Address to the IPAA and AICD Public Sector Governance Forum

Governance in Changing Democracy: achieving better outcomes

Dr Steven Kennedy PSM

I would like to acknowledge the Ngunnawal people who are the Traditional Custodians of the Land on which we meet. I would also like to pay respect to the Elders of the Ngunnawal people - past, present and emerging - and extend that respect to any other Indigenous Australians who are with us today.

I would also like to thank the Institute of Public Administration Australia and the Australian Institute of Company Directors for putting on this great event.

And thank you for the opportunity to talk about governance in the public sector in a changing democracy and achieving better outcomes.

It looks like a fascinating program and great opportunity for useful conversations.

This speech has been the product of some excellent collaboration. In particular, I would like to thank Renee Leon, Secretary of the Department of Human Services, for her advice on digital service delivery. I would also like thank staff within my department: Hilary Manson, our General Counsel; Oliver Richards and Louise Rawlings from the Strategic Policy Unit; and Ashley Sedgwick, my Executive Officer, for their input and advice. I’ll also draw on the work of experts within and beyond government in my remarks, who I’ll mention as I go along.

These are big topics and issues we should never stop talking about. These discussions and, more broadly, the community discussion of these issues are part of a healthy democracy.

I thought I would reflect on three topics I’ve been giving some thought to in recent times.

They are public sector performance and trust; public agencies, departments and complexity; and the principle of subsidiarity in the Australian context.

As I explore each of these topics, I will draw on examples in my time as the Secretary of the Department of Infrastructure, Transport, Cities and Regional Development.

Public sector performance and trust

There is a lot of discussion around trust at the moment.

Across OECD countries, trust in governments was around 42% in 2016 compared with 45% pre-global financial crisis.2 Australia is around this average.

Other data suggests a decline in trust over the past decade. A part of this decline will reflect subdued economic outcomes over the past decade as well as the global financial crisis.

More recently, in a recent speech the Governor of the Reserve Bank of Australia, Phil Lowe, made this point when he noted:

“The diminished trust in the idea that living standards will continue to improve is a major economic, social and political issue. It underlies some of the political changes we are seeing around the world. It is also making it harder to implement needed economic reform. It is in our collective interest that this trust is restored”.4

Despite the current uncertainty in the global economy, it is worth noting that in terms of material wellbeing, global outcomes are strong, primarily reflecting China and India’s economic growth.

But this growth has created challenges for some developed countries.

Many in the western world have lost confidence in market based solutions and capitalism more broadly, and this has been parlayed through to governments and public services.

Too big a topic for me today but an important one.

I want to focus on trust in public servants and how that relates to public service performance.

In Australia, the level of public trust in public servants, as a broad professional grouping, is relatively low.

In a 2017 Roy Morgan poll that looked at attitudes towards various professions, 37% of respondents rated public servants as high or very high for ethics and honesty, down 2% from 2016. While this is up from 30% in 2007 when they started measuring trust in public servants, it is hardly a resounding endorsement!

Interestingly, the low levels of trust are not uniform across all areas of public service. Public servants that directly serve the public – nurses and police, for example - are among the most trusted professions.

When asked to rate the level of trust in front line public servants, nurses topped the field at 94% for their ethics and honesty, followed by school teachers at 81% and police received their record high rating of 76%.

This draws attention to the importance of people’s experience in dealing with the public sector.

In the case of nurses and police, people are dealing with professionals often at times of extreme stress, and the professionalism and empathy of these public servants shines through.

Confidence and trust in the public sector will at least in part reflect people’s experiences in dealing with public servants.

A development in public service delivery is that many interactions or services will not involve interaction with public servants.

My colleague Renee Leon at the Department of Human Services has outlined for me the shift in service delivery to meet customers’ rising preference for digital services.

The Department of Human Services has around 800 million interactions every year and provides services to almost every Australian at some point in their lives.

The increasing availability of services on digital platforms provided through the Department of Human Services’ website, the myGov portal and mobile apps, has reduced the number of people accessing services through the department’s shopfronts.

Customer visits have reduced by more than one third over the past five years. myGov registrations have more than doubled and over 98% of Medicare services and more than 80% of family, student, carer and jobseeker payment claims are now submitted online, enabled by the department’s self-service technology and frontline staff.

Only six years ago these were all on paper claim forms that had to be posted or hand-delivered.

Customers used to have to queue up at a shopfront with paper receipts to claim from Medicare, now the refund goes into your bank account while you are at the doctor.

