8.7 Other selected programmes

Outsourcing visa processing

The Department of Immigration and Border Protection grants around 4.7 million visas every year. The cost of handling enquiries, assisting with lodgements and reviewing applications is around $520 million per year, while the fees generated from Visa Application Charges exceed $1.1 billion.

The department is currently implementing a reform programme that aims to steer a greater number of visa applicants towards online and electronic visa lodgement, use greater automation to process low-risk visa applications, and expand the use of outsourcing arrangements for the operation of Australian Visa Application Centres that collect and register visa applications in a number of locations globally.

Chart 8.5: Number of Visas Issued and Variable Funding for Visa Processing
This chart shows the total number of visas issued and the variable cost of issuing them over the period 2008-09 to 2012-13. Both series increase over the period.

Source: Department of Finance

Notwithstanding the efficiency gains from moving from paper to electronic lodgement, there remain a large number of functions that could potentially be done at the same or higher levels of quality at a reduced cost through outsourcing or co-sourcing arrangements.

Many tasks related to visa processing are high volume and low complexity and would be well suited to outsourcing. Examples include call centres, shop fronts, counter services, data entry, payment collection, design and operation of web sites and the processing of low and medium risk visa applications.

An outsourced arrangement could have the added advantage of avoiding periodic major capital outlays for the fit-for-purpose information technology systems necessary to support visa processing.

However, outsourcing of this function would need to be handled carefully, as not all visa related tasks are suitable for outsourcing. The high risk of fraud associated with some visa applications and the complexity required in resolving these cases require that at least a residual processing capability should be retained by the department.

That said, the Commission considers that that the potential for significant efficiency gains and service advantages warrants the development of a business case and scoping study for the outsourcing of visa processing functions. This study should identify and group functions that are suitable for outsourcing and include a strategy for approaching the market to maximise savings.

Recommendation 43: Visa processing

The Department of Immigration and Border Protection grants around 4.7 million visas every year. Many visa processing tasks are high volume and low complexity and would be well suited to outsourcing. The Commission recommends that a business case and scoping study for outsourcing the Department of Immigration and Border Protection's visa processing functions be prepared.

Employment services

The bulk of employment services are provided through Job Services Australia, which currently offers services to around 760,000 job seekers. Funding under this scheme is around $1.3 billion per year.

The existing round of employment services contracts are due to expire in the middle of 2015. A review has been conducted with a view to making further modifications to the next round of contracts.

While the average cost per job seeker has declined since the introduction of the Job Network and then Job Services Australia, there are still concerns about whether the employment services arrangement provides the most cost effective way of getting unemployed people into work.

In particular, there is a focus on how well the arrangements work at placing the longer term unemployed. At present, around 400,000 Australians have been out of work for more than 12 months and of these 170,000 have been out of work for 36 months or more.

Substantive changes to the current employment services model do not appear to be warranted at this time. International evidence suggests that the Australian approach is seen as being at the frontier of good policy in this area. Job Services Australia and its predecessors demonstrate the benefits of using contracting arrangements compared to traditional government provision of these services.

Changes could, however, be contemplated to improve the effectiveness of the arrangements. This could include examining the case for changes to the payment structure to providers which provide greater incentive for job placement (that is, outcomes, rather than servicing).

This could result in increased payments for placing the most disadvantaged job seekers and reduced payments for placing ‘job ready’ job seekers. Another option would be to delay access to employment services for those job seekers who are most ‘job ready’ on the grounds that they require the least assistance.

Employment services are also supported by wage subsidies, including the Wage Connect programme. Under Wage Connect, subsidies are available to employers who take on long‑term unemployed job seekers.

The subsidy is paid at the rate of $233 per week for 26 weeks. The job seeker must have been on income support for at least two years and had limited work experience, in order for the subsidy to be available. There are 10,000 capped places per year for Wage Connect. In December 2013, the Government advised that there would be a pause on new entrants to the Wage Connect scheme as it was fully subscribed.

The effectiveness of wage subsidies is open to question, given that they may displace other job seekers or simply result in employment ceasing once the subsidy is finished.

Another issue is the average rate of subsidy under Wage Connect, which is higher than similar programmes such as the Tasmanian Jobs Program and Seniors Incentive Program.

These proposals complement recommendations on reforming unemployment benefits and the minimum wage as outlined in Section 7.11

Recommendation 44: Employment services

The bulk of employment services are provided through Job Services Australia. The existing round of employment services contracts are due to expire in 2015. The Commission recommends the Government develop options to:

  1. improve the structure of employment services provided to the most disadvantaged jobseekers; and
  2. lower average costs per jobseeker under the post-2015 employment services arrangements, including by making greater use of technology in delivery of services.

