Our self-regulated bureaucracy is held to far lower standards than the private sector and society it governs. In Aldous Huxley’s dystopian classic Brave New World, Resident World Controller Mustapha Mond declares, “As I make the laws here, I can also break them. With impunity.”
This unsettling assertion mirrors the reality of our Commonwealth bureaucracy. A facade of rules and regulations creates an illusion of accountability and regulatory oversight that doesn’t exist.
Successive governments have perpetuated the myth that Australia, as an advanced democracy, holds its bureaucracy to the highest standards of duty and care towards its citizens.
The reality is that Commonwealth agencies and their senior bureaucrats are largely self-regulated. As they create and selectively enforce their own rules, they hold themselves to lower standards of accountability compared to the businesses and citizens they are meant to serve.
These lower standards are fuelling a moral hazard, enabling the bureaucracy to dodge the consequences of wasteful spending and policy initiatives that cause social harm.
This bureaucratic moral hazard was aptly captured by American philosopher Ayn Rand, who wrote of bureaucrats “If he makes a mistake, you suffer the consequences; if he fails, he passes the loss on to you.”
Our self-regulated bureaucracy is not incentivised to avoid harm; deterrents are required
Ayn Rand contrasted the consequences faced by businesses and bureaucracy, arguing that when the public bears the loss of bureaucratic negligence, there is little incentive for the bureaucracy to act with care or competence.
In Australia, this negligence is evident in a conga line of billion-dollar failed projects and poorly implemented policy initiatives that have caused significant social and financial harm.
In an article by Stuart McCarthy, Why pay $1m when you can pay PwC $30m and help yourself to free IP, former soldier Michael Handley is cited as a casualty of alleged bureaucratic misconduct.
After investing his own money to develop RedSix, one of Australia’s most downloaded veterans’ mental health apps in 2019, Mr Handley alleges that RedSix’s intellectual property was misappropriated through a government program that saw $30 million of taxpayer funds diverted to a competitor with no working software and part-owned by PwC.
Mr Handley likened the bureaucratic conduct to the “behaviour of an organised crime gang,” while other victims of alleged government negligence have described the bureaucracy as “bikies in suits.”
To address this socially and financially destructive behaviour, we need to reform incentives through our judicial system so that senior bureaucrats can appreciate and share the cost of negligence, misfeasance, and corruption.
While laws enforce accountability and liability on private sector officers, the Commonwealth government – the nation’s largest spender – operates under different, inadequate laws that allow the bureaucracy to exploit its vast spending power while insulating itself from the consequences of its actions, even when those actions cause harm to people and businesses.
Our self-regulated bureaucracy lacks stringent fiduciary duties like the private sector
Private sector companies and their office holders must adhere to the Corporations Act, with strict oversight from regulators such as ASIC, ACCC, and APRA. Small business owners must be multi-faceted experts, delivering services while navigating a complex web of obligations ranging from industrial relations to taxation, with little room afforded for error.
In stark contrast, Australia’s Commonwealth government, which spends around $700 billion annually and contracts about $80 billion annually via AusTender, employ senior executive bureaucrats who are paid on par with chief executive officers (CEOs) of their private sector counterparts.
Despite their high salaries and substantial influence over the Australian economy, these senior bureaucrats are not subject to the Corporations Act nor equivalent stringent legislation, meaning significantly less legal and regulatory consequences apply.
While the private sector is deterred from engaging in value-destroying behaviour through compliance with the Corporations Act and regulatory oversight, the Commonwealth bureaucracy and its executives remain largely immune from liability.
The lack of deterrents means that individuals within the bureaucracy can pursue wasteful or harmful actions aligned with personal motivations, handing ill-conceived contracts to multinational consultants, or improving their financial and career position.
Benjamin Franklin once remarked, “If you would persuade, appeal to [self] interest and not to reason.” To generate beneficial outcomes for the public, legislation must effectively deter self-interested actions that undermine beneficial outcomes for the public.
The PGPA Act does not have consequences like the Corporations Act
Commonwealth departments possess an Australian Business Number (ABN), appearing like a tax-paying organisation on paper, but they are not bound by the Corporations Act.
