Senate Finance and Public Administration Legislation Committee, , 8:04:41 to 8:36:02
Australian Government Consulting details its cost-recovery model, while the Department of Finance discusses spending as a share of GDP.
Topics: Cost recovery, Government spending
Speakers: Andrew Nipe, Senator The Hon Jane Hume, Senator The Hon Katy Gallagher, Senator Karen Grogan, Unknown Speaker, Matt Yannopoulos, Speaker 7
following up on a question on notice that was asked by my colleague Senator Chandler who's on attended leave last estimates question on notice number 65 uh around the Australian government consulting um uh the question was about the daily charge out rate for an Australian government consulting team member and the response was $2,260 as at the 31st of May 2026. So to put that in perspective, if a team member was charged out on all working days in a year, assuming 250 working days in a year, that's around $565,000 perom. Now that to me seems quite high uh when compared to average APS or um EL or even SCS salaries. So, is there someone that can explain to me what that $2,260 per day is comprised of?
Senator Andrew Kn, chief consulting officer at AGC. Uh, so AGC's pricing is based on a couple of inputs that drive us to a break even number. So, we're on a cost recovery basis. Um, starting from uh this financial year. In the past, we've been somewhat subsidized by uh um uh MPPPS. Uh the um average figure varies based on the composition of the team and so if we have more junior people, the rate is lower and if we have more senior people on a given project, the rate is higher. Um uh it's quite common in the consulting industry to have a utilization figure. Um so that in the private sector is comprised of a range of metrics that might drive you to not be working 250 days a week a year rather on projects. And we similarly have utilization rates that mean people might be between projects. They can be working on uh internal projects to drive intellectual property. So one of the uh features of AGC is that the APS owns the IP from the project. So there some of the drivers that will cause it the calculation that you did which would be what if there was a day rate for all of the days uh a week not to be uh correct. I think the 250 also I'm assuming that's based on 50 weeks a year and 5 days a week your calculation. >> So I think our annual leave and sick leave and so forth would bring that number uh somewhere down.
>> Okay. So, can I ask then, are you charging out team members at a rate that is comparable to the private sector um and particularly to the private sector consultancy that you're supposed to be displacing?
>> Yes.
>> Right. Okay. And can I ask also that $2,260 a day, am I right in saying that that's not full cost recovery? >> It's partial cost recovery. It would
I'll have to go back and look at the number, but it's uh it the uh uh that would be pretty close to what our cost recovery rate would be. So, the reason that I'm just hesitating is last year uh we didn't have a 100% cost recovery target. We actually had 70. Um but we performed but we performed at 87%.
>> Right. So, is that 70% or is that 87?
>> No, it wouldn't be 70%. It would have
been at the 87. that would that's 87%
>> but that's across the course of the year. So because we have been pushing to get to cost recovery uh as quickly as we can our cost recovery month on month had been improving. Okay this year it's at 100% for the financial year to date. So including just July uh and August
>> that was going to be my next question. So what's the updated figure from 2260 if you are now at full cost recovery?
I'll have to take it on notice because it's a, as I said, it varies from project to project and it depends on the composition of the team.
>> Right. Okay. So, I can't extrapolate it out from the 2,260 at 87%.
>> I wouldn't want to give you the incorrect answer, Senator. So, the reason why it also might change is the overall composition of AGC is changing over time. So, for example, we just closed a recruitment round and we'll uh continue to grow. The rough ratio that we're expecting to grow is broadly consistent with what we have at the moment, but I can take on notice a question and give you that answer back.
I >> I was actually going to ask you about that. So, the your current staffing level, the last time at last estimates it was 45 and that was your headcount and you are ramping up to 150 by 2930. Is that right?
>> Yes, sir. >> So, where are we now? 60 and we've just closed uh another recruitment round. We'd expect those people to start in February is when we would do boot camp is our expectation.
>> Okay. Right. Excellent. Uh and can I ask what levels your team members are at? How many APS ones and twos band one twos 3es?
