Australia’s public service pay system remains fragmented after decades of failed reform. Fixing it requires a coherent APS-wide approach to classifications, labour markets, remuneration and the merit principle itself.
The latest Remuneration Report released last month by the APS Commission confirms the continuing mess of APS remuneration, with extraordinary variations in pay at each classification level – including some people being paid more than others classified one, two or even three levels higher. For more detail, see Verona Burgess’s article in The Mandarin and Paddy Gourley’s article in John Menadue’s P&I.
The problem has persisted for more than two decades despite repeated calls for a single APS-wide remuneration regime, including from the 2010 Moran Review and 2019 Thodey Review. These disparities undermine the pay and classification system and the merit principle, disrupting recruitment, promotion and mobility across the APS while weakening capability and efficiency.
The Hawke government first introduced enterprise bargaining to address the rigidities of Australia’s labour market regulation in order to promote productivity and a better allocation of the nation’s resources. Extended by the Keating government and subsequently by the Howard government, the reform has been widely applauded as a key contributor to Australia’s economic success.
Things began to go awry for the public service, however, with the assumption that this private sector success could be replicated in the same way in the public sector. Keating started this with a modest, short-term call for APS agencies to pursue ‘productivity’ enhancements to help fund public service pay increases. A few measures were genuine, improving access by clients to services, but most were artificial (like adding a few minutes to the working day) or simply transferred costs (such as introducing paid parking for museum visitors). Significant productivity gains in the public service came not through enterprise bargaining but through capital investments approved by ministers.
Not only were productivity gains from enterprise bargaining limited, but as the system was renewed by the Howard government there was increasing damage to the integrity of the public service pay system. Howard took the application of private sector approaches to the public sector further, mostly with the tacit agreement of the Labor Opposition: the Public Service Act 1999 (PSA) made each agency head the employer of their staff, their powers including the setting of terms and conditions of employment; it also explicitly applied the Workplace Relations Act 1996 to the public service.
While budgetary restraints and APS-wide industrial relations policies constrained agencies to an extent, developments such as the introduction of individual Australian Workplace Agreements (AWAs) facilitated increasingly wide differences in pay, particularly at SES levels. Agencies more generously treated through the budget process were able to offer higher pay than other agencies for equivalent work.
As APS commissioner, I strongly opposed proposals for all APS employees to be on individual AWAs, fearing the consequences for upholding the merit principle. The largest APS agencies were also opposed because of the added administrative costs involved with no clear offsetting benefits. At that time, the APS Commission had no authority over pay and conditions which lay with the Employment Department. Fortunately, the Howard government did not agree to that department’s proposals though it did allow the continued widening of pay across APS agencies.
Subsequent Labor governments have called for the return to an APS-wide approach but with little success. Coalition governments have continued to support each agency being a private-sector-style enterprise, the Morrison government explicitly rejecting the Thodey recommendation to “move toward common core conditions and pay scales over time to reduce complexity, improve efficiency and enable the APS to be a united high-performing organisation”.
Negotiating once again an APS-wide agreement for across-the-board pay increases of the current spread of remuneration will not achieve what is required, even if increases at the top are somewhat constrained and those at the bottom lifted a bit more. A more fundamental review is needed which can then form the basis of future regular adjustments. That review should address the SES as well as the APS and EL staff who are subject to the current bargaining process.
The review must firstly identify the different occupations within the APS and each one’s labour market. Decades ago, there were dozens of occupational groups in the APS, but technological change led to ‘multi-skilling’ and the introduction in the 1980s of the current dominant administrative occupation and its classification structure. This encompasses both policy and service delivery staff, while specialist professional staff such as doctors, lawyers, engineers and scientists are linked to this structure, some retaining their own classification standards and allowances.
The recent attempt to define different professional streams offers the opportunity to explore the appropriateness of distinct occupations with distinct classifications and remuneration. In some cases, this seems essential: for example, if the APS is to re-establish in-house IT expertise, it needs to compete with the private market and reflect the IT career paths used by industry. In other cases, it may not be appropriate: it is unclear whether there is a need for a ‘policy profession’ with classification and pay distinct from the existing administrative framework. Indeed, steps were consciously taken in the 1980s to remove the loadings which favoured central agency staff over line agency staff (through Clerk Class 7, 9 and 11 levels rather than 6, 8 and 10 levels, and SES levels 2, 4 and 6 rather than levels 1, 3 and 5). The return to higher pay for policy staff than service delivery staff revealed in the recent Remuneration Report seems to relate more to competition between agencies in Canberra than external labour market pressures, and the downgrading of staff responsible for implementing policies and delivering services.