The Commonwealth subsidy under Wage Connect is higher than similar wage subsidy programmes. The Commission recommends reducing the subsidy paid under Wage Connect to the levels available under similar programmes.

Efficiency of the public broadcasters

The national broadcasters, the Australian Broadcasting Corporation (ABC) and the Special Broadcasting Service Corporation (SBS) which includes National Indigenous Television, are both substantially funded by the Commonwealth, although funding for SBS is supplemented by commercial advertising revenue.

Their current annual appropriations are approximately $1.1 billion and $270 million respectively.

The ABC and SBS broadcast on seven distinct channels, across two 7 megahertz bands of spectrum. Their transmission services are currently provided under long-term contracts by Broadcast Australia and cost around $200 million per year for the ABC and $80 million for the SBS.

The ABC and SBS are both Commonwealth statutory authorities, but have a significant degree of independence from the Commonwealth. In recent years, there has been strong growth in the amount of base funding available for both organisations and they have been exempt from the efficiency dividend. See Chart 8.6.

However, both agencies face funding pressures from increasing costs of programming, increased use of on-line services, falling advertising revenue for SBS and large capital replacement costs.

Chart 8.6: Public broadcasters non-transmission funding, $ 2012-13
This chart shows ABC and SBS non-transmission funding over the period 2007-08 to 2016-17.  The decline in funding in the out years is due to terminating measures relating to news content and the digital delivery funding.

Source: Mid-Year Economic and Fiscal Outlook 2013-14.
Note: The decrease in the ABC's 2016-17 funding relates to terminating measures relating to news content and digital delivery funding.

The traditional arguments for government funding of public broadcasting include the need for a form of media and content accessible by all the public, regardless of cost of provision; independence from commercial and corporate influence; and, diversity in the delivery of content for which there is no incentive for commercial broadcasters to produce or distribute.

The Commission acknowledges that there is no ‘right’ level of funding that should be provided to the ABC and the SBS, or ‘right’ level of services that should be provided by the public broadcasters.

However, it considers that both organisations have the ability to improve their efficiency and better target expenditure than may currently be the case. The case for reconsidering the level of support for the public broadcasters is underpinned by advances in technology, societal changes and an expectation of achieving efficiencies and value for money.

Media convergence, especially the availability and access of text, audio and video media via the internet, is increasingly eliminating the traditional arguments for public broadcasting. It could be argued that the need for government intervention or support has now been superseded by technology and commercial imperatives.

At present, the Government does not have a mechanism to harvest the benefits of efficiencies from the public broadcasters. Any efficiencies that are found, including through technological advances or market changes, are currently reinvested by the ABC and the SBS in their own operations. Unlike commercial broadcasters, no dividend is returned to public broadcasters’ shareholders – the government and people of Australia.

Given the significant difference in the amount of funding provided to the public broadcasters, the Commission proposes that the ABC and SBS be benchmarked against each other and the commercial broadcasters. This exercise should provide a sense of the efficiency of operations and the potential savings that could be achieved without compromising the capacity of the public broadcasters to deliver services including to remote and regional Australia. Future funding decisions should be informed by the benchmarking outcome.

Recommendation 45: Efficiency of the public broadcasters

There is no right level of funding for the Australian Broadcasting Corporation and the Special Broadcasting Service as public broadcasters, or a right level of services that should be provided. However, there may be opportunities for greater efficiencies. The Commission recommends that:

  1. the ABC and SBS be independently benchmarked, both against each other and the commercial broadcasters, to determine whether it would be possible to achieve efficiencies and savings without compromising their capacity to deliver services including to remote and regional Australia; and
  2. future funding decisions in relation to the ABC and SBS should be informed by the outcome of the benchmarking exercise.

Containing costs associated with the detention of Illegal Maritime Arrivals

The detention and processing of Illegal Maritime Arrivals has been the fastest growing government programme over recent years. Between 2009-10 and 2013-14 annual expenditure has increased from $118.4 million to $3.3 billion.

Projected costs over the forward estimates currently exceed $10 billion.

While the growth in expenditure is largely due to an increase in arrival rates, there has also been a material increase in costs associated with running the immigration detention network. For example, estimated annual costs of holding one person in onshore detention have increased from $179,000 in 2011-12 to $239,000 in 2013-14.

To a significant extent this growth in costs has been due to increases in the scope of services provided under the contracts the Department of Immigration and Border Protection has in place with service providers.

