies will have to be consolidated into one.  Such changes may well result in an elevation of the CIO function once again to Deputy Secretary level.”

The initiative Smaller Government — strengthen and enhance Australia's border protection services has been allocated funding of $480.5 million over four years ($711.9 million over six years, including $438.7 million in capital funding).

Cultural and Archival Institutions

While staying away from the term ‘shared services’ the rationalisation program also includes the merger of back-office functions of seven Canberra-based cultural collection institutions and archival institutions. Essentially the scope of this merger would be expected to cover corporate services including ICT.

Contestability Framework

The budget also outlines the Government’s intention to explore opportunities to outsource government service provision which would open up the potential for further public service reductions down the line.

Budget papers state “The Government will develop and implement a Contestability Framework to assess whether a government function should be open to competition and the appropriate means for this to occur. A contestable approach can come from outside Government or from other entities within the Government.”

“The Department of Finance will establish a three year programme of work to review government functions against the Contestability Framework, in consultation with relevant agencies. These reviews will offer opportunities for identified functions to be delivered through alternative and contestable approaches.”

The Government is already taking steps down the path to outsourcing with the initiative Market testing of the payment of health services by commercial payment service providers.

Under this initiative the Department of Health and the Department of Human Services will “market test the delivery of a commercially integrated health payment system.”

“Expressions of Interest will be sought from commercial providers to gauge interest in the proposal and to identify potential alternative approaches to the delivery of health payments.”

Implementation Timeframe

The full impact of these measures and the Smaller Government Reform Agenda will not become clear for some time to come, with a further announcement on agency rationalisation due at the next MYEFO and decisions about contestability to be made over the next three years.

However what is clear is that the Abbott Government is looking to further reduce the size of government and hence further cuts look likely to manifest in the years ahead.

The implications of the Federal Budget on the ICT market will be analysed in detail at the joint Intermedium/ AIIA breakfast event - 2014-15 Budget Briefing: Making the Budget Count for ICT.  Complementing this, each and every funded ICT initiative in every agency is discoverable in Budget IT.

 

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