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NSW Budget 2011: Is ICT safe from an $8 billion savings drive?

by Paris Cowan •
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Public sector staff cuts, efficiency dividends, and a commission of audit into all state government projects have been announced by NSW Treasurer Mike Baird today, as part of a plan to find $8 billion in savings over four years and bring an ailing state budget back into the black.

As a result, the state’s ICT industry has been left wondering how these savings measures will affect the government’s expenditure on technology over the next four years.

Several ICT projects could fall foul of the comprehensive review of programs to be launched across the NSW Government over the forward estimates starting 2012-13.

The program review is set to find $800 million in savings by axing those programs which are found to be ineffective, inefficient or no longer a government priority.

Back in April, Intermedium suggested that there were a list of ICT programs commenced across the State Government which could be vulnerable to such budget cuts.

These included the Registry of Births, Deaths and Marriage’s ‘LifeLink’ project, which had come under criticism from the Auditor-General and the FirstNet system, part of the Department of Health’s electronic Medical Record (eMR) initiative.

The ICT industry will also feel a stronger push towards whole-of-government coordinated procurement, akin to that taking place across the Federal Government under the coordination of the Department of Finance and Deregulation.

The NSW Government is looking to generate more than $1 billion in procurement savings from a range of strategies, including increasing the proportion of goods and services purchased through whole-of-government contracts, such as the Contract 2020 ICT Services Panel and the various Government Telecommunications Agreements (GTAs). 

Savings targets of up to $565 million were required to be harvested from procurement initiatives as part of the People First ICT Strategy, which expired in 2010, but the savings achieved were never made public.

Also in keeping with their Federal counterparts, the NSW Government’s economic strategists have introduced efficiency dividends of up to 1.5 per cent to be met by state departments.

The dividends will start at 1.5 percent in 2011-12 and 2012-13, before dropping back to 1 percent in 2013-14 and $150 million in 2014-15. The dividends are forecast to save the government $6 billion over four years, or $2.2 billion in both 2011-12 and 2012-13, before dropping to $1.5 billion in 2013-14.

It is not clear as to how and where agency heads are expected to apply the dividend, but their options are limited. 

“Staff costs make up the greatest percentage of agency operating expense, and then come supplier expenses.   It is highly likely that agencies will seek to curtail their spending with suppliers wherever they can, in an attempt to hang on to their staff,” said Intermedium’s Managing Director, Judy Hurditch.

Heads of the state’s government bodies have been warned that they will be expected to meet their savings obligations in full.

“Every Director-General, every Minister, and every CEO has received a letter from the Premier, the Treasurer and the Minister for Finance telling them that they must meet their budgets,” Treasury Secretary Phillip Gaetjens told the press gallery this morning.

The government has enhanced its framework for budget compliance by removing agency spending tolerance limits and restricting the use of the Treasurer’s advance. Directors-General and agency CEOs who have a program run over budget will be expected to reprioritise expenditure elsewhere.

“What this means is that come what may, agency heads will have to live within their budgets – this is a signal in ‘government speak’ that there will be no top ups or bail outs,” said Hurditch. 

In such an environment, typically bureaucrats become ultra careful with their spending, seeking to hang on to a contingency reserve for unexpected events.

On top of all this, the Government will target 5,000 public sector job cuts over four years.  The total General Government Sector full time equivalent staff base for 2009-10 was 265,876.  The staff cuts therefore represent a down-sizing of 1.9% over the four years, or approximately half a percent per year.  It is expected that this will occur with an initial round of voluntary redundancies, but with the option to move to forced redundancies if need-be. 

“These cuts are not really the main game in terms of savings”, said Hurditch. “It is the Efficiency Dividend that will pack the punch”, she added.

Baird told The Sydney Morning Herald that head office and backroom positions would be first on the list.


Related Articles:

NSW Health Minister lays out $170 million for e-Health

NSW agencies and suppliers forced to wait until September for new ICT projects

NSW Budget 2010-11: Big ticket ICT allocations

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  • NSW
  • Treasury
  • Budget 2011-12
  • efficiency dividend
  • Mike Baird
  • NSW Treasury
  • Philip Gaetjens