The costs incurred in the delivery of this programme depend on a range of complex factors, with the major cost driver being the number of people in immigration detention, community detention or living in the community on bridging visas. This in turn is influenced by the number of Illegal Maritime Arrivals, average processing times and other policy settings. Chart 8.7 below illustrates the relative cost for each detention option.

Chart 8.7: Relative cost per person for 12 months in detention 2013
This chart shows the cost of an illegal maritime arrivals for 12 months in Onshore detention ($239,000); Offshore detention ($434,000); Community detention ($89,000) and on a bridging visa ($31,000).

Source: Department of Finance

These detention and processing arrangements were necessarily developed in an ad hoc fashion in response to a number of crises (including significant overcrowding, riots, fires and growing incidences of self harm), as well as the rapidly changing policy environment.

While it is unsurprising that costs have grown substantially in these circumstances, there is scope to improve efficiency and eliminate waste and to ensure that decision making recognises the need to secure cost effective outcomes.

The policy settings now in place appear to have been effective in reducing arrival rates. Arrivals have fallen from a peak of around 4,300 per month in July 2013 to around 200 per month by November 2013. If these trends continue, the Department of Immigration and Border Protection should be able to redirect its efforts away from constantly managing crises and focus on achieving better value for money across the network.

Notwithstanding the recent announcement of the closure of four detention centres, the cost of operating the onshore immigration network could be further wound back to 2011-12 levels (approximately $179,000 per person). Savings would primarily be achieved by renegotiating contracts and, in some cases, reductions in the services provided to people in detention.

In order to determine the appropriate level of services it may be necessary to conduct an audit of the scope and the cost of services currently being provided and how these have changed over time. This could include reviewing the roles of departmental staff and service providers with a view to removing duplication.

Should the policy settings continue to be successful in reducing arrival rates, further savings could be generated through the consolidation of the immigration detention network to achieve economies of scale – in particular through closing smaller, inefficient centres.

Recommendation 46: Containing costs associated with Illegal Maritime Arrivals

The detention and processing of Illegal Maritime Arrivals has been the fastest growing government programme over recent years. The Commission recommends that:

  1. by renegotiating contracts and better targeting of services, the per person cost of operating the onshore immigration network be reduced to 2011 12 levels and similar efficiencies be sought for the offshore network; and
  2. this process also be supported by an audit of the scope and cost of services currently being provided and how these have changed over time.

Fair Entitlements Guarantee Scheme

The Fair Entitlements Guarantee Scheme was introduced, via legislation, in late 2012 and replaced the former General Employee Entitlements and Redundancy Scheme.

Where a firm enters into liquidation and is unable to pay employee entitlements, the Fair Entitlements Guarantee Scheme provides the following payments to eligible workers:

  • redundancy pay of up to 4 weeks’ per full year of service;
  • up to 13 weeks’ unpaid wages;
  • annual leave and long service leave payments; and
  • payment in lieu of notice – up to 5 weeks.

The Fair Entitlements Guarantee Scheme increased the level of generosity in payments from the General Employee Entitlements and Redundancy Scheme, particularly in relation to the uncapping of redundancy pay. The previous cap was 16 weeks, but is now effectively unlimited.

One concern with the design of the scheme is that it may reduce the incentive for companies to guard against risk of insolvency because they are partly protected from the consequences by the government. It could be argued that with the government picking up the costs for a major portion of all redundancy entitlements, companies have less incentive to worry about this aspect of costs if they are in a marginal financial position.

In 2012-13, payments were made to 16,023 individuals who were eligible under the scheme. Total payments were around $260 million. In this same financial year, around $37 million was recovered from liquidated companies’ assets.

Total payments under the General Employee Entitlements and Redundancy Scheme and Fair Entitlements Guarantee Scheme have increased significantly since 2007-08, even though growth in the number of insolvencies has been relatively stable (Chart 8.8).

Chart 8.8: Costs under Fair Entitlements Guarantee compared to insolvencies
This chart shows that payments under the Fair Entitlements Guarantee Scheme and its predecessor increased from around $45 million in 2001-02 to over $260 million in 2012-13, and have quadrupled since 2007-08, while the number of companies entering external administration increased at a much slower and more constant rate over the same period.

Source: Department of Finance.

Provision is made in the forward estimates for expected payments under the Fair Entitlements Guarantee Scheme but as it is a demand driven programme, actual payments will reflect the total number of eligible recipients in that year.

Under the Fair Entitlements Guarantee Scheme, someone who has worked with the firm for 25 years could theoretically receive the equivalent of full pay for 100 weeks, plus other entitlements. By contrast, the amount of redundancy pay under the National Employment Standards is capped at 16 weeks.

