Grading government efficiency the Australian way

February 7, 2013

Congress and President Obama are at it again, fighting over taxes and spending cuts. It seems like a bad television show – the same story keeps getting repeated without any hope of a proper ending. In essence, there is too much spending and not enough revenue. The amount of spending currently in dispute is about $80 billion. It is this $80 billion, which needs to be reduced, that is the centerpiece of Washington’s fighting.

The fighting in Washington is always about overall spending and never about the efficiency or productivity of the spending that we do have. It is like a spigot turned on full blast; it has no controls for fine tuning. The Government Accountability Office cannot render an opinion on the 2012 consolidated financial statements of the federal government because of “widespread material internal control weaknesses, significant uncertainties, and other limitations”.

Maybe part of the $80 billion that is currently being fought over could be found by searching for more efficiency in the current budget. If we identified efficiency or productivity gains of 1.5 percent on the $2.6 trillion of annual U.S. spending (read: the budget minus Social Security) we could save approximately $40 billion, or half of what the Congress and president are fighting over. The Labor Department calculates that the productivity change in the non-farm business sector between 2007-2011 was 1.8 percent. Achieving slightly less in government productivity should be possible.

The Australian government annually conducts productivity reviews of its government spending. The chairman of Australia’s Productivity Commission, Gary Banks, wrote:

The conviction of governments that greater transparency about service performance would promote improvements across our federation has by now been vindicated. This reporting series has been remarkable, not only for what it has achieved, but also for the ongoing commitment of heads of government to what is effectively an annual ‘report card’ on the performance of their administrations.

Data about the costs of providing child care, education and training, justice, emergency management, health, community services and housing and homelessness are made public in Australia. This allows legislators (and the general public) to measure the efficiency of their budget choices. Imagine replacing spending decisions driven by special interests (pork) with decisions made based on outcomes on people’s well-being, and the efficiency of the spending to achieve these outcomes. I think it would quickly highlight where government funds are being productive and where they are not.

Beginning in 1967, the U.S. Bureau of Labor Statistics published the Federal Productivity Measurement Program:

which covered about two-thirds of the entire Federal Government.  Indexes of output per employee year, output, employee years, compensation per employee year, and unit labor cost are available for fiscal years 1967 to 1994 for selected functional areas of Government. The program, which was part of the Division of Industry Productivity Studies, was terminated in 1996. However, BLS continues to measure productivity for one portion of the Federal Government – the Postal Service – as part of its Industry Productivity Studies program.

Today, spending by local, state and federal government comprises about 40 percent of GDP, but no measurement occurs of its effectiveness. It seems an obvious area of study and improvement.

For 18 years, the government of Australia has graded itself on its efficiency and productivity in delivering services to its constituents. Australia’s government is not content to let programs and spending drift along without review. Imagine what this approach could do for the U.S. federal and state governments? It seems more mature and responsible than the endless fighting that happens between Congress and the White House.


Commonwealth of Australia Productivity Commission:  Report on Government Services 2013

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