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An efficiency dividend is an annual reduction in resources available to an organization.^[1] It is usually applied as a percentage of operational (running) costs.

It has been used by the Australian Government on Australian Public Service departments and agencies since 1987. Some departments and agencies have been exempted.^[2]

History

A 1.25% efficiency dividend was introduced by the Bob Hawke Government in 1987–88. It was reduced to 1% from 1994–95 to 2004-2005 then increased to 1.25% from 2005 to 2006. For 2008-09 a one-off 2% efficiency dividend on top of the ongoing efficiency dividend was applied. In 2011-12 it was 1.5% and in 2012-13 another extra one-off 2.5% was applied.^[3]

Controversy

Proponents of the efficiency dividend argue that it improves the cost effectiveness of the public sector, allows managerial flexibility in the allocation of resources, and is a good way to generate savings in the cost of public sector administration.^[4] Critics have described the efficiency dividend as a blunt instrument,^[5] a false economy,^[6] and lazy budgeting.^[7] Smaller agencies have also highlighted the difficulty in finding such savings.^[8]