Want productivity lifted? The government should fix the public service first

These are the questions that will be asked at the government's upcoming Economic Reform Roundtable.

Getting the private sector to lift productivity will be key to raising living standards.

But there is another big part of the economy which the government should be focusing on: itself.

The federal government has its own productivity problems.

Fixing them would have big spillovers for the rest of the economy and would show that the government can itself manage the challenges of organisational change.

After all, pushing the private sector to lift productivity rings a bit hollow when the government is struggling with the same issues.

What areas should it focus on?

The first is technology. The government is often scratching its head wondering why the private sector, particularly small businesses, are slow to adopt new technologies.

If it wants the answer, it should ask itself the same question.

The private sector is slow to adopt new technologies for the same reasons the government is slow: a lack of awareness, a lack of trust, and bureaucracy.

Many departments, divisions and branches are unaware of how new technologies could help improve internal processes, let alone how to integrate these technologies within existing processes while training staff and managing the roadblocks of bureaucracy.

A lack of trust is the other big obstacle. Will AI tools protect sensitive information? How reliable is its output? Will the technology create efficiencies or create redundancies? How do we manage those issues with staff and unions?

The private sector is asking the same questions. If the government wants to lift productivity and show leadership, it should walk the talk: develop and implement frameworks and advice on managing these issues.

The second way in which the government could significantly improve its own productivity is to stop doing unnecessary regulatory reviews.

If Europe and the United States have both approved a new medication, approved a car as being safe or approved a product for sale, do we really need to undertake a review in Australia, too?

Are our regulators - who are much smaller with a fraction of the budget - regularly finding things that the big guys aren't?

The government should adopt "trusted regulator" approaches much more broadly than it currently does. This would free up resources within government to focus on more important issues, and make life much easier for the private sector, too.

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The third area is procurement. The government spends a lot of money each year and should make sure it's getting the biggest bang-for-buck to maximise productivity.

This not about social welfare, defence or any of the other big-ticket things the government spends money on (although there are plenty of things to be fixed in these areas), this is about the spending the government undertakes as an organisation to run that organisation.

The Albanese government has clamped down on the government's use of consultants and labour hire, and refocused efforts on improving capabilities of the public service.

This is a good thing. It was well overdue. But there are structural problems which still need to be fixed.

Put bluntly, the government's procurement processes are designed to make the big four consulting firms rich. Small, medium and new firms struggle to get on government panels.

The panels are refreshed once every few decades (unlike many state governments who allow new firms to join at any time) and only large firms can easily absorb the cost of complying with all the pointless hurdles that are thrown at them.

The logic is simple: the government will not get competitive prices or competitive services if it stifles competition. If it wants to lift productivity and get good value for taxpayers, it needs to scrap and rewrite these procurement rules.

The fourth and related area is the Australian Public Service workforce itself.

Imagine a business where managers can't offer competitive wages, can't hire as needed, can't control their own budget and can't fire underperforming staff.

And suppose that, about once every 10 years, voluntary redundancies result in all the good people leaving, only to be replaced by consultants and hired labour at a much higher cost.

Do you think that business would be productive? Of course not.

Yet, this is exactly how the public service operates.

Improving the productivity of the government means getting back to basics on the things that drive productivity in the first place: getting incentives right.

Are these changes easy? No. But are these challenges the same challenges faced by the private sector? In most instances, yes.

Boosting productivity is not easy. It's not easy for small businesses, it's not easy for large businesses and it's not easy for governments.

Lifting productivity within government is good economics, given the spillovers to the rest of the economy, and it's good politics by showing the private sector that even big bureaucracies are capable of productivity-enhancing reforms.

Productivity reforms won't be easy, but one thing is clear: we need to lead the private sector, not lecture it.