Delivering Savings Under the COVID Debt Repayment Plan

DER savings options 

DTF told departments to focus savings on back-office functions but did not explicitly ask them to exclude frontline services or workers from savings options.

In March 2023, DTF's secretary asked departments to identify DER savings options that sum to at least the equivalent of a 10 per cent reduction in ongoing public service staff. 

The request included 6 preferred areas for savings:

• policy, strategy, intergovernmental and coordination functions
• offices of secretaries, deputy secretaries and executive directors
• functions that expanded in response to COVID-19
• functions overlapping with local and Commonwealth governments responsibilities
• agencies attached to departments
• corporate functions, including communications, marketing and procurement.

While some of the preferred areas are clearly corporate and back-office functions, DTF did not explicitly require departments to exclude frontline workers from their savings options. Departments had to complete a standard template for each savings option outlining the initiative, expected financial savings and expected service delivery impacts. They also had to identify the number of FTE reductions but did not have to specify if any were frontline.

 CLHP savings

In December 2023, DTF advised departments of their CLHP savings targets. These were in addition to CLHP savings already committed in the 2022 Labor Financial Statement.

DTF told departments they had discretion over how to deliver their CLHP savings. DTF also said there was a strong expectation that reductions would not affect service delivery and would align with existing government guidelines on using labour hire and professional services. 

Unlike DER savings, departments did not have to submit implementation plans for CLHP savings. DPC and DTF did not require departments to track or report on the implementation of CLHP savings specifically. 

DER implementation plans

In June 2023, all departments submitted implementation plans to government to deliver their DER savings using DPC's templates. These plans outlined proposed savings initiatives, their intended actions, expected service delivery impacts and risk ratings. Specifically, departments had to specify the number of frontline and back-office roles that they would cut.

We reviewed the implementation plans of all audited departments except DPC and DTF. We did not examine DPC and DTF because our focus on them during the savings planning phase is about their central agency role in guiding implementation plan development across departments. 

We found that 6 of these 7 departments' implementation plans proposed to cut only back-office FTE. The government approved DEECA's proposal to reduce some frontline roles, which related to the government's decision to cease the native timber harvesting industry. DEECA later offset this with additional frontline roles created through broader organisational changes because of a separate government commitment.

Protecting frontline services

In the 2023–24 state Budget speech, the Treasurer said that departments would achieve savings by reducing corporate and back-office functions and spending on consultants and labour hire without affecting frontline workers.

DPC's and DTF's advice to departments about DER savings did not reinforce the government's commitment to not affect frontline workers, including how to apply it when planning DER savings. 

April 2023 Victorian Secretaries Board meeting

In April 2023, the Treasurer briefed the Victorian Secretaries Board on the 2023–24 state Budget. This briefing included a discussion of savings measures and financial management expectations. Members discussed budget implementation and reporting matters, including the mid-year reporting on savings measures. But it is unclear if members received direction that DER savings must not affect frontline services or workers.

June 2023 DPC implementation plan templates

DPC's implementation plan templates for departments did not include guidance on identifying or excluding frontline roles.

Between May and June 2023, DPC supported departments to develop and submit DER implementation plans to government by issuing:

• a savings template to summarise DER initiatives, workforce impacts and replacement measures
• a submission template and spreadsheet to disaggregate FTE reductions by the expected number of impacted frontline and back-office roles 
• a presentation template to summarise the financial and workforce impact of each DER and replacement initiative.

These tools helped departments to standardise their implementation plans but did not include direction on how to apply the government's commitment to protect frontline services. 

• DPC and DTF did not require departments to exclude frontline workers from their implementation plans. They required departments to align proposed cost savings and FTE reductions with their March 2023 savings options. Departments had to provide alternative options for DER initiatives that may be at delivery risk but not if they involved reducing frontline workers.
• The template required departments to specify the number of frontline and back-office FTE reductions, but they did not have to define or identify frontline workers in their proposals. 