>> So as of today we have four SCES and the remainder are um APS and DL ones and twos. Uh if you give me a moment I can see if I can find that as September uh >> Uh so we have uh one uh band two uh we have three uh as at the 31st of August we had three band ones 13 uh this is headcount not ASL senator >> uh 13 uh EL2s uh 13 EL1s uh with uh four secundes. So this year we've um started a capability acceleration program with colleagues across the APS where they uh secunded in staff for a capability building program and stay with us for 12 months. So that's part of the uh four on top of that 13. We have 11 APS 6s, six APS-5s uh and then uh uh eight um staff who are APS4 or below. That includes graduates and EAS and so forth. PA.
>> Okay. So, >> when you're charging another department, >> do you charge on >> I mean, is that sort of I I know it's a sort of it's an average figure that 2,260, but >> obviously and ramping up and down for different levels of seniority, but that's kind of around the ballpark of what it is that you're charging when you work for other departments.
>> Yeah, that would be a general rate. Again, I will take that specific question on notice. Um but the to be helpful the general question was our ch our weekly team charge out rate varies based on the composition um and the average from the last 12 months is quite similar to what we'd anticipate the average to be going forward in terms of team composition.
>> Okay. All right. Terrific. Now um PMNC's annual report outlines that the Australian government consult that Australian government consulting received 7.4 million in revenue in 25 and 26. That's more than three times the target of 2.1 million. What caused the overshoot in revenue? There was um there were 19 projects that you completed or was there was that I mean that sounds like that you completed more projects than you anticipated to get that overshoot revenue. How did that happen?
>> Uh we worked incredibly hard, Senator. [laughter]
>> So we a good but not particularly
comprehensive answer. So we have been uh trying to grow um and test the market's willingness to pay since we were established. In our first year, we were free. Uh sorry, do you want me to So
>> test the market's willingness to pay is an interesting phrase. So
>> So we're trying to test the uh the public services demand for an in-house consultancy. During that year, government was in the process of deciding what its full ambition for AGC would like to be and government made a decision at the last myo to grow us from what was then our current number up to 150 by 2930 which are the figures you're talking about now. And part of that uh uh business case as it were were to understand uh the value proposition of AGC both to employees and also to our public servant colleagues. And part of that was testing uh how much how close to cost recovery can we get how quickly can we get to cost recovery? And now we're in a phase which is how quickly can we grow at cost recovery.
>> Grow at cost recovery. Right.
>> Correct. And so the re Oh, I'm so sorry. Go ahead.
>> Okay. Well, that actually leads to my next question. And I was going to ask about what the cost of the Australian government consultant has been since it was established. Last estimates you said it was 12.5 million but you're now saying that you are at cost recovery. Is that right? So what was it I suppose for the last 12 months?
>> Uh so there's a couple of different interpretations of cost then when you just said that. So, uh, our, um, revenue as it were,
>> yeah,
>> um, existence to date is 15.5 million, >> And we've done, uh, 50 projects and we have nine, uh, underway at the moment.
>> Nine underway at the moment. Okay. Um, and that's revenue. And what has it cost to run over the same period of time?
uh 18.7 is our uh total expenditure to date
>> to date. So 15.5 revenue, 18.7 cost, 50 projects, nine still ongoing. I'm assuming that you haven't recovered the costs for the nine.
>> I'm I'm terribly sorry, Senator, I misspoke. uh 15.5 is our displaced uh consultancy spend. I can explain this distinction. Apologies. Uh 12 and a half is our revenue existence to date.
>> 12 and a half. Okay. So that hasn't changed since the last estimates.
>> Uh I think displaced was 12 and a half last time. So I can explain the distinction because it it is um relatively esoteric. uh when we are estimating the value of the work that we were doing before we were charging, we needed to estimate how much it would have cost if someone had gone to market and got the private sector to do it. >> To do that, we looked at our uh estimated day rates and the number of days that we were working on a project to estimate what it would have cost and these were the times when we were being more heavily subsidized. So that's displaced which is the total value of the work that we've done and then revenue is when we actually charge. That's the number that's been uh growing um as a percentage faster because we've been climbing up to 100% and now those two numbers are the same uh going forward.
>> Right. So the budget claims 10 million of savings from AC AGC due to displacing external consultancies. these last estimates you advised you were tracking in a figure close to 11, but you've just told me it's now 12.5. That's your most recent estimate.
>> So you said 12.5 and I said that would that could have been our display spend. And just then, Senator, I'm so sorry. I thought you said 11.
