The aim of this chapter is to outline the implementation of an ambitious reform of the Victorian industrial relations and workforce planning framework covering public sector employees. The context in which these reforms were devised and implemented was an unexpected election win for the Bracks Labor Government in 1999. The previous government, led by Jeff Kennett, had introduced sweeping changes to public sector organisations, many of which challenged traditional principles of public sector administration.

These reforms were heavily influenced by a more radical version of new public sector management which, in turn, had been based on a free market ideology and an almost axiomatic belief that private sector organisation was a preferred model to carry out most public sector functions. Central to these reforms were changes in workplace organisation, management styles and industrial relations, including delegation of managerial responsibilities to the agency level, decentralisation of wage bargaining, and the wholesale individualisation of employment arrangements. These changes were associated with significant restructure in the organisation of public sector functions, as well as privatisation and outsourcing of service delivery previously undertaken by public sector employees.

While these changes have been associated with a number of positive outcomes, the manner in which the Kennett government pursued reform also created unsustainable pressures on employment arrangements, the capacity of public organisations to recruit and retain capable employees, and wage anomalies which did not reflect market conditions. This was particularly evident in relation to a number of key occupational groups where labour shortages had emerged due to demographic shifts in the workforce and worldwide shortages.

On gaining office, the Bracks government sought to re-orient industrial relations and wages policy significantly. In particular, it sought to implement what it termed a ‘partnership approach’. In practice, this new approach involved a mix of both the Kennett reforms and a return to elements of the collective industrial relations deployed by previous state Labor governments.

This mix was evident in two key respects. First, while the new enterprise agreement (or Partnership Agreement) with unions covering public service employees reintroduced union recognition and institutionalised avenues for union involvement in wage bargaining and workplace change, it also sought to commit unions to recognise the inevitable tension faced by governments in balancing fiscal responsibility with its social objectives of providing appropriate employment conditions. Fiscal responsibilities and service delivery were to take precedence over those industrial obligations which unions felt a Labor government might have to their natural constituents. Second, the Bracks government retained the practice of delegating managerial responsibility to the agency level. This inevitably created tensions with a more centralised process of wage bargaining and dealing with industrial matters introduced after 1999.

The success of this process is, at this stage, difficult to fully appreciate or determine. This is so for a number of reasons. First, a number of legacy issues from the Kennett era remain points of contention between public sector unions and government. While many are still being ‘worked through’, some are unlikely to be resolved due to differences in views as to the appropriate way to proceed. Second, there remains a range of key issues which are in some respects difficult for state government to control or significantly influence, such as demographic changes in the general labour force, and shortages in key occupational groups, notably nurses and teachers. Improved wages and conditions alone are unlikely to deal with these problems.

Inevitably, all of this has meant that the partnership approach, which in its infancy seemed to be clearly articulated in key documents, such as the Partnership Agreement, has been subject to political forces and change. On the one hand, the prospect of a fiscal blowout remains a key concern and driver of government decision-making. This resulted in far more stringent wages policy parameters, which were implemented in 2002-3. On the other hand, however, it is not yet clear how effectively these parameters have been implemented, but it does appear that despite public rhetoric, the government has been willing to make concessions to avoid industrial unrest and in order to address anomalies. This pragmatism is hardly surprising. Nonetheless, the Victorian government’s willingness to formalise the ‘tight-loose’ it has evolved to management of industrial relations and workforce management is perhaps an early indication of its success.

Unions have also found the new environment a challenging one. After a period of hostile government, it has not proved easy to work collaboratively with government at a central level, intent on avoiding the stereotyped view that Labor governments cannot manage budgets responsibly. Nor has it been easy for unions at the workplace level, dealing with managers who had previously been responsible for implementing government’s policy of union exclusion and individualisation. The political response has been an attempt to bring unions into the fold through the development of a Memorandum of Understanding between government and public sector unions and the creation of a joint committee to work through issues of contention between government and unions. The most recent Agreement, which extends the 2004 VPS Agreement, again indicates that unions (and government) have proved capable of overcoming the inevitable political realities of the day and establishes a new partnership approach that enables the ever present tensions between fiscal responsibility and meeting union wage demands a manageable one.^[48]