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Labor will abolish a staffing cap for federal government agencies and cut their ballooning spend on private contractors if it wins the next election, the opposition's finance spokesman will announce on Thursday. Jim Chalmers will vow to reduce "wasteful" federal spending on contracts for consultants and other private companies paid for work once done by public servants before the Coalition slashed thousands of jobs from the bureaucracy. Funding caps would remain for agencies under the changes but they would take back power to set their own employee numbers as Labor ended the staffing cap, imposed by the Abbott government and blamed for a spend on contractors that has more than doubled at most departments since 2013. In a speech responding to the early stages of a large-scale review of the federal bureaucracy, Dr Chalmers will argue the Coalition-enforced average staffing level cap is forcing agencies to rely on contractors and labour hire. "Blind adherence to an arbitrary cap hasn’t just compromised services and advice. The ASL cap is now a perverse incentive for more spending on external providers," he will tell the Australia and New Zealand School of Government. "There’s no point hitting an arbitrary short-term headcount target if it just means building higher consultancy costs into the budget in the future." Finance Minister Mathias Cormann has previously defended the government's use of contractors, saying it kept the overall cost of administration low when it temporarily needed access to relevant skills and expertise, or when these were more efficiently obtained in the private sector. Labor's promise comes as a parliamentary inquiry probes the Coalition's contractor spend after the national auditor found it poured $47 billion into contracts last year. The opposition has previously vowed Labor would unveil the cost of government outsourcing with reforms forcing agencies to record their contract spending on a central database. In a draft paper for an independent review of rules for government agencies, former Telstra chief executive David Thodey and Medibank Private chair Elizabeth Alexander said there was a lack of transparency around expenditure on contractors. Dr Chalmers will argue the number of contracts for management, business professionals and administrative services has blown out and that agencies under a Labor government would have to give public service employees a greater role in IT projects. "It’s not a radical idea to say that public service work should predominantly be done, where possible, by public servants," he will say. "We will save taxpayers hundreds of millions of dollars that would otherwise go to consultancy firms for work that public servants with expertise and experience can – and should – do." He will welcome the review of the Australian Public Service led by Mr Thodey - separate from the inquiry into rules for government agencies - but will warn the Coalition should not use it to conceal more cuts to services, or to delay reforms to the bureaucracy. Labor would cut contractor spending and the public service's staffing cap before the review's conclusion. The Coalition says the overall cost of the federal government’s administration as a proportion of its total expenditure - including spending on consultants and other contracts for goods and services supporting government administration - has fallen from 8.5 per cent in 2007-08 to 7.1 percent in 2015-16 and is projected to continue to fall to 5.6 percent by 2020-21. It has also defended the transparency of its spending on contractors and consultants, saying it is already included in the audited financial statements of agencies' annual reports. Federal government spending with Australia's biggest consultancy firms has more than doubled since the Coalition was elected, costing taxpayers nearly $1 billion since 2013, despite pledges to drive down public service outsourcing. After the change of government in 2013, annual expenditure on labour contractors for 18 of the largest workplaces has ballooned from $318 million to more than $730 million as the Coalition imposed staffing caps and shed public servants.

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