Defining frontline workers

DTF's budget guidance defines frontline employees broadly as client-facing roles, such as teachers or child protection practitioners. The definition is also informed by Victoria's public sector industrial relations settings and the Victorian Public Sector Commission's (VPSC) guidance used in annual workforce data collection. 

But DPC and DTF did not give departments advice about clearly defining frontline workers or services and excluding them for the purposes of their DER implementation plans. Departments assumed responsibility for defining and applying their own definitions of frontline roles, and to demonstrate that these workers were excluded from DER savings. 

Documenting and applying definitions 

All departments provided us with their definitions of frontline workers when requested. We list them in Figure 5. 

Only DE, the Department of Families, Fairness and Housing (DFFH) and DJCS could show that they documented and clearly applied their definitions when developing implementation plans for government. 

• DFFH explicitly excluded its frontline workers, such as child protection and housing officers, in its March 2023 DER savings options and DER implementation plans. These roles have different employee classifications in the VPS Enterprise Agreement 2024. 
• DJCS defined its frontline workers as both staff with VPS 'adaptive' classifications (prison, community corrections, victims, sheriff, youth justice custodial and youth justice community staff) and some VPS roles that directly engage with the public, such as the Office of the Public Advocate and Victims of Crime Helpline. But DJCS did not include this broader VPS definition in its March 2023 DER savings options.
• DE identified school-based teaching service staff and allied health student support staff as frontline. But it excluded visiting teachers from its frontline cohort because they support teachers rather than students directly. 

The rest of the departments did not formally document or apply frontline definitions when developing implementation plans for government.

• DTP said it has a low ratio of frontline to back-office staff, so a formal definition was unnecessary. DTP's DER implementation plans did not propose any frontline reductions, so there was no need to document or revisit its definition after submitting its plans.
• DJSIR said that most frontline roles in its portfolio (for example, TAFE teachers) are not employed by the department and were not subject to the DER FTE reductions. It did not distinguish between frontline and back-office roles in its DER implementation plans, as its workforce reforms were driven by a combination of the DER savings and broader restructuring needs, including machinery of government changes.
• DH limited its definition to maternal child health nurses, noting that many roles engaged the public (for example, its Patient Review Panel, regulation officers or donor conception registry team). DH told us it felt that as the health system steward, it was proper to limit frontline workers to those providing health care services. It did not formally document this definition because it is a small and specific staff group but clearly excluded maternal child health nurses in its organisational restructures. DH is now reviewing its recruitment policies to formally classify maternal child health nurses as frontline.
• DEECA provided VAGO with its frontline definition but could not show that its business groups consistently applied it when developing its DER implementation plans. 

VPSC's frontline worker definition

As shown above, all departments gave us their definition of frontline roles during the audit. But it was not always clear to us who these workers were because departments' implementation plans did not identify them, except for DE. 

In 2024, VPSC published its definition of frontline workers on its website. It worked with departments to develop the definition. VPSC defines frontline workers as VPS or public sector employees whose primary function is to deliver services directly to the public or community. It also defines 'primary function' as 70 per cent of the employee's time in the role.

VPSC's main reasons for developing this include:

• to create clarity and consistency in workforce reporting across the Victorian public sector and in data activities such as the People Matter Survey and workforce data collection
• to understand the ratio of frontline to back-office workers in VPS and public sector agencies
• to support workforce planning and analysis using standardised Australian and New Zealand Standard Classification of Occupations codes.

DPC and DTF can leverage VPSC's frontline worker definition to develop whole-of-government principles that support departments' planning for future savings programs.

Restructures

Most departments relied on organisational restructures to deliver their DER savings. Departments implemented these restructures alongside machinery of government changes and earlier savings measures. 

Clause 11 of the Victorian Public Service Enterprise Agreement 2024 requires departments to consult with affected staff on major organisational changes. In this report, we refer to these as restructure proposals.

Restructure proposals

We reviewed restructure proposals to assess whether departments clearly identified and excluded frontline roles, consistent with the COVID Debt Repayment Plan. We list the department restructure proposals we assessed in Figure 6.