>> Yes. You said at the time that you were tracking a figure closer to 11 million. At last estimates, you said that you had cost 12.5.
>> Uh I feel like I need to go back to Hansart to check the figures. So in terms of
>> I don't have the Yeah, I don't.
>> In terms of our displaced >> in 20 I can go through each financial year if you'd like. I've got the very total but not the five six. So >> uh 2.1 display spend in 234 we were established uh um some ways into that financial year. >> Um uh 4.8 in 2425. So that's a total of 6.9 7.2 displaced spend in 2526. And then our year-to- date displaced, which is also our year-to- date revenue, is 1.5.
>> Right. So, in total, the displaced
>> spend is 15.5.
>> 15.5.
>> Yes, senator.
>> But you said that you your internal government service cost 18.7. So, at this point, you are costing more than you save. Is that correct?
>> Uh, in the past, we cost more than we save, which was the component I said before. When we were free, we cost more than we saved because uh we were subsidized.
>> Okay, I get it. And it's a gross save not a net save.
>> Yes. So uh we would um when we uh look at our value there are several things that we consider. So one of them is how do we compare to what it might have been if someone had decided rather than inousing which is what they also might do for a task force say >> how much it would have cost if they had gone to market. Other components of value include the fact that we retain the intellectual property for the work that we do that we are a capability of the APS and then we also ask our clients for feedback at the end of each project to track to track client satisfaction and their perception about uh our quality compared to the private sector
>> and that's the formal success metric going forward isn't it client
annual report is around uh client satisfaction
>> there's no financial success metrics
>> because we're growing at a rate. The financial metric uh would have been based on a trajectory of growth and just would have been increasing in a way that would have made it difficult for uh um the report to know whether we were doing well or not. And so the uh client satisfaction figure, which is similar to what Australian government solicitors use, felt like a more comparable and transparent measure of our performance.
>> Right. I suppose my concern there is that you only had a 63% response rate. Uh only 12 of the 19 projects that you delivered gave you a customer satisfaction feedback.
>> Yes. Which is a much higher customer satis uh response rate than you might get in other surveys that are produced in annual reports. So we do do what we can to ensure that we are collecting that information and send reminders. We've also had two external evaluations as well as the customer client satisfaction figures which are I think considerably higher than other uh response rates you might see in similar uh surveys.
>> Okay. So there's going to be no other financial metrics that you can be measured against other than the customer satisfaction
survey. So we u maintain a raft of metrics and hold are held to account by the department of prime minister and cabinet which we're housed in and we regularly discuss those with both our executive board and also our advisory group which >> okay >> uh contains a set of public servants. The key focus I think for uh our department on finances is that we're 100% cost recovered.
>> Okay. So I suppose how do we manage the scrutiny here considering this is really the only place that we get to speak to you without any more than know? >> I'd like to know what the financial metrics are that you're sharing internally. I think that that would
>> so uh cost recovery, revenue displacement and cost uh as well as the satisfaction numbers and the
>> do you have targets for each of those
>> 100% cost recovery and then the other two fall out of our scale. So, uh, if if we hire, let's say we've got we've had, uh, we've just gone to market center for recruitment, which is what I just mentioned, uh, we had 500 applicants, we may pick up 10 or we could pick up 15. If we pick up 15, our revenue will be higher, but so will our costs. The reason why I haven't set a kind of public expectation for what our revenue might look like is that if we actually find 16 great candidates and bring them on, then our revenue would be higher than that target. If we pick up 14 or lose someone, there's too much variability. So to ensure that we can be held to account properly, we landed on the client satisfaction figure.
>> Okay.
>> Otherwise, it would be
>> point though, the whole point of this is that you're supposed to be saving the taxpayer money.
>> There are several objectives, Senator. So, one of them is the uh is the reduction in reliance on consultants and contractors. Another is that we're building a capability for the APS. A third is that we're attracting people to the public service that would otherwise not join the public service. So there are a range of things including building capability. So there are projects we do where we help set up strategy units and policy teams inside of line agencies that further reduces their reliance on consultants and contractors. And then there's a work stream we have to help the public service buy better so that they get better value from the private sector when they do need to go to market.