Instead, they are governed by the Public Governance, Performance and Accountability Act (PGPA Act), which claims to ensure that Commonwealth departments deploy our capital efficiently, economically, effectively, and ethically.
However, the PGPA Act explicitly lacks civil or criminal penalties for entities or their senior officers in cases of wrongdoing or breaches.
This stark lack of meaningful consequences for rule-breakers is unlike most other legislative instruments. For example, the Corporations Act imposes fines, disqualification, and imprisonment for breaches.
While the PGPA Act aims to prevent wrongdoing, it fails as a legislative instrument because it cannot hold government departments or senior bureaucrats liable for reckless behaviour that causes financial or social harm.
Without civil or criminal penalties, it is unviable for citizens to take legal action against Commonwealth entities for breaches of the PGPA Act, and thus its role appears to be one of optics over outcomes.
While the Australian National Audit Office (ANAO), governed by the Auditor-General Act 1997, and the National Anti-Corruption Commission (NACC), governed by the NACC Act 2022, aim to uphold the intent of the PGPA Act, they fail to offer any meaningful deterrents for breaches of the PGPA Act due to the absence of civil and criminal penalties.
In a recent audit, the ANAO found that a Defence official engaged in unethical conduct by soliciting champagne from Thales and sharing confidential procurement information, resulting in Thales securing a $1.2 billion contract despite significant non-compliances and poor value for money.
Even if this conduct is found to breach the PGPA Act, nobody will suffer meaningful consequences, and if the breach caused harm to other businesses and society, nobody would know any different.
Similarly, the Australian Public Service Commission (APSC) acts as a fig leaf agency. The ANAO reported that more than half of public servants found to have breached the code of conduct had no sanctions applied during the reporting period.
Additionally, the NACC’s refusal to investigate six public officials involved in the Robodebt scheme, due to the unlikelihood of uncovering new evidence, underscores its inability to provide sufficient deterrents.
Commenting on the issue, The Saturday Paper’s Rick Morton insightfully described the repercussions of bureaucratic malice under the current system, saying, “The Australian Public Service Commission is going to flog people with a lettuce leaf. That’s not justice. That’s the public service investigating itself.”
This opaque application of sanctions starkly opposes the core values of a democracy.
We don’t rely on self-regulation in the private sector
Consider an economy where company executives are shielded from the consequences of negligent or harmful acts. Corporate officers will maximise share prices at any cost, shareholders would find company disclosures unreliable, insider trading would thrive, class action lawsuits would be untenable, and consumers would be misled by false advertisements.
The cost of conducting business in such an environment would be prohibitive, and the productivity of such an economy would crumble.
Australian Consumer Law (ACL) exemplifies how effective legislation deters harmful conduct to serve the public good. This legislation prevents businesses from misleading customers about the quality of their products and services.
If the ACL functioned like the self-regulated and toothless guidelines that govern our bureaucracy, businesses would be incentivised to deceive customers without facing penalty.
When customers request replacements for faulty goods, they would receive little more than bureaucratic responses like, “We take your concerns seriously and will respond in due course.”
Self-regulated businesses would evade addressing concerns or requests, creating a moral hazard that shifts the liability for faulty products from the company to the public.
CEOs would focus on short-term profits by spending less on product and service quality. Eventually, confused and frustrated customers would transact less, making us all poorer.
Our self-regulated bureaucracy requires judicial oversight
A government is expected to be expert at governing, but if it cannot effectively manage and oversee itself, how can it be trusted to manage and oversee the country?
Governing bureaucracy with legislative instruments, regulatory bodies, and judicial pathways may feel uncomfortable, but it is well-supported by evidence.
Behavioural research indicates that deterrents alter incentives more effectively than rewards. Poor regulatory environments consistently show that self-regulation is a poor deterrent for harmful behaviour.
A recent example is the Boeing 737 Max scandal, where the regulator’s delegation of critical safety assessments to Boeing itself led to two fatal crashes, resulting in the loss of 346 lives.
This scandal revealed how self-regulation and inadequate oversight can lead to catastrophic failures in any organisation.