We focused on departmental restructures that affected service delivery divisions to assess if these changes included reducing frontline roles. We excluded proposals for corporate areas such as human resources, finance and communications, except for DTP who gave us a department-wide list of frontline roles, including those in corporate areas.

Figure 6: Department restructure proposals we assessed 

Note: DER savings impacted 4 DJCS division restructures. We list 2 above, while the other 2 are corporate areas and out of this analysis' scope. 

Source: VAGO, based on department documents.

Restructure impacts on frontline roles

Most departments targeted back-office roles in their restructure proposals, such as business support and policy officers. This aligns with the government's commitment to protect frontline workers and services.

• DE, DFFH, DH and DJCS (Police, Racing, Victims and Coordination) clearly excluded frontline roles, as listed in Figure 5, in their proposals.
• DEECA proposed frontline reductions to its Agriculture Victoria and Bushfire and Forest Services groups, which the government approved in June 2023. But DEECA removed only 4 roles in the Bushfire and Forest Services group, which aligned to the government's decision to cease native timber harvesting on 1 January 2024. DEECA later offset these reductions by creating 56 new frontline roles through the restructure processes in the Bushfire and Forest Services and Energy groups, which meant there was a net increase of 52 frontline roles. The additional roles in the Bushfire and Forest Services group gave effect to a separate government commitment to create 54 ongoing forest and fire operations officers.
• DJCS Emergency Management group's restructure did not impact its frontline roles. DJCS advised us that some roles in the State Control Centre deliver emergency management frontline services. DJCS did not reduce any roles in the State Control Centre, therefore no frontline roles were impacted. But it is not clear from DJCS's frontline worker definition or the Emergency Management restructure proposal what these roles are.

DJSIR, DTP and other groups in DEECA did not identify frontline and back-office roles in their restructure proposals. They often used generic job titles, making it difficult for us to confirm role types. 

DTP said that the ratio of its frontline staff compared to back office is very low, so it was unnecessary to keep raising this after it completed its DER implementation plans. It also said that there was no need to document its frontline workers definition when implementing savings measures because there was no intent to impact frontline roles.

Figure 7 summarises our assessment of whether departments' restructure proposals involved frontline roles. 

2023–24 DER savings 

For 2023–24, departments had to deliver a total of $148.2 million in DER savings. Figure 8 shows each department’s savings target. 

All departments told us that they met their DER savings targets. Departments also said they reduced a total of 1,132.5 FTE, more than the target of 1,113 FTE. 

Some departments delivered forward-year reductions earlier than planned, while others reported that they delivered savings even though they cut less FTE than planned or none. 

There are several reasons for this, such as departments receiving new program funding or that they did not have to reduce as many FTE as they had to. We discuss this more in the next section.

Figure 8: Departments’ 2023–24 DER savings targets

Note: These allocations include reductions after the government first allocated savings in April 2023.

Source: VAGO, based on department documents.

To confirm FTE reductions for DER savings, we reviewed a sample of 5 reduced FTE positions at each department except DPC and DTF. We reviewed 4 at DTF because it only removed 4 staff. DTF said it delivered savings through other means, such as passing them on to its portfolio entities. DPC said it proportionally allocated savings to its groups. Some of these savings were offset by other additional program funding DPC received.

We saw evidence from all departments confirming they removed the positions we sampled. 

2023–24 CLHP savings 

For 2023–24, audited departments had to deliver a total of $34.5 million in CLHP savings. 

Figure 9 shows each department’s savings target for 2023–24 and later years. Except for 2023–24, each target includes both the CLHP savings for the COVID Debt Repayment Plan and the 2022 Labor Financial Statement, with a combined total of $357.6 million over 4 years. 

DTF said that the 2023–24 CLHP savings target was only intended to deliver the 2022 Labor Financial Statement commitment. This means that departments did not have to deliver specific CLHP savings for the COVID Debt Repayment in 2023–24. 

