Rudd taps software vendor profits to extract carbon scheme savings

By Julian Bajkowski

Prime Minister Kevin Rudd has thrown down the gauntlet to Commonwealth Public Service executives to start extracting much greater efficiency and productivity gains from technology and software or face the prospect of hundreds of upper-level forced redundancies.

Mr Rudd and Treasurer Chris Bowen on Tuesday revealed well-anticipated expenditure reduction measures aimed at neutralising the $3.8 billion hit to the Budget that will flow from junking the fixed price Carbon Tax in favour of a floating Emissions Trading Scheme.

One of the biggest headline items in the package ETS related savings measures will come from the scrapping of the longstanding statutory formula “statutory formula in relation to fringe benefits tax on cars” that the government claims will recoup it $1.8 billion

The official justification for the very sizeable sum being recouped back into Treasury’s coffers is that iPhones and other ‘app’ driven devices now make it sufficiently easy to calculate car usage related expenses that there is now essentially no justification for keeping a formula that was intended to spare claimants the bother of manually keeping a log book for FBT purposes.

“The current statutory formula allows people who are claiming fringe benefits tax relief to just nominate a figure of 20 per cent and not justify that claim,” Mr Rudd said.

“The world has moved on from when this system was introduced in 1986. We now have much better technology, so that people can use phone apps and other devices which are much easier than keeping a log book.”

Mr Rudd and Mr Bowen are also clearly betting that use of technology in the federal public service, especially software licensing and procurement models, have also moved on from 1986 to a point where real downward pressure can now be put on the so-called ‘lights on’ cost of technology related expenditure.

“We're also announcing some public service efficiency measures today, recognising the good work that's been done in the Department of Finance in better procurement of software,” Mr Rudd said.

If Finance’s ‘good work’ may previously have earned it a reputation for taking a fiscal stick to agency budgets to encourage savings, this time the gets to wield the carrot.

The prospect of making realising technology related savings has been backed by the pledge of a less than appetising 1 per cent reduction in Executive Level and Senior Executive Service ranks that are estimated to equate to around 800 jobs – the vast majority of which are at salaries in excess of $100,000 a year.

“The efficiency steps that the Department of Finance has been working on will save $248 million over four years,” Treasure Bowen said.

“There are approximately 44,500 currently, positions in those ranks and that will reduce over time by about 800 positions. Now, in context, these positions have grown by about 29 per cent over a period where the general public service has grown by about 6 per cent.”

Asked if there would be redundancies, Mr Bowen said that his preference was for natural attrition.

So far the Community and Public Sector Union, the ACT branch of which officially affiliated with Labor in 2009, is taking one for the collective team in terms of industrial blowback.

The union has expressed its concern over the job cuts and said that it followed a similar 1 per cent saving measure in the last Budget – a long way from the kind of industrial action that has hallmarked job cuts in the states.

The CPSU said that around $100 million of the new savings was being made “through more efficient procurement of agency software” – very clearly a more palatable option than job and membership losses.

“It is positive that Government has saved $100 million through better negotiation of software contracts. That’s the sort of smart saving we much prefer to see to job cuts,” CPSU National Secretary Nadine Flood said.

However Ms Flood said that she was “disappointed” to see the executive jobs cut and expected “some redundancies” to flow alongside natural attrition.

“Over the past few years the public service has endured a range of cuts and savings measures but demand for government services keeps going up. The public service is not a magic pudding and Government cannot keep making cuts without affecting services” Ms Flood said.

The union said it would be working closely with Government and Departments to minimise the need for job losses and ensure workloads remain manageable.

However a one path clearly open to agency heads is to try and stave off undesired staff losses by further pruning back agency operating costs through the better procurement and more efficient use of technology.

A proportion of that ‘good work’ referred to by Mr Rudd is certain to have stemmed from reductions in the price of software licensing to government which have previously been calculated to be around 20 per cent higher than comparable economies. – despite the Australian dollar having until very recently been above parity with the US dollar.

Vendors being eyed-up for a Kevin-style haircut are believed to include Microsoft, IBM, SAP and Oracle as the public service is gradually pushed, where it is cheaper, to migrate from annualised licensing payments to those based on actual usage of software and processing muscle through so-called cloud computing which promises to give agencies computing capacity on-tap through utility-style model.

In a highly significant move the Attorney General’s Department last week released the federal government’s official internal cloud computing policy, which leans substantially towards using domestic deployments to mitigate known risks associated with data sovereignty and privacy protections.

The issuance of the AG’s formal guidance clears an important hurdle for agencies looking to buy into cloud services because it sets the framework to deal with a raft of security issues that federal agencies must necessarily deal with when making technology purchases.

Importantly, it sets crucial guard-rails for cloud providers hoping to pick-up significant Australian government work by stipulating how agencies need to weigh risks when taking on-cloud services – a set of criteria that vendors can now build into their offerings to win business.

Some of those best positioned to offer government locally-based cloud services include Amazon Web Services and Telstra who have both been ramping up their onshore capacity to target government business.

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