>> Yeah. Again, I'm my only concern with all of this is that the metrics that are offered up that are publicly face public any sort of publicly facing assessments um uh don't exist. The only uh sort of financial metrics are ones that you use internally. uh and the only u measure that we have that is publicly facing is customer satisfaction at this stage and I know you said it's very high but it's less than twothirds of a response rate I think for the you know the size of the project and the and and the ambition of the project probably some financial metrics that were more public facing would be helpful
>> um we've tried to reveal those through exactly this conversation senator the annual report is but one of the opportunities that the public have to understand's operation in more detail.
>> Okay. All right. I would hope that when we get to the next Senate estimates, maybe we can be a little bit more explicit about some of the numbers in advance so that we have a chance to ask some questions from a position of knowledge rather than just seeking out those that data um in advance. If there is any way and I'm, you know, I'm sending this out there into into the ether. If there is any way that some of that data can be made more public prior to estimates, I think that would be particularly helpful. Um, you know, the the minister herself has been pretty explicit about um the fact that an AGC would save money. Uh, and I think that we probably want to see some more evidence of that rather than having to drag it out at these forums. Thank you. Thank you, Chair,
>> Thank you. Really appreciate you spending a lengthy period of time with us today. It's been very informative and I'd just like to put on the record um my thanks and respect for all of the public servants who do show up um to this committee hearing and do their very best to provide us with the information that we ask for. Um and for anyone who's ever felt any distress um you have um my deepest uh concern and sympathy. Uh but thank you for all that you do. We really really do um acknowledge and respect the work that you do. And with that, we'll let you go. ask finance to make their way to the
>> Should be ready to go.
>> We just have this kind of like swimming across the tide. Look, we're at the point of ridiculous, so I'm not really that fast. >> It'll all come good.
>> I went into
Welcome to the Department of Finance. Um, Mr. Yannopoulos, um, Secretary and other officers of the Department of Finance. Mr. Yannopoulos, would you like to make an opening statement?
>> Uh, good evening, Senator. No, thank
>> Excellent. Thank you so much for coming along. Um, we will go directly to >> No, no, no, no. They came of their own free will and I'm grateful. >> Um, let us go directly to questions and
>> Thank um some broad issues around spending. So can you tell me what was government spending as a share of the economy in 25 and 26 in the final budget outcome
>> that's published in the uh final budget uh payments 26.3 oh that's sorry uh 26 so that's 26 26 6 27 budget final budget outcome 25 26 26.6 6 I think is it >> oh 26.9 >> 26.9 >> it was yeah slightly up on what was
>> Can you tell me from that data when was the last time outside of the pandemic that the government that government spending was that big? That's, you know, 27% of the economy
>> through this before and you look in the back pages of the budget uh document, you can easily find that out. Senator with I mean I don't I've got the budget book here, but I think you can check that. That's why it's published in the back of the budget papers. But we have bought spending down uh from almost a third of the economy uh to where it is now. Um we found savings but we are seeing and continuing to see increase in particularly in automatic payment variations uh $118.9 billion since coming to government. So significant pressure there on those demand-driven programs, social security, NDIS, age care, natural disaster relief, which I think has grown 280% in the time that we've been in government. Uh veterans compensation payments, almost $16 billion in those uh in automatic variations. good that veterans are getting $16 billion worth of support, but it it obviously has come at uh and impacted the budget.
So um thank you for that extrapolation. I suppose what I want to understand is that at around 27% of the economy or just under, if government spending is as reported as at a 40-year high outside of the pandemic, is there a level of consciousness from the government that this level of spending would keep inflation higher for longer and interest rates higher for
Uh well I think the treasury usually uh answer questions around u these types of matters in macro um section of the treasury appearances. Um we can answer questions about um you know the cost of programs uh where the growth has been. Um as you know we have found significant savings including some that are stuck in the Senate without your support. Uh, Senator Hume, I would just draw your attention to. So, I get a lot of um a lot of feedback about uh reducing spending, not and when we bring ideas and uh proposals, uh they're often a lot harder to get through. Even the NDIS save 37.4 billion, uh that was delayed several months, which had an impact on the budget, several hundred million. the PHI save that we currently have before the Senate that the Senate objects to um seeks a very modest change uh to deliver a saving that's then reinvested in a you know in an area that's growing rapidly and the Senate has said no to that. So, we'll just keep on looking at ways that we can um you know find savings in the budget, but we also have to be realistic that we need to invest in the services that Australians want and need. Um and you see those big movements, you can disagree with them. They're in health, they're in aged care, they're in disability, they're in veterans compensation, they're in disaster relief, all of that. They're in defense uh and managing debt. They're the big areas where we have seen uh increased pressure on the budget.