Despite customer preferences trending strongly toward digital service delivery, the APS review found that, in broad terms, only around one third of Australians surveyed trusted the Australian Government to manage data.

Trust for the public service in a digital world will be built on how data is handled and stored, how privacy is respected, and on the security of government IT systems and infrastructure.

And better digital public services will need to adapt and reflect the circumstances of those they are serving as well as keeping pace with contemporary expectations of service delivery. And that will also require significant investments to ensure our IT systems remain fit for purpose.

But that won’t be enough.

People’s expectations of public services are higher than ever, not just from a digital perspective but also in more complex cases where public servants continue to interact with the people.

Public servants are very capable of meeting this challenge.

Recently, we had a good example in my department, through the Drought Communities Programme and related government programs to provide drought assistance.

This program could have been run in the usual way, through email, telephone and digital means – a typical grant program.

But when communities are under real pressure something else is required.

In this case, the extra contribution came through Drought Community Outreach Activities. The team with policy responsibility for this program ran a series of outreach activities around Australia in drought areas.

This was a joint idea from my department and NBN Co. to improve Australian Government services to regional areas. We have partnered with the Australian Taxation Office, the Rural Financial Counselling Service, Centrelink, NBN Co., the Department of Employment, Skills, Small and Family Business, state government agencies, key farming bodies and non-profits like the Royal Flying Doctor Service and the Salvation Army to provide better-coordinated and personalised support.

Agencies came together in local RSLs and town halls, set up tables, and offered one-on-one advice to farmers and community members experiencing hardship.

Over 2,100 people attended 56 events in New South Wales, Victoria and South Australia, coordinated by my department, between January and May 2019.

In August and September 2019, my department is again collaborating with other agencies to bring targeted drought assistance to regional and remote Queensland.

This is a great example of agencies working together, and partnering with the right people beyond government, to respond to communities’ feedback and provide better service to communities in need.

We didn’t seek permission, but we kept ministers in the loop and they have been strongly supportive, with key ministers helping to promote outreach activities via media releases and tweets.

This experience highlights that while digital opportunities will both allow some savings and offer improved services, they won’t be the whole answer.

People with complex situations and people under pressure will require a more tailored approach.

And if the public service doesn’t offer this service, people will lose trust in programs and the public service.

In their recent report on inequality, the Productivity Commission made a similar point when it noted that a programmatic public policy approach would not address the sustained disadvantage associated with complex circumstances.

For most Australians, sustained economic growth and reliable access to employment, coupled with investment in skills and education, offers opportunities for a better standard of living.

But for some, growth and complementary improvements in skills and education policies will not be enough.

The Productivity Commission has done some interesting analysis in this area and I was particularly taken by comments made by Karen Chester when she was at the PC.

Karen talked about a relatively small, but significant group of Australians for whom disadvantage is entrenched and the cycle of poverty is difficult to break.

There can be a range of underlying drivers – mental health, chronic disease, intergenerational stories of poor economic participation by parents and poor educational outcomes for their children. Indigenous Australians continue to be well over-represented in these disadvantaged groups.

For this cohort, standard government interventions are likely to be ineffective, instead requiring a “handmade” or tailored approach.

Such an approach will need to be sustained, results will take time, and initially the return on investment can be modest.

Moreover, as disadvantage is often concentrated geographically, the policy response should reflect the interaction with place.

While progress in the digital delivery of services is welcomed, there will always be the need for face-to-face contact, particularly for people with complex circumstances who might need more intensive support.

This approach to addressing the needs of people with complex circumstances will require collaboration across the public service in order to achieve better outcomes.

This would include collaboration across the public service from different levels of government, something I’ll return to shortly.

Agencies and Departments

If we are arguing for a more joined up public service it is worth reflecting on the institutional arrangements of the public service and how they support improved outcomes for people.

The 2014 Commission of Audit argued that Australia has too many government bodies.

The audit report said this would create duplication and overlap, unnecessary complexity, a lack of accountability, the potential for uncoordinated advice and avoidable costs.

At Federation in 1901, Australia’s population was nearly four million and the newly minted Commonwealth Government had just seven Departments of State.

Today, the population is 25 million and there are 18 Departments of State (in 16 portfolios) supported by around 170 Commonwealth entities and companies.

So why the change? What is driving this trend?

Why would successive governments progressively disaggregate the public service and create interwoven public institutions?

Critics of the public service might suggest it reflects an unrelenting ambition of public servants to create fiefdoms.

