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Even though Australia enjoys an excellent budgetary position by world standards, fiscal policy has been a big issue for the current federal election.

In a tight election, each party argued hard that their policies would deliver the biggest budget surplus over the next three years.

However, when this year’s historic post-election dramas are over, the winner will be faced with the challenge of some serious belt-tightening if it is to deliver on promises.

Whichever party wins, the next three years will herald another period of efficiency drives and cuts.

Big challenges for the IT industry

Like everyone else within or working with the government sector, the IT industry will need to prepare for an era of frugality. Most of these cuts will be focused on back-office activities (with both parties claiming minimal impact on front-line services).

On the back of the already substantial savings that were demanded by the Gershon review, demand will be more limited to innovative ways of delivering services with IT. Offerings including shared services, outsourcing, virtualization/data center consolidation, and flexible licensing and delivery models such as software-as-a-service (SaaS) will be options that will be discussed in great detail.

There are some glimmers of hope, such as the National Broadband Network and e-health initiatives (should Labor retain its governorship) and the A$120 million of special funding for IT for schools on offer by the coalition (a more “community-based” solution). However, without greater clarity, we are unable to see anything more than the IT industry (within the government sector anyway) being an election loser.

Public servants won’t escape some pain

Future directions within the public service itself are likely to be driven by the objectives of cost savings and policy risk management.

High-profile policy failures such as the Home Insulation Program have drawn hot criticism throughout the election period. In any future government, both parties will not have the luxury of surviving any significant problems with policy delivery. This can present quite a burden for IT managers, as IT system delivery is frequently at the pointy end of new policy initiatives. The key message for the next three years will be to step carefully, and to diligently stay on top of all risk management.

Prudence has re-emerged

There is no doubt that funding will be tight for government agencies over the next three years. The Labor Party has signaled it will be removing funds for a number of strategic improvement initiatives:

• Government IT managers will see the loss of the Gershon Reinvestment Fund for delivering underlying improvements to the whole of government IT.
• Both the Public Service Commission and the Department of Prime Minister and Cabinet will lose funding for strategic government projects.
• Labor will continue with the Efficiency Dividend pegged at the higher rate of 1.25%. Currently it is due to fall back to 1% in 2011.

Under a coalition government, public servants will need to deal with even more significant cuts:

• Public service numbers will be cut by 12,000 over two years. After that time, the government will keep the pressure up by increasing the efficiency dividend from 1.25% to 2.00%.
• The Public Service Commission and Department of Prime Minister and Cabinet will lose even further funding as the coalition winds back the recommendations of the Moran Review and other initiatives.
• At this point, the Gershon Reinvestment funding is unclear, but may disappear.

Whatever the outcome of the election, the next three years will certainly be very fiscally prudent.

Kevin Noonan is Research Director and Jens Butler is Principal Analyst at technology and advisory services company Ovum. Image by martinhoward (Martin Howard)