DTF said those savings were delivered instead through general departmental underspend in 2023–24.

Figure 9: Departments’ combined CLHP savings targets for the COVID Debt Repayment Plan and the 2022 Labor Financial Statement for 2023–24 to 2026–27 ($ million)

Note: When government allocated CLHP savings to departments in December 2023, it combined the targets and did not provide a breakdown by savings commitment. 

Source: VAGO, based on department documents.

All departments reported delivering their 2023–24 CLHP savings. We analysed contractor and consultant expenditure data reported to PAEC to verify this and show our results in Figure 10.

As Figure 10 shows, most departments reduced spending in these areas. But DE, DEECA and DH reported increases in combined expenditure compared to 2022–23.

• DH reported achieving its $6.2 million CLHP savings target in 2023–24. It spent $94.7 million less on CLHP but attributed only a part of this reduction to its CLHP target due to overlapping spend categories. DH noted CLHP expenditure is a subset of the contractor and consultant expenditure data it reports to PAEC, so the 2 cannot be compared. It also noted that the spending increase reported to PAEC between 2022–23 and 2023–24 was driven by increased construction-related activity in its Health Infrastructure portfolio and associated contractor spend (which it does not include as part of its CLHP expenditure).
• DEECA said that increased expenditure reflected the delivery of new government priorities – particularly, major energy reforms like VicGrid, the new State Electricity Commission and offshore wind development. It also noted that 2023–24 included a full year of expenditure following machinery of government changes, compared to only 6 months in 2022–23.
• DE attributed its increased spending to new government priorities and maintained that it still met its CLHP savings target. It noted that increased expenditure does not necessarily mean it did not deliver its savings. DE told us that a considerable proportion of increased spending is because of reporting changes rather than an increase in actual spend.

Savings over the forward estimates

While departments reported delivering their 2023–24 DER savings, delivery of some savings targets over the forward estimates is uncertain as they are subject to other government decisions. Some departments also identified challenges that may affect their ability to meet some savings targets across the forward estimates.

• Some of DEECA's organisational restructure did not generate the full amount of allocated savings, but it anticipates it will deliver these savings in 2025–26. Other initiatives require further decisions by government or DTF.
• DTP identified a residual shortall in FTE reductions and is working to address this through future budget cycles.
• DFFH is awaiting ministerial approval to implement changes required to deliver $3 million of its total ongoing DER savings target ($29.4 million). Implementation is scheduled to begin in mid-2025, pending ministerial approval.
• DJSIR reported some financial and operational pressures affecting CLHP savings, but it does not believe there is a risk to achieving its CLHP savings because it has embedded these savings in its forward estimates strategy, has already significantly reduced its CLHP spend and is monitoring spend closely at the executive board level.

DJSIR raised concerns with DTF about its CLHP savings allocation proportion compared to its base funding. Much of its CLHP expenditure is tied to fixed-term programs, but the savings requirement is ongoing. 

Across both DER and CLHP savings, departments emphasised that year-on-year savings may not always translate into a net reduction in expenditure due to factors such as new government priorities, machinery of government changes and fixed funding profiles.

DTF said that department secretaries have flexibility in how they deliver CLHP savings under the department funding model, provided they deliver outputs at an agreed price.

CLHP savings allocated to departments from 2024–25 to 2026–27 are more than 3 times greater than the allocation in 2023–24. Departments said that they are managing these savings holistically and did not raise any material risks to achieving them.

Tracking DER implementation plans

Most departments monitor DER savings delivery overall and not by individual savings targets. 

Only DEECA tracked delivery against specific DER savings initiatives, in both cost savings and reduced FTE. Other departments tracked delivery at a whole-of-organisation level. This included:

• tracking implementation of organisational restructures aligned with total DER savings targets
• monitoring overall departmental or business area budgets adjusted for DER savings.

This means that most departments:

• cannot clearly demonstrate they met individual DER initiative targets
• cannot clearly attribute FTE reductions to individual DER initiatives.