In my experience, senior public servants generally resist the creation of new entities.

One thought is that a more disaggregated institutional structure brings improved governance and improved confidence that specific issues are being taken seriously.

However, it also brings increased complexity and the question we need to ask ourselves is: does an increasing array of institutions necessarily solve the problems of an increasingly complex world, and keep us focused on the outcomes we seek?

I won’t explore these issues from an organisational perspective today but I will note that I have my doubts about the operational efficiency of numerous small agencies as the corporate overhead alone can be substantial.

In creating new entities, governments are mostly responding to the demands of the public not the demands of the public service.

Potentially, a number of factors are at play here.

Let’s consider a few of them.

First there is integrity. The Australian public rightly has a strong expectation that safeguards are in place to ensure the integrity of public institutions.

Agencies like the Australian National Audit Office, integrity commissions, the Privacy Commissioner, the Ombudsman, parliamentary inquires and so on provide confidence to people that the public service and government meet appropriate standards.

These functions are necessarily carried out by discrete entities, whose entire mandate is to critically review and assure the actions of governments and departments and agencies.

Public confidence in these bodies lends public confidence to the public service. Another factor is regulation.

Effective regulation is a core function of the public service.

Among the range of regulatory functions undertaken across government, there is a mix of separate agencies, like the Australian Consumer and Competition Commission in the Treasury portfolio or the Civil Aviation Safety Authority in my current portfolio.

However, not all regulatory activities are undertaken in separate agencies, some are undertaken within departments.

In my view, separate agencies are not always necessary for effective regulation.

What is important for regulators is that they operate under clear legislative requirements, and are subject to parliamentary oversight.

A third factor is operational independence. The RBA is a good example of this, where it is given a policy target by government and enabled through legislation. It is effectively given operational independence to achieve the government’s aim.

A fourth factor is transparency. Agencies like the Productivity Commission perform this function admirably. Through consistent and open processes, they support the thorough analysis of policy issues and provide confidence to the public that policy is being well developed or addressed.

A fifth factor is the need for government to focus effort across the public service on a particular issue. The recent establishment of the North Queensland Livestock Industry Recovery Agency, set up in response to the devastating floods in north Queensland earlier this year, is one such example.

An arrangement such as this provides more confidence to the government and the public that an issue is being addressed in a coordinated way.

As I explained earlier, a new agency is not always required. There is ample authority for the public service to join up and solve particular problems using its own initiative.

Moreover, some new agency arrangements would ideally be time limited to when an objective was achieved, so as not to leave a legacy of small agencies seeking a new reason for being once the original problem was addressed.

So a range of institutional settings can work effectively, depending on the circumstances.

But we should not uncritically accept that small and dedicated agencies achieve better or different outcomes.

Outcomes can sometimes be equally, perhaps even more effectively, achieved through departments and by holding senior executives to account.

As the Commission of Audit found, far from strengthening accountability, too many government bodies can have the reverse effect, blurring lines of responsibility and creating unnecessary complexity.

Large numbers of agencies can be confusing to the public and may well create issues when trying to respond to multifaceted complex policy issues.

It is interesting to reflect from a constitutional perspective on the creation over time of agencies, through which the executive power of the Commonwealth is exercised – I would like to thank Hilary Manson, General Counsel at my department, for her excellent insights on this issue.

Departments of State exercise this executive power. Departments of State are directly responsible to ministers under sections 64 and 67 of the Constitution. In our constitutionally mandated system of responsible and representative government, ministers are responsible to Parliament and thus to the electorate.

While Commonwealth executive power has never been exercised exclusively by such departments (or ministers), over the past 45 years an increasingly large number of Commonwealth statutory corporate bodies have exercised Commonwealth executive power over increasingly large areas of government regulation. Statutory corporate bodies were known at Federation, e.g. in relation to the running of railways, but not to the extent seen today.

These corporate bodies stand outside the Departments of State referred to in sections 64 and 67 of the Constitution.

The level of independence of these bodies from ministerial control varies but it is ordinarily significant both in strict legal terms and perhaps more importantly, in practice.

Again, there may be compelling countervailing considerations of public policy justifying an absence of, or limited, ministerial control, but in other cases, it might be contended that the lack of ministerial oversight or control is an impediment to the ability of ministers to discharge the government’s political accountability to the people.