Punishing welfare rorters, but not procurement rorters
A stunning example of the moral hazard created by our self-regulated bureaucracy is the unlawful Robodebt scheme. Promoted to save $1.8 billion by catching out welfare rorters, the scheme was the brainchild of former marketing executive Scott Morrison, Prime Minister, and self-proclaimed “welfare cop on the beat.”
During a class action lawsuit against the Commonwealth, the government argued that in fact it owed no duty of care to welfare recipients.
Having a duty of care means having a responsibility to act carefully to avoid harming others. The Commonwealth’s duty of care towards its citizens remains unestablished.
According to constitutional law expert Associate Professor Ben Saunders, “there is no evidence that the public sector duty of care has had any impact in shaping governance standards in the public sector context. To adapt an epithet of Ross Parsons, it seems that the law only expects officials of public sector entities to be ‘as stupid and as incompetent’ as they happen to be.”
This damning statement is relevant to the Robodebt class members, some who received settlements less than one dollar, reflecting interest owed to them rather than any compensatory damages for being hounded with fraudulent debt claims by a malicious bureaucracy.
Our self-regulated bureaucracy suffers from an incentives crisis, not a skills crisis
According to the late Emeritus Professor Ross Parsons, the law appears to permit senior bureaucrats to remain as incompetent as they are, suggesting that our government faces not a skills crisis, but a crisis of misaligned incentives driven by a system insulated from legal consequences.
The issue lies not with the individuals within the bureaucracy but with the fundamental moral hazard induced by the incentives of the system itself. Self-regulated “codes of conduct” fail to deter malicious or harmful behaviour and do not provide justice for the victims of such behaviour.
If the law does not deter the Commonwealth from continuing to enact policy and project disasters that cause financial and social harm, the cycle of Robodebt-like debacles will persist.
Our self-regulated bureaucracy spends more on optics than outcomes
Self-regulation is playing out with predictable consequences in the public sector. Beneath the wasteland of failed projects, one finds a well-heeled army of lobbyists and powerful consultants who continue to profit from a government that is less interested in delivering results than it is on maintaining appearances.
This is evidenced by the litany of tech wrecks, that have achieved such infamy as to attract the attention of the Joint Committee of Public Accounts and Audit (JCPAA).
The pursuit of government optics over outcomes was wryly observed by a citizen in Stalinist Soviet Union, who famously remarked, “They pretend to pay us, and we pretend to work.”
In 2020s Australia, this veneer of productivity manifests through the symbiotic relationship between an unregulated Commonwealth’s bureaucracy that outsources much of its responsibility to lobbyists, and powerful consulting firms where the sham of Soviet-era efficiency is replicated with a Potemkin village of wildly over-budget projects that never seem to deliver.
These taxpayer-funded larks only seem to benefit the careers of senior public sector executives and multinational corporate profits at the expense of the nation.
The reason this situation has continued for so long is a lack of correct incentives. Charlie Munger wisely noted in 1995, “Show me the incentives and I’ll show you the outcome,” citing FedEx as a classic example where productivity improved when remuneration shifted from pay by the hour to fixed price on outcome.
Charlie Munger also remarked on incentive biases present in consulting models: “I have never seen a management consultant’s report that didn’t end with the same advice: This problem needs more management consulting services.”
The same incentive bias applies to Australia’s public sector ICT projects, where consulting giants use lobbyists (usually former political staffers) to persuade their friends in parliament house and senior bureaucrats that difficult technology problems can be solved with their off-the-shelf products and large outsourcing contracts.
Our self-regulated bureaucracy directs capital toward image consultants not subject matter experts
Despite being aware of these incentive issues, politicians and senior bureaucrats still allow lobbyists to influence decisions on the allocation of vast amounts of capital.
AusTender data reveals that more than 70 per cent of the annual $80 billion spend is concentrated in a few hundred contracts awarded to a select group of powerful companies who hire lobbyists for their political connections to parliament house.
Firms are picked for their moral flexibility and compliance in massaging reports that reflect the optical requirements of the senior executives in our bureaucracy.
One example is the Victorian Curriculum Assessment Authority (VCAA), who, according to the Herald Sun, overlooked errors in mathematics exams for 20 years, robbing students of scholarships.
