Consultants and contractors providing labour hire services expect to be further squeezed by a returning Labor government which has put a further $6.4 billion target on agencies to cut their outsourcing budgets.
After an election where Canberra and the public service were in the spotlight, ACT senator Katy Gallagher, who is expected to retain the Finance portfolio, put agency heads on notice that Labor would continue to target spending on outsourcing as well as expenses in order to find savings.
"The approach we've taken in every budget is to just continue to put the screws on departments' spending on contracts," Senator Gallagher said when Labor released its costings.
"I also want to tighten up more discretionary expenditure across departments."
Picture: Contractors including CEO of Anchoram Consulting Glenn Ashe and CEO of Aristotle Metadata Samuel Spencer said the re-elected Labor government would put more pressure on outsourcing budgets. Pictures by Sitthixay Ditthavong, supplied.
CEO of Anchoram Consulting Glenn Ashe said he was initially dismayed when he heard this statement, but a closer inspection of where the additional savings were to be found gave the former senior public servant pause.
"The headline item certainly scared the living daylights out of me," he said.
"But it also gave me a sense of 'Alright, what do we need to do?'
"I'm probably more optimistic; this could be an opportunity but we need to come up with innovative ways to do business that appeals to government."
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Picture: ACT Labor Senator Katy Gallagher has put departments and agencies on notice to further reduce spending on consultants and contractors. Picture by Keegan Carroll.
The push from Labor continues the approach of the government in its first term, where departments were required to set targets identifying where savings could be made.
Summarising these savings across the government in November 2024, the Public Service Commission found, outside of Defence, most of the savings would come by reducing spending on labour hire - 23 per cent of the total savings target - while reducing spending on consultants comprised just one per cent of the target.
Picture: Source: Australian Public Service Commission
During Labor's first term, spending on consultants fell, with PwC and the big four experiencing billings drop significantly, however spending on mid-tier and specialised firms increased.
Paul McDougall, lead partner at global accounting and advisory firm BDO, which set up its Canberra office in mid-2024, said the firm understood the position of the Labor government, but said there would always be a role for consultants to assist the public service.
"We're aware of those obligations and the services and value that we bring to areas of the public service where specialist expertise may not readily exist, and the importance of our role to transfer and upskill areas of the public sector where relevant."
With the bulk of savings expected to come from reduced spending on labour hire and cut backs to hospitality and travel budgets, there are calls for the Labor government to go further.
Picture: Greens Senator Babara Pocock has called for a 15 per cent yearly cut on departments' consulting budgets. Picture by Elesa Kurtz
Greens Senator and public service spokesperson Barbara Pocock called for a 15 per cent yearly cut to consulting spending.
"Government departments have become so reliant on the consulting industry that only mandated targets to reduce outsourcing will get the results needed to bring core work back into the public service," she said.
IT, software talent in high demand
With the government spending tens of billions of dollars on digital projects, outside expertise to deliver these platforms is expected to continue to be in high demand.
CEO of Canberra tech firm Aristotle Metadata Samuel Spencer said organisations providing software would be relatively resilient, but there would be a greater focus on handing over the knowledge and skills to develop and maintain these tools.
"Overall, I think the trend will be really positive for the Australian public because we're getting a public sector that can actually deliver," he said.
"The only thing is making sure that wages in the public sector can keep up with demand to make sure we retain that talent."
The federal public service will continue to face a challenge in updating large legacy enterprise platforms that are reaching the end of their life.
Angela Colantuono, president and managing director SAP Australia and New Zealand, which provides many of these platforms, said investing in digital skills would be key.
"By investing in AI skills and accelerating technology adoption, the Government can deliver a digitally advanced Australia - thus enhancing productivity, building a future-ready workforce and unlocking new economic growth."
