Department of Infrastructure

1 .

Submission to the Australian
Public Service Review
2018

1
Overview

The Department of Infrastructure, Regional Development and Cities (Infrastructure) covers policy,
projects, programs and regulation, with activities ranging from implementing the Western Sydney

Airport project, regulating the import of motor vehicles, negotiating City Deals, developing regional

programs and managing Australia’s external territories.1

The recurring and emerging challenges faced by the APS - most notably, population growth,
globalisation and technological change - are changing the policy landscape generally, and leading to

changes in the way Infrastructure approaches policy, engagement and implementation. This

includes preparing for changes in technology such as automated vehicles, new engagement

approaches such as City Deals and being a more active investor in infrastructure including through

direct equity investment in projects.
In considering how best to ensure the APS remains fit for purpose in the decades ahead, this

submission focuses on three areas that we consider warrant focus in the APS Review: staff and

structure, external engagement, and risk management. Staffing and structure issues of note include

recruitment and probation arrangements, rewards to specialisation, mobility in and out of the APS,
hierarchy and oversight, and flexibility in the ASL cap. Engagement issues relate to the APS’
capability to foster authentic connections with communities, and productive partnerships with state

and local governments. Finally, there are issues relating to how the APS might better manage risk

while fostering entrepreneurship and innovation.

Context – The Changing Policy Landscape

Australia’s policy environment is changing in the face of a number of powerful economic and social

forces. Of particular relevance to Infrastructure are population growth through migration,
globalisation and technological change (Attachment A). These three forces present great ongoing

opportunities for Australia to seize. But, they can also lead to uncertainty and apprehension in parts

of the community, as the benefits and challenges are not spread evenly across Australia. For the

first time the Lowy Institute Poll in 2018 found that the majority of Australians oppose the current

rate of immigration2. On the other hand, three quarters of Australians believe globalisation is ‘mostly

good’3 and the vast majority of Australians are not concerned that technology will negatively

impacting their work opportunities4.
The need to meet elevated community expectations has important implications for the APS. For

Infrastructure there will be increasing demands to deliver infrastructure and adapt regulation to

accommodate a growing population. We must find new ways to engage other levels of government

and the community to deliver on government initiatives. The Department is not alone in these

challenges. Across the APS, agencies will face increasing demands that require preparation and

adaptation.

Policy

Policy development has always been a challenge, but there are rising expectations from the public

for more rapid responses to policy problems. Infrastructure, as a primary transport regulator, will be

1
Infrastructure administers the Ashmore and Cartier Islands, Christmas Islands, the Cocos (Keeling) Islands, the Coral Sea Islands, the Jervis Bay

Territory and Norfolk Island. The department also manages the Government’s interest in the Australian Capital Territory, and the Northern Territory.
2
Lowy Institute Poll 2018. https://www.lowyinstitute.org/publications/2018-lowy-institute-poll

3
Lowy Institute Poll 2017. https://www.lowyinstitute.org/publications/2017-lowy-institute-poll

4
Australian Information Industry Association (2017). Skills for Today: Jobs for Tomorrow; Biddle, N. Gray, M. Sheppard, J. (2018, July) ANUpoll Job
Security and the future of work: Australian workers’ view. Australian National Univerisity (No. 25)
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at the forefront of understanding the impacts of technological disruptions like automated vehicles.
This is a complex policy issue given the uncertainty over the timing and impact of the technological

change. It will require significant community consultation and any national policy response must be

agreed and coordinated across the state and territories to be fully effective.
Engagement

As with many areas across the APS, state and territory relationships continue to be a priority for

Infrastructure as they are fundamental to our ability to deliver Government initiatives.
The Government’s negotiation of City Deals is an example of active engagement by the

Commonwealth with state, territory and local governments, as well as businesses and the

community. City Deals allow a customised approach to address the particular needs of Australian

cities. They are long-term partnerships which focus on aligning planning, infrastructure investment

and governance to accelerate job creation, stimulate urban renewal and drive economic reform. For

instance, the recently signed Western Sydney City Deal is an agreement with the Commonwealth

and NSW government as well as eight Western Sydney councils. The City Deal is focussed on job

growth and connectivity through a centrepiece commitment to connect Western Sydney and deliver

the first stage of a North South Rail Link. Other commitments include a new planning partnership

and establishment of an ‘Aerotropolis’ employment precinct alongside the new Western Sydney