Following clarification of distinct occupations and their career paths, the next step is to undertake market comparisons – the markets from which the APS recruits its staff and where it loses staff. This is most important at key recruitment levels – graduates, school leaver trainees, SES Band 1s – with careful consideration of the relevant markets, for example both public and private sector markets for graduates and primarily the public sector market for executives.
A third step concerns internal relativities, ensuring that the pay margins between classification levels are commensurate with the additional responsibilities involved. Current margins of median pay from EL1 through to SES Band 3 seem not to relate coherently to the shifts in responsibility. There is also little coherence in the use of increments within levels reflecting experience and performance.
The combination of evidence about occupations and career paths, relevant market data and careful study of internal relativities, should allow the APSC, in consultation with agency heads (and the Secretaries Board) and unions and staff, to identify the most appropriate pay and classification system for the whole APS. That would then allow the process of negotiating the transition to that system.
One suggestion is that the APSC lacks the powers necessary to pursue such an APS-wide pay and classification regime as Section 24 of the PSA states that agency heads may determine terms and conditions of employment.
But the Act also allows the prime minister to issue directions to agency heads and gives the commissioner broad functions to lead workforce reform, develop APS workforce policies and review matters relating to the APS.
These provisions seem to give the commissioner a lot of scope to proceed even if there is resistance from some agency heads. If the commissioner considers it would help, Katy Gallagher could formally seek a review by the commissioner; there is nothing then to stop the prime minister from issuing a direction to agency heads about applying any new pay and classification system arising from such a review.
A second suggestion is that some agencies have legitimate concerns about a one-size-fits-all approach. Where genuinely different labour markets require different remuneration arrangements, the government should reconsider whether those agencies belong under the Public Service Act.
The current bargaining framework allows agency-level bargaining after the APS-wide bargaining “on matters specific to operational requirements”. What this should not allow is variations in base pay or the undermining of classification standards. It should be restricted to conditions pertaining to unique operational requirements and not just differences of view across agencies on matters such as performance pay.
A third issue is possible resistance by the CPSU to the identification of occupations covered by different unions. That should not be a factor, though the unions should be consulted as the APSC explores occupational categories.
Finally, of course, such a review will require serious effort and expertise which the APSC seems to be lacking. The government’s stated commitment to get rid of current ‘fluctuations’ suggests that it should support greater effort by the Commission. For expertise, the Commission might turn to some of the states which have kept the skills in-house for setting pay for their wide range of occupations including nurses, teachers and transport workers as well as administrative staff. The APSC should avoid private sector consultants.
The transition to the new regime will require negotiations with staff and unions as well as discussions with Finance and the government. Some grandfathering of pay reductions may be justified and any pay increases staged over a period.
The transition should not be extended too long, however. Finance might look for ways to redirect savings from agencies whose staff are found to be overpaid to the agencies whose staff are underpaid.
With remuneration more closely tied to relevant labour markets, the agencies currently underpaying should be able to attract higher calibre staff over time and increase their capability – that should be one of the objectives of the whole exercise.
The call to return to an APS-wide approach is not about returning to over-regulation or unnecessary centralisation, nor is it inconsistent with increasing efficiency and promoting productivity. It is merely recognition that the public sector is not the same as the private sector, that agencies are not market competitors (albeit they are participants in labour markets) but have their resources determined by political processes.
Andrew Podger is honorary Professor of Public Policy at The Australian National University, and former Australian Public Service Commissioner and Secretary of the Departments of Health and Aged Care, Housing and Regional Development, and Administrative Services. He was national president of the Institute of Public Administration Australia from 2004 to 2010, and a member of the foundation board of the Australian and New Zealand School of Government. He was made an Officer of the Order of Australia (AO) in 2004, and has written extensively on social policy including health financing, retirement incomes and tax and social security, and on public administration.