The significance of this constitutional context may not receive the attention it deserves. Indeed, as far back as 1992, writing about the changes over the previous decade to the character of entities through which executive power is exercised in the United Kingdom, one commentator noted that these changes had

‘...been driven and fashioned almost entirely by a political-economic impetus and with virtually no legal or constitutional consciousness ... The executive agencies being carved from the body of central departments might result in the creation of more effective managerial units, but there is little evidence that the impact on the notions of ministerial responsibility and civil service anonymity, let along the broader concerns of public accountability, have been adequately addressed’.

A key question for the public service in preparing our advice for governments is: how does this increased complexity and diffuse responsibility impact on public accountability and, in turn, public confidence in our institutions?

The principle of subsidiarity in Australian governments

When discussing the public service the most relevant consideration to the public is all public services – Commonwealth, state and local.

Generally speaking, the public has little interest in whether a service is delivered by the federal, state or local government.

The expectation is about the service and the outcome.

The principle of subsidiarity goes to which level of government is best-placed to deliver the public service.

My remarks on subsidiarity today draw heavily on an excellent discussion of these issues by Jonathan Pincus in a 2005 Productivity Commission paper, which I recommend to you.

The principle of subsidiarity is thought to have originated in Mosaic Law – that is, the law of Moses.

It transferred to Greek social and political thought, was further developed by St Thomas Aquinas and medieval studies, and was later embraced by the Catholic Church as a social doctrine.

The central premise of subsidiarity is that “...nothing should be done by larger and more complex organisation which can be done as well by a smaller and simpler organisation”.

In government settings, the principle of subsidiarity typically refers to activities across different levels of government, particularly federalist models, but is also a feature of the European Union21. It is generally concerned with central governments usurping power from state and local governments.

We can see this principle being applied in practice by policy makers.

For example, in its 2017 report on Transitioning Regional Economies, the Productivity Commission suggested there was little to no role for the Australian Government in regional policy.

In keeping with the subsidiarity principle, the PC argued that “...over recent years successive Australian governments have encroached more in to regional policies that should have remained with the states and territories...”, making evaluation difficult and creating scope for jurisdictions to blame each other for failures.

The PC suggested the Australian Government return to its core business – that is, focusing on national economic development through policy settings that have broad application across regions.

This would be a challenging policy position for any federal government to adopt given that members of parliament are elected on a geographical basis.

In other words, to suggest that issues arising in a member’s electorate that might relate to a region’s prospects would be simply passed to the relevant state or local government.

I don’t think the public accepts that position.

At the very least I suspect their expectations would be that the local member was aware and deeply engaged in the issues of their region.

Moreover, a broader reading of the principle of subsidiarity does not suggest the higher level of government (by which I mean more aggregate not more important) is uninterested in the capability of the level of government delivering the services.

This is not to argue against applying the subsidiarity principle where it can be applied.

In applying the subsidiarity principle to his 2015 analysis of federalism in Australia, Andrew Podger points out that the principle offers several benefits, including responsiveness to local conditions and preferences, a check on central power, and the potential for efficiency gains as each local community weighs up the costs and benefits of government.

Andrew also argues that in practice the application of the principle of subsidiarity will require cooperation across all levels of government.

Ken Matthews made similar points in his recent address ‘Water management in Australia – Time for a Rethink’, where he proposed a number of institutional reforms to water management.

Andrew and Ken’s analysis points to why governments of all levels should take an interest in regional policy.

That is, the capacity of policy to respond in a complementary way to address the issues of a region.

The combination of issues that a region faces in optimising growth for its citizens will vary.

There are, of course, common issues - that might go to education and health services for example - but even these will need flexibility to accommodate the circumstances of the population they serve.

This area of policy is often called place-based policy.

A place-based approach recognises the impact of ‘place’ on individuals’ experiences and outcomes and incorporates this into strategies to improve social, economic and environmental outcomes.

It embeds meaningful public participation in policy development and service delivery.

The evaluation of whether such an approach is more effective is still a developing area.

But it is worth trialling and evaluating.

Part of the solution of good governance supporting democracy is an open and collaborative relationship between the levels of government that recognises the strengths of governments.

There is a simple take out for me in this.

The public servants of all governments must effectively work together. That is what the public expects.

Final Remarks

Thank you for the opportunity to speak with you today.

I’ve raised a number of issues today that I am far from expert in and would like to thank those more expert in these areas who have helped me prepare these remarks.

I would also encourage you to take these remarks in the manner they are intended, reflections on the public service and the beginning of a conversation.

And I hope they are of assistance in your considerations over the coming day.