Airport.
The reception to the Government’s City Deals has been overwhelmingly positive. State and territory

governments, many local governments and other stakeholders have publically called for, or

expressed an interest in City Deals for their city or region. This is testament of the desire to deliver

more targeted outcomes in a location, as well as the demand for new ways of engaging. There are

however challenges, as such engagement takes time and resources to identify local priorities and

actions. Subsequently, there is a limit on how many high quality City Deals can be effectively

negotiated at any one time.
Changing business models

In recent years the Commonwealth has taken an increasingly active role in the implementation of

projects and policies. Notable examples in the APS include the National Disability Insurance

Scheme and the National Broadband Network.
In the Infrastructure portfolio, the Commonwealth is varying its approach both by being more

discerning in project categories and by becoming a more active investor. This involves the APS

being more engaged throughout the project lifecycle: from problem definition to development and

delivery of a transport solution. The level of involvement aligns with the scale of the project, the

nature of the Commonwealth’s investment and the risks and complexities.
Projects are delivered in three main categories: Commonwealth-owned equity investment; jointly

delivered; and funding delivered with conditions.

 The Commonwealth has sought to use equity investments through Government Business
Enterprises (GBE) to deliver Commonwealth led projects, such as Western Sydney Airport
and Inland Rail via the Australian Rail Track Corporation. Equity arrangements require that
the Commonwealth be responsible for managing risks and for the operations and
maintenance of the asset.
 The Commonwealth is also delivering a number of major projects in partnership with state
governments, such as Western Sydney Rail and Melbourne Airport Rail, where there are

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joint project teams through the planning and business case phase, requiring the APS to have
a view on key issues through the development of a project. Other significant Commonwealth
investments are being managed through joint project or steering committees with states and
territories to oversee the delivery of major projects—ensuring the intent of the Australian
Government’s commitment is being delivered rather than just state objectives;
 The Australian Government is also increasingly looking to make funding commitments
conditional to better leverage investment, where there are opportunities to support broader
Commonwealth objectives through the provision of major transport infrastructure. This
includes key policy objectives, such as greater indigenous participation in infrastructure
delivery or increasing opportunities for local contractors.

Funding for projects varies, but there is a general shift away from arm’s length grants, towards more

active involvement and innovative finance. The Infrastructure and Project Financing Agency (IPFA)
was recently established and transferred to the infrastructure portfolio to support this work. The IPFA

provides expert advice on opportunities to apply innovative funding and / or financing mechanisms

to support infrastructure delivery. Infrastructure Australia also continues to have a key role in

providing independent advice on infrastructure priorities and the costs and benefits of projects

through its assessment of business cases. The Department is also further investing in capacity to

meet these evolving objectives.

Response – Positioning the APS for the Future

Staff and structure

The public service depends on staff capability, professionalism and how effectively these resources

are deployed. This hinges on retaining the best staff, ensuring staff acquire the right skills and

making sure structures support effective job matching to meet changing demands.
In the Infrastructure portfolio, there is an increased focus on financial aspects of investments

requiring greater specialist financial skills. For example, some investment decisions take the form of

the Government making equity investments in wholly owned companies (e.g. GBEs) or partly owned

companies (such as the proposed Melbourne Airport Rail Link).
We are focused on positioning ourselves to best support Ministers through the decision making

processes on whether to invest in the project, what form that investment should take and the

ongoing management of that investment/GBE. More broadly there is a need for APS staff to

understand standard commercial considerations but also the unique issues for government, that are

different to private sector investors. One option for filling these skill gaps is to improve the flow of

people in and out of the APS. This includes better utilising external capabilities (e.g. universities,
consultants and think tanks) to augment and improve the work of the APS.
The structure, approach and operations of the APS reflect a framework for public administration

shaped largely by the 1974-1976 Royal Commission on Australian Government Administration, and

refined by subsequent inquiries and reforms. These structures provide clear accountabilities and

structured guidance to junior staff. However, a faster-paced environment and a need for greater

whole-of-government solutions means structures need to be flexible.
It is important that going forward the APS is able to unlock employees’ capabilities to access the

value and contributions all our staff can offer. Supporting staff movement within the APS could help

encourage better matching of existing specialist skills with areas of work. This can be a challenge as