Departments aimed to manage expenditure within their approved output funding. But their budgets change during the financial year due to internal reallocations and new or revised funding decisions. This makes it difficult for departments to isolate and disclose DER savings delivery and impact from broader budget changes.

DTF said that departments can deliver savings even if their total spending increases year-on-year. It said this can happen when their base funding and expenditure increases, offsetting their savings. 

DPC reporting requirements 

In July 2024, departments reported to DPC on the status of delivering their DER savings. For each initiative, DPC requested departments identify the annual agreed and expected savings over the forward estimates for each DER initiative but did not require FTE reductions by DER initiative. Departments only had to report:

• total FTE impacts and by department group (actual as of 30 June 2024 and for the 2024–25 budget, and forecast for 30 June 2025) 
• progress on implementing FTE reductions.

DPC told us that tracking FTE reductions at the initiative level is difficult because:

• departments typically receive reduced output funding, not specific headcount targets, which gives departments flexibility in how they deliver savings
• while departments estimated FTE reductions in their implementation plans, they made final decisions during implementation, choosing to reduce staff or other expenses, such as overheads
• staff movements are influenced by recruitment cycles, new programs and restructures
• systems do not link staffing data to individual initiatives, so tracking FTE reductions at a detailed level across all business areas is resource intensive.

DFFH said that due to the scale of savings, it is resource intensive to reconcile individual role reductions to specific DER initiatives and was not a priority in a resource-constrained environment, when it could assure it delivered savings by looking at its budgets and workforce figures.

DJSIR said that it is necessary for departments to implement FTE reductions holistically, taking into consideration all required changes to meet savings and cost pressures, and to engage with impacted employees consistently and appropriately. 

It said that it is not always constructive or sensible to allocate individually impacted full-time roles to specific savings initiatives, particularly when the savings initiatives are broadly defined, as were DJSIR's DER initiatives. DJSIR said that this may be more appropriate for highly targeted FTE savings initiatives.

Monitoring and reporting CLHP savings

DPC last requested departments to report back on the status of implementing COVID Debt Repayment Plan savings in July 2024, along with other outstanding savings. 

DPC did not request departments to specify CLHP savings delivered against the targets for 2023–24. Departments only had to report on total CLHP expenditure. 

Public reporting

Departments do not have to report publicly on DER or CLHP savings delivery or impacts in budget papers or their annual reports. 

While some departments' performance statements include staffing and financial data, they do not include savings targets, delivery status or information about affected roles and services. This limits visibility of whether departments met government's public commitments under the COVID Debt Repayment Plan.

Departments report some of this information through the annual PAEC financial and performance outcomes questionnaire. 

In 2023–24, all departments said they met their DER savings targets. But reporting was high level and inconsistent. 

Most departments described general actions such as FTE reductions, organisational restructures or reduced use of contractors. But few explained how they ensured that they maintained services or protected frontline roles. None linked savings to specific DER initiatives.

Service delivery impacts

Some departments provided insights on service delivery impacts in their response to the 2023–24 PAEC financial and performance outcomes questionnaire. For example:

• DJSIR acknowledged service delivery impacts such as longer mediation wait times at the Victorian Small Business Commission and longer processing times for other programs 
• DJCS identified specific functions targeted for reduction, such as policy, strategy, and business support, and said that this meant that it had to stop or rescope some work. 

DPC, DH and DFFH stated in their responses to the same questionnaire that savings had no impact on service delivery but did not explain why. For example, DH reported that it delivered savings through a restructure and cut FTE through separation packages and reducing vacant positions. But it did not clarify in the questionnaire which roles it reduced or whether affected areas were back office or frontline service delivery.

FTE reductions

None of the departments reported the total FTE reduced to deliver DER savings in the financial and performance outcomes questionnaire. 

In March 2024, PAEC requested departments report on this in a separate 2024–25 budget estimates questionnaire. No department did except DE. All other departments deferred reporting on workforce data until their 2023–24 annual reports.