>> So I note that um both you and the treasurer have said that uh if there are going to be calls for expenditure uh reductions that people should come forward with their ideas as to what those reductions should be. Obviously the coalition has done that and been pretty explicit about that this week. I now understand that after um Treasure Charms has put the call out to the business community to put their money where their mouth is, they too have come out with some suggestions as to where those cuts might be. Can I understand from you though what was the real spending growth outcome for 2526?
Uh let me just see if I can get that. I do have it somewhere. I've got a lot of numbers in my head. Um you would know that the um final budget came outcome actually came in $6 billion smaller than forecasted budget. I'm sure you've uh recalled that uh the budget deficit itself is half what we were left when we came to government. The budget over four years is $230 billion better than when we came uh to office and all of that helps in the fight against inflation. I mean the reality is uh you know improving the bottom line um and as we have in every budget update including the final budget outcome for 2526 has reduced uh pressure around that what's been spent um in that sorry I'm just getting now uh real spending growth was 4.3 3% in 2526. Um but as I've been trying to you know I would I mean I think a discussion about spending is is really important because I think if you look over the last 20 years the pressure on the budget for example in disability spending 2% disability spending contributes 2% to GDP that wasn't the case 20 years ago. So if you remove disability spending, spending as a share of the economy would be smaller than it was, lower than it was under Howard. Uh at the same time, so there has to be some acknowledgement that areas like disability, like health, which has also grown just under 1% and age care and pensions just under 1%. uh is placing pressure on the budget and that would be the same regardless of who was in government. That's just facts. Um when you look at real spending growth over the last four years, it's around 2% uh which is half of um what it was under
>> So that was a very long answer to get to 4.3% real spending growth. But thank
you. Well, I answered at the I answered at the top, but also can we just have some like rational debate about this? Like to pretend that disability spending as a share of the economy has not impacted
>> I haven't asked a single question about this.
>> Well, because I'm trying to like I know you've got to make a political point. That's fine. And I can make those two. I can say that your off you know the the saves that you've announced in the last day don't even touch the surface of the spending that you've already announced. I can be making those points or we can have a genuine discussion about some of the areas of pressure on the budget and the fact that government spending and investment has changed over the last 20 years in line with our demographics and with decisions taken from um governments of all colors about support that's provided to individuals across the
>> Minister, you sound so defensive on the most basic of questions. spending growth the real spending growth outcome was. The answer was 4.3%. Can you then confirm for me please that that is close to double the growth of the economy.
>> The average of spending growth over the last four years has been 2%.
Real economic growth in the 2025 budget is >> these are questions really for >> and real spending growth is they're not
they're not questions for this
>> I'm sorry spending
>> well I've answered the questions about spending you're then going and talking about economic growth uh which are um questions that are more properly put to
the department. So it's not a rule of thumb that you would use what is our spending growth compared to what is economic.
>> I've answered the question.
>> Okay. And Treasury is on >> later this week. So tomorrow you have plenty of opportunity Senator Hume to
>> So I want to ask about the um in the 202526 final budget outcome the tax to GDP >> ratio
>> that well that that is definitely a matter for Treasury not finance.
>> Okay. So the last time that the tax to GDP ratio hit 24.1% which is where it is now was the budget in deficit or was it in surplus?
>> Again it's a matter for Treasury
>> for Treasury matters. We're at the 10-minute mark. Senator Hume maybe we will rotate the call and we can come back to you for some finance questions after.
>> I can't believe we can't ask questions about expenditure to the Minister for Finance. >> You weren't asking. You weren't ask
>> you weren't Senator Hume. You just asked about tax to GDP. That is not the same.
>> If it's a question about the budget bottom line, surely I can ask the Minister for Finance and the Department of Finance. And that's kind of what we're talking about.
>> We have the department is here to answer responsibility. >> That is not one of them. >> Senator Hume, whatever way you want to
>> We're going to rotate the call.
>> Well, that's not what you asked. as is