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there may be disparities in remuneration between agencies, perceived or real barriers between

central and line agencies, or agencies may not be able to return unsuitable staff to their home

agency.
APS Average Staffing Level (ASL) caps affects the ability to manage capabilities. On the one hand,
the ASL cap is a good discipline on recruitment, focusing Departments and ensuring the best person

for the job is hired and retained. But the cap also creates capability challenges by increasing the use

of labour-hire contractors. Contractors allow the APS to employ people above the ASL cap and also

engage external specialist skills that may not be required over the longer term. However, contractors

cost around 40 per cent more than permanent staffing and when they leave there is a loss of

corporate knowledge. The APS needs to consider the optimal level of ASL but also ensure that the

flexibility provided by hiring contractors is maintained.

Some questions for the Review to consider include:
Recruitment systems
 Does the APS use best practice candidate screening and assessment techniques? Are
these customised for the public service or borrowed from private sector practices? Is there
sufficient accountability for interview panels that make unwise recruitment decisions? Do
recruitment processes actively promote diversity? Does the public service promote itself
effectively to job seekers with the skills needed?
Probation and performance management systems
 Does the APS allow sufficient time to test new recruits before a probation decision is
made? Is underperformance addressed in a timely and effective way? Is performance pay
and promotion sufficiently focussed on merit?
Promotion and reward systems
 Does the APS adequately reward specialised skills? Is there too much of a one size fits all
approach to pay and conditions across the APS? Should there be clearer specialist
streams that move about the APS but stay within their specialisation such as the
economist stream in the United Kingdom?
Transferring within and outside the APS
 Does the APS adequately facilitate the movement of expertise in and out? Are there ways
to harness external expertise to build internal capability? Can we better retain knowledge
with increased use of outsourcing and contracting? Can we better promote movement
across agencies, particularly within skill streams? Could movement be encouraged by
having probation periods for movements between agencies?
APS structure and flexibility in the ASL cap
 Does the APS ASL meet its objectives? Are there ways to make the cap more flexible
such as allow agencies not to count staff while they are on maternity/paternity/long service
allowing long term personal leave? How do we break down unnecessary hierarchy, while
maintaining senior oversight?

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External engagement

The APS can appear isolated from Australia’s citizenry, sometimes in terms of lived experience in

Canberra, compared to big cities such as Sydney or small regional towns. The ideals of the APS

may also be criticised as distant from the broader Australian community. The APS needs to build

more authentic connections with communities. This can be facilitated through increased consultation

with stakeholders, to improve transparency around how decisions are made; what evidence was

used; and who influenced this decision.
The APS does excellent work but this is not always effectively communicated to the broader

Australian public. Across the APS we need to think how best to tell the story of the work that is being

done. To do this the APS needs to facilitate a stronger connection with parts of the Australian

community who are less engaged in policy. Our ability to communicate with influence will be

important, particularly for Infrastructure as we increase our role as primary implementers.
States and territories are key partners for the APS, specifically for Infrastructure. At times, with

differing perspectives and politics, relations with states and territories can become strained. The

APS needs to think through different systems and protocols to better maintain strong communication

channels with our state and territory colleagues. Improved communication would reduce confusion

and prevent future conflicts.

Some questions for the Review to consider include:
Connections with the community
 Does the APS have sufficient engagement with the community? Is the APS representative
of the ideals and political views of the broader Australian community? How can the APS
facilitate a stronger connection with the average person?
Managing relationships with other levels of government
 Does the APS have sufficient connections with other levels of government? Can the APS
learn from the City Deal approach to improve outcomes on the ground?