Savings classifications

Financial and performance outcomes questionnaire responses for PAEC also showed inconsistent savings classifications. Some departments reported DER savings under the COVID Debt Repayment Plan, while others reported them under whole-of-government efficiencies. 

Additionally, departments will not be able to report delivery of CLHP savings specific to the COVID Debt Repayment Plan from 2024–25. DTF combined CLHP targets under the COVID Debt Repayment Plan and the 2022 Labor Financial Statement, as Figure 9 shows. This means that the public cannot trace departments' delivery of the CLHP savings component back to the COVID Debt Repayment Plan.

Inconsistent reporting

Inconsistent reporting makes it difficult for Parliament and the public to determine whether departments delivered their savings as intended and aligned with the government's commitment to protect frontline services.

Consolidated and consistent reporting against DER and CLHP savings targets in departments' annual reports or future financial and performance outcomes questionnaire responses, together with more detailed information on departments' actions to minimise frontline service impacts, can help address this.

Understanding savings' impacts

We examined DE, DEECA, DH and DJCS in more detail to understand whether they assessed savings' impacts on both frontline and back-office services. 

We interviewed 2 business areas with potential service delivery risks linked to DER savings within each department. We identified these areas from the departments' implementation plans.

Figure 11: Interviewed business areas from the 4 departments VAGO examined in detail

Source: VAGO, based on departments' information.

Tracking individual savings' targets 

The government committed that savings under the COVID Debt Repayment Plan would not affect frontline service delivery and would make government more efficient. But no department we looked at in detail could demonstrate that they assessed or tracked individual DER initiatives’ impact on service delivery. 

The departments we examined in detail all use standard output measures, including those in budget papers. But these measures are not designed to assess individual DER initiatives’ impact on frontline services. Departments could not isolate or correlate changes in service levels to savings initiatives.

Back-office metrics

None of the departments we looked at in detail have measures to assess back-office impacts. We examined Budget Paper No. 3: Service Delivery 2023–24 output measures. These measures were too broad or high level to link to specific back-office deliverables. These departments did not have a framework to assess back-office productivity or efficiency before and after implementing DER savings. While the DER savings were designed to improve efficiency, these departments could not show that affected business areas maintained output with fewer staff.

For example:

• DE’s Strategy and Secondary School Reform Group (former Policy Strategy and Performance Group) contributes to the National Assessment Program – Literacy and Numeracy, and school attendance outcomes measures. DE reports these measures in budget papers, DE's annual report and My School (a website with information about Australian schools such as enrolment numbers, school funding and National Assessment Program – Literacy and Numeracy performance). But these measures are not specific to the Strategy and Secondary School Reform Group (former Policy Strategy and Performance Group) and DE cannot disaggregate this group's contribution to these measures from contributions of other DE areas.
• DH said that it does not set or monitor output levels for most of its internal operational activities, such as the number of consultations necessary to design a program or develop policy. The volume of these internal activities may vary in response to changing government priorities and associated allocation of resources. DH said that, even so, it still delivered the intended program or policy.

Assessing savings’ impacts 

Departments gave several reasons for not establishing targeted performance measures to assess how DER savings affected service delivery. We outline them in Figure 12. These reasons were broadly consistent across frontline services and back-office deliverables.

Figure 12: Reasons for not establishing targeted performance measures to assess how DER savings affected service delivery

Source: VAGO, based on departments' information.

Managing work with fewer staff

While departments did not formally assess the impact of DER savings, all interviewed business areas said they had to reprioritise, scale back or reallocate work to manage with fewer staff. This included the DH Mental Health and Wellbeing division, which was already adjusting its work program due to other reasons. 

For example, DEECA said that project milestones are actively reprioritised to manage competing priorities on occasions where workload is challenging.

We highlight 2 case studies below.

Case study 1: DE (Performance and Evaluation division)

Source: VAGO interview with department business area.

Case study 2: DJCS (Police, Racing, Victims and Coordination)

Source: VAGO interview with department business area.