The funding model in the APS fundamentally drives inefficiency. Agencies are implicitly encouraged to fully spend their budgets and face intra-agency penalties where this does not occur. Budgets are set based on the previous year's budget with no relation to performance. There is no mechanism to drive efficient behaviour.
The uncontested part of economic theory is that prices disseminate information transparently to all stakeholders, thereby driving efficiency. This mechanism is absent in the mainstream public sector funding models.
Expanding the use of price-based, cost recovery models as the sole source of funding for service delivery organisations should be a priority. That is to say, DHS is simply a service delivery arm of DSS; the ATO is a service delivery arm of the Treasury.
As an end state, the aim should be to have a large number of small service delivery organisations, specialised in certain fields, and competing for business based on price. These would remain public sector organisations, but would be open to contestibility in the future (this further encourages efficient operations).