Prior to the year 2000, no such government scheme existed. The Fair Entitlements Guarantee Scheme is now an uncapped guarantee. Consistent with the principle that government should not and cannot eliminate or insure every risk to the community, the Commission considers that there is a strong case for re-introducing caps into the payments available under the scheme.

A cap of 16 weeks for redundancy pay could be introduced, with a 26 week cap for total payments under the scheme.

A further option would be to change the wage base upon which the Fair Entitlements Guarantee Scheme applies. Currently the entitlements are paid up to a maximum wage of $2,451 per week. This could be changed to Average Weekly Earnings, which are currently $1,105 per week.

The Commission also acknowledges the importance of the Australian Securities and Investments Commission enforcing the penalties companies and directors face when they trade while insolvent.

Recommendation 47: Fair Entitlements Guarantee Scheme

Where a firm enters into liquidation and is unable to pay employee entitlements, the Fair Entitlements Guarantee Scheme makes certain payments to eligible workers. It is important that employers meet their obligations to fund worker entitlements. The Commission recommends changes be made to the Fair Entitlements Guarantee Scheme to:

  1. introduce a cap of a maximum redundancy payment equivalent to 16 weeks' pay; and
  2. limit the wage base for the scheme to Average Weekly Earnings.

Commonwealth medical indemnity

Since 2003, the Commonwealth has subsidised the indemnity insurance premiums of medical practitioners in Australia and provided financial assistance to indemnity providers and eligible medical practitioners in high-cost claims. This followed the collapse of HIH Insurance in 2001 and United Medical Insurance in 2002.

The State governments manage public sector medical indemnity insurance, while medical indemnity insurers provide professional indemnity insurance to individual clinicians.

The Department of Health administers a number of schemes designed to maintain and improve premium affordability for medical practitioners. In 2011, the Commonwealth consolidated a number of the schemes that support medical indemnity and professional indemnity for midwives by establishing the Medical Indemnity Insurance Fund.

In 2013-14 the cost to the Commonwealth for the Fund is expected to be around $100 million.

This Fund incorporates schemes to protect medical practitioners against personal liability for eligible claims that exceed the level of their insurance cover; respond to concerns about the capacity of doctors to pay for run-off cover when they are no longer working; addresses upward pressure on medical premiums by reducing the cost of large claims to insurers; supports eligible medical practitioners who apply for a subsidised reduction in insurance premiums when their income is below a set threshold; and covers the costs of claims from medical defence organisations that do not have adequate reserves to cover liabilities.

The Commission acknowledges the Commonwealth’s role in supporting medical indemnity insurance arrangements, following events in the early 2000s. The Commission considers, however, that elements of the Fund could be scaled back over time.

There is strong evidence that suggests that the market is normalising, including a detailed report by the Australian Competition and Consumer Commission from as far back as 2007-08. Average premiums have reduced since 2003-04, making them more affordable and demonstrating that the industry can sustain premium price reductions. Furthermore, net assets in the medical indemnity industry have increased and major medical indemnity industry insurance companies are continuing to report increased profits.

Within the main Fund, the Premium Support Scheme and High Cost Claims scheme are areas for potential reform. Under the Premium Support Scheme, eligible medical practitioners receive a subsidised reduction in insurance premiums calculated as a percentage of a doctor’s private medical income. Insurers are then reimbursed the subsidised amount.

The Premium Support Scheme supports a small and decreasing number of doctors (1,993 in 2012-13). Over this period, the Commonwealth expenditure for the PSS was $9.3 million, with costs of $2.4 million to administer the process.

The High Cost Claims scheme was established to address upward pressure on medical indemnity premiums by reducing the cost of these large claims to insurers by reimbursing insurers 50 per cent of the cost of medical indemnity claims above a threshold amount up to the limit of the practitioner’s insurance cover.

The impact of ceasing these schemes, particularly in rural areas, should be monitored.

Recommendation 48: Medical indemnity

Following the collapse of HIH Insurance and United Medical Insurance in the early 2000s, the Commonwealth has subsidised indemnity insurance premiums and provided assistance with high-cost claims. There is now evidence that the market is normalising. The Commission recommends the Commonwealth scale back its subsidies for medical indemnity insurance by:

  1. ceasing the Premium Support Scheme;
  2. ceasing the High Cost Claims scheme;
  3. considering grandfathering provisions to support the medical indemnity insurance industry in the transition to reduced Commonwealth subsidisation; and
  4. monitoring the impact on the medical profession, particularly in rural areas.