Labor saves $1 billion by bringing public servants back in-house

Public Service Minister Katy Gallagher on Sunday said the savings would be included in the May budget, and sourced across government agencies from the 2024-25 financial year onwards.

The figure will comprise $625 million from across agencies in 2027-28, plus an additional external labour levy of $375 million over four years from 2024-25.

It will build on the $3 billion saved through cuts, announced in Labor's October 2022 budget.

Labor came to power with a promise to reform the federal public service, including by reining in spending on contractors, consultants and labour hire.

Senator Gallagher also committed to a second audit of the public service, after an assessment found the Morrison government had spent $20.8 billion in the 2021-22 financial year on a so-called "shadow" workforce.

The second audit will measure and track the Albanese government's spending on external labour for the first time, providing clarity on its progress against the 2021-22 figure of nearly 54,000 outsourced roles.

The pre-budget announcement lands as Opposition Leader Peter Dutton, and new spokesperson for waste reduction, James Stevens, increasingly take aim at Labor's 10,000-place boost to the public service in the last budget.

The headcount of the public service is the highest it has been in a decade, at 177,442, but the government points to the hidden external workforce employed under the Coalition.

Senator Gallagher, who is also the Minister for Finance, slammed the former Coalition government for talking "tough about capping public service numbers when they were in government".

"In reality they were spending billions outsourcing the work to keep the public service headcount artificially low," she said.

The Finance Minister accused the opposition of "drawing up plans to cut at least 10,000 public servant jobs", though Mr Dutton and Mr Stevens have both avoided calling for the jobs to be cut, instead labelling them wasteful.

"It is clear Peter Dutton wants to go back to the era of robodebt and slash the services that Australians rely on," she claimed.

"The important investments that we've made in Services Australia, Veterans' Affairs, the [National Disability Insurance Agency], Home Affairs and AUKUS are to ensure that the public service has enough staff to do the job they need to do to deliver services across the country and to keep Australians safe."

The government also announced it has converted around 8700 roles previously done by contractors or labour hire, to Australian Public Service positions. This includes an additional 2400 converted roles, to be reported in the May budget.

Services Australia's external workforce of 6848 in the 2021-22 financial year has been slashed to 2090, while the agency received an additional 3000 APS staff last year.

Labor's commitment to reduce spending coincided with revelations of misconduct by major consulting firms, including allegations that PricewaterhouseCoopers Australia had leaked confidential information from a Treasury briefing.

Steps to discourage an overreliance on consultants are having an impact, it says, with expenditure on big consulting firms down by $624 million, compared to the same period in 2021-22.

APS bosses have meanwhile been told of the key role they must play in bringing core APS work back in house.

From June 2024, they will be required to set targets to reduce their reliance on contractors, consultants and labour hire, with progress to be tracked publicly from the 2024-2025 financial year.