Risk management

A prudent and methodical approach to addressing issues is important given the wide ranging

implications of policy change on the community. However, the speed at which policy and the media

moves can strain the ability of the APS to respond with such robust advice. If the APS is going to be

able to keep pace with the demands of the community, then it will need to examine its interpretation

and assessments of risks. Enabling and rewarding experimentation requires a shift in APS culture

and the acceptance of the risk of failure.
Ministers need an APS that can help them identify their appetite for strategic risk and mitigate the

possibility of failures. The management of risk, whether of projects and programs, could be

improved across the APS. Work needs to be done to embed a strong risk management culture, so

that every employee fully appreciates that they have a role to play in identifying and managing areas

of uncertainty. This means moving away from reactive and defensive risk management to proactive

risk management.

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Ministers make policy decisions, not officials. At times, slower moving regulation and program

delivery responsibilities can abate faster moving policy development. The APS provides advice

including outlining key strategic risks to enable Ministers to make an informed decision. To better

improve policy design, the APS can work towards better gauging ministers’ appetites for risk across

their portfolio. Better understanding of risk appetites can lead to increased policy experimentation,
increased speed of advice and consistent regulation.
Risk management is a recurring issue for APS reform agendas and progress has been made.
However, further work should focus on evaluating the different structures and underlying behaviours

which have been successful in embedding a strong risk culture.

Some questions for the Review to consider include:
Increasing agility while managing the inherent risk
 Does the APS have the balance right between agility and reliability? How can the APS
better align its risk taking with the risk appetite of the government and the community?
How should we reward and encourage experimentation and entrepreneurial attitudes
within the APS?

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Attachment A

Economic and social forces shaping Australia

Population Growth

Australia’s population is growing strongly, particularly relative to other advanced economies (Chart 1), reflecting

increases in net overseas migration (Chart 2). This growth is set to continue, with the ABS projecting population

will reach around 34 million over the next 30 years, concentrated in our largest cities. Over the next 30 years the

major cities are projected to grow by around a half. This equates to around 2.5 million extra people in each of

Sydney and Melbourne. Australia’s population growth has real implications for infrastructure, housing,
government services, and population policy – all of which sit within or relate to the infrastructure portfolio. For

example, public spending on infrastructure is closely tied to population growth (Chart 3).

Chart 1 – Australia’s population growth is Chart 2 – Net overseas migration the Chart 3 – Infrastructure spending is tied
high largest contributor to population growth to population growth
Annual population growth Population growth components Population growth and construction spend
% % '000s '000s 000's $Bn
Australia
2.0 2.0 400 400 400 32
Population increase (LHS)

1.5 1.5 300 300 300 24

Net overseas
200 migration 200 200 16
1.0 1.0
USA Public construction
infrastructure expenditure (RHS)
OECD 100 100
0.5 0.5 100 8
Natural increase

0 0 0 0
0.0 0.0
1982 1987 1992 1997 2002 2007 2012 2017 1986-87 1992-93 1998-99 2004-05 2010-11 2016-17
1980 1988 1996 2004 2012
Note: Infrastructure spending in $Bn real, 2016-17 prices
Source: World Bank, ABS Source: ABS, Department of Infrastructure, Regional Development & Cities Source: BITRE Australian Infrastructure Statistics-Yearbook 2017, ABS

Globalisation

The global economy is better connected than ever before. Increased movement of capital, labour and ideas has

contributed to economic growth and development worldwide. In the transport sector there has been a dramatic

reduction in costs (Chart 4), which has prompted significant expansion in global trade in absolute terms and as

a share of GDP (Chart 5).
The Australian economy has prospered from the international interconnectedness that globalisation brings, but

the benefits have not always been spread evenly. Globalisation has meant the price of many goods has

reduced. However, it has also placed competitive pressures on advanced economies’ lower-skilled workers as

well as the regions and industries that support them. This has led to a structural transformation in the Australian

economy, and an increasing focus on services employment (Chart 6), further concentrating economic activity in

the big cities.