In response to these allegations, the VCAA engaged Deloitte to manage its optics campaign via the commission of an “independent review.”
Deloitte’s review was used to assert that the 2022 Victorian Certificate of Education (VCE) maths exam contained no errors. However, these claims were rejected by actual mathematicians including Professor Polster and Dr Ross, who presented mathematical arguments to the contrary.
Our self-regulated bureaucracy punishes whistleblowers
Being a whistleblower in the Australian public sector can prove perilous, noting that the ATO whistleblower, Richard Boyle could face 46 years of imprisonment for exposing misuse of government money and power.
In Australia, while government whistleblowers are punished for saving taxpayer dollars, in the US they are rewarded under the False Claims Act.
Sarah Feinberg, a former Booz Allen Hamilton employee, utilised the False Claims Act to take legal action against her employer for alleged fraud against the US government.
Her efforts resulted in a $377 million settlement, with Feinberg receiving nearly $70 million for her role in exposing the fraud.
Whistleblowers are crucial to good governance as they uncover pernicious practices that are economically and socially harmful, thereby enforcing integrity in government and corporate systems.
However, within the Commonwealth bureaucracy, the word ‘whistleblower’ has become a pejorative, indicative of a secretive culture of cronyism, dodgy deals, and substandard goods and services.
This environment of government secrecy ultimately impoverishes our nation both culturally and financially.
Our self-regulated bureaucracy will not prevent another Robodebt
Robodebt is a glaring example of self-regulation in practice. While the Royal Commission into the Robodebt Scheme delivered 57 recommendations, referred 16 bureaucrats to the APSC, and six public officials to the NACC, not a single employment was terminated, nor did anybody incur a fine or face civil or criminal prosecution.
Furthermore, the Commonwealth will maintain it owes no duty of care toward welfare recipients.
The harms caused by Robodebt were not the result of innovation, automation, nor accident; they were the consequence of systemic negligence or malice, which could have been detected earlier in a well-regulated system that allowed victims to seek legal recourse for government negligence.
Self-regulation within the Commonwealth’s bureaucracy means bureaucrats are not incentivised to implement socially productive policies or deploy the nation’s capital effectively, particularly when those actions do not align with personal interests.
The absence of real consequences for non-compliance – no meaningful laws to deter bad behaviour, no regulators to enforce accountability, no financial penalties to deter breaches, and no personal liabilities to instil good governance – creates a vacuum of responsibility.
This moral hazard shifts the cost of government actions that cause social and financial harm onto citizens who bear that burden. Unlike the private sector, there is no deterrent to realign human self-interest with the welfare of the country.
Australia’s future depends on regulating our bureaucracy
Brave New World ends on a tragic note, illustrating that in dystopian societies, those who challenge the establishment must either leave or face dire consequences.
This parallels our Commonwealth’s bureaucracy, which spends around $700 billion per annum with a self-interested focus on managing optics, over delivering outcomes.
Today, we face serious national issues: a brain-drain, superior foreign technological advancements, climate change, a housing crisis, domestic violence, and an aging population.
Importantly, no political party can implement a policy initiative effectively without a bureaucracy that is incentivised to execute on outcomes for our common wealth.
No number of royal commissions, codes of conduct, nor lettuce leaf floggings by the APSC will resolve this incentives crisis because it is human nature to respond to deterrents.
This is a problem that plagues all sides of politics. Strengthening the PGPA Act, enforcing civil and criminal penalties for breaches, and implementing effective independent regulation are essential.
Only through these measures can we prevent recurrences of failures like Robodebt and build a more efficient, ethical, and effective government for all Australians.
Dr Priya Dev holds a PhD in mathematics from the Australian National University and has spent over a decade as a lecturer and researcher at ANU, Columbia University, and UNSW. Specialising in applying mathematics to model complex systems, her research has been instrumental in consulting roles for ASX-listed companies. Dr Dev is dedicated to developing secure, data-driven products that analyse and understand complex systems and behavioural patterns, effectively bridging the gap between theoretical mathematics and practical applications. Dr Dev is a strong advocate for ensuring data analysis is privacy-compliant, secure, and accessible to everyone.
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