The Federal Government has moved to cut spending on outsourcing to save a whopping $3 billion by 2026-27.

Finance Minister Katy Gallagher outlined key areas for cuts, including major consultancy firms such as KPMG, Deloitte, EY, and PwC, along with labour hire firms like Randstad, Hays, and Hudson. Reports say much of the reduction will be targeted at Defence and Social Services, as well as Treasury. 

The move comes after an audit of public service staff exposed the excessive reliance on external labour arrangements, eroding the skills base within the Australian Public Service (APS). 

The aim is to convert these positions back into permanent APS jobs to deliver budget savings and fulfil an election commitment to reduce departmental consultancy budgets.

The use of consultants by the government has drawn sharp attention, especially after the PwC tax leaks scandal. 

The big four firms have been summoned before a Senate committee inquiry to answer probing questions about their operations.

In response to the cost-cutting measures, various government departments have been handed significant reduction targets. 

Home Affairs must save $222 million, Foreign Affairs and Trade $190 million, the Attorney-General's Department $164 million, and the Climate Change, Energy, and Environment Department $156 million.

During the 2022 federal election, Treasurer Jim Chalmers pledged to cut spending by at least $500 million annually, citing an estimate of approximately $5 billion being spent on external labour.

The government's audit revealed a “shadow” workforce of 53,900 full-time equivalent staff, costing a staggering $21 billion. 

The largest chunk of this spending was attributed to Defence, which held deals worth almost $700 million with the top five consulting firms in 2021-22.