Chart 4 – Cost of transporting and Chart 5 – Trade has accelerated Chart 6 – Services as a share of
communicating falling Trade as percentage of GDP employment has grown dramatically
Cost relative to 1930 prices Share of employment by sector
% % % % % %
World

100 100 50 50
80 80
Services
80 80 40 40
60 60
Sea Freight Australia
60 60 30 30
40 40
40 40 20 20 Manufacturing
Passenger cost Mining and
20 20
Agriculture Construction
20 20 10 10

0 0
0 0 0 0
1950 1961 1972 1983 1994 2005 2016
1930 1942 1954 1966 1978 1990 2002 1930 1939 1948 1957 1966 1975 1984 1993 2002 2011 Source: RBA
Source: OECD 2007 Source: Penn Word Tables 8.1, World Bank Note: Services includes distribution, finance, property, business, social and personal

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Attachment A

Economic and social forces shaping Australia continued

With increased mobility, capital, goods, people and ideas are tending to locate in large cities globally and in

Australia. Our capital cities account for around 70 per cent of GDP (Chart 7), and 80 per cent of Australians live

and work in our largest 21 cities (Chart 8). Continued globalisation means our economy will increasingly rely on

knowledge services, which have steadily increased their share of our economy over the past 30 years (Chart 9).
Our cities are gateways to the global economy and the engine rooms for knowledge services industries,
supported by rising education levels. On the other hand, with economic activity gravitating to large urban areas,
low-skilled workers and regional Australia is facing increased strain.
Chart 7 – Most GDP is generated by cities Chart 8 – More Australians living in our Chart 9 – Rise of knowledge services
GDP in AUD billions largest cities Share of GDP by industry
Share of population
$b $b % % % %
Other services
80 80 30 30
500 500
70 70
Capital city Rest of State Big 4 25 25
Goods
400 400 60 60
20 20
50 50 Knowledge services
300 300 15 15
40 40
Rest of Australia
30 30 10 10
Health and education
200 200
20 20 5 5
10 10
100 100 0 0
0 0 1985 1990 1995 2000 2005 2010 2015
1911 1926 1941 1956 1971 1986 2001 2016 Sources: ABS, Department of Infrastructure Regional Development and Cities,
0 0 Department of Industry Innovation and Science
NSW VIC QLD WA Rest of Aus Source: ABS Note: Knowledge service includes financial and insurance, IT and media, and
Source: Department of Industry, Innovation and Science (2018) Note: Big 4 includes Sydney, Melbourne, Brisbane and Perth professional and scientific

Technological change

Australia will continue to see technological advances that change the nature of how and where we live and

work. Global innovation has been increasing at a rapid pace. For example, computer technology and electrical

machinery innovation are outpacing most other sectors in patent grants (Chart 10). New technologies and

innovation are key to our future national productivity and economic growth. However, advances in automation

and the application of artificial intelligence creates uncertainty, particularly for low to medium skilled workers.
In Australia over the past decade, there has been a decline in the share of people employed in routine manual

jobs. Conversely, there has been an increase in non-routine work (e.g. health care) (Chart 11). People will need

skills that are not easily replicated by technology, such as social intelligence and creativity. Research suggests

low skilled jobs are more likely to be automated. Jobs most at risk are those related to the handling of

information while growth is occurring in jobs related to the analysis of information. This is particularly relevant to

the APS, given its services and advisory focus. Likely as a consequence, the APS has experienced one of the

most rapid rates of upskilling of any sector (Chart 12). This suggests the APS is transforming (as it should), but

also reflects the pressures on low skilled segments of the service to transform.

Chart 10- Computer and electrical Chart 11 – Non-routine work is on the rise, Chart 12 – APS’ share of post graduate
innovation is growing at new speeds while routine work is declining qualifications has grown more than
Patent grants per sector Australia – employment shares by job type other industries
Percentage point increase of workforce
'000 '000
Thousands

IT
Professional Services
APS

100 100
Fin Services
Computer technology Real Estate
Wholesale
80 80 Education
Health
Retail
60 60 Transport
Utilies
Hospitality
40 40 Manufacturing
Electrical machinery Arts
Administrative
20 20 Mining
Telecommunications Other
Agriculture
0 0 Construction
1980 1986 1992 1998 2004 2010 2016 0 2 4 6 %
Source: World Intellectual Property Organisation Source: ABS Census (2006 & 2016)

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© Commonwealth of Australia 2018

ISBN 978-1-925701-40-1

JUNE 2018 / INFRA3596

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Development and Cities submission to the Senate Standing Committee on Economics inquiry into the indicators of, and impact of,
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Website: www.infrastructure.gov.au

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