The Australian Taxation Office is aiming to reduce its outsourced work by $500,000 this financial year within its $4.5bn annual operating budget, a figure so small the union says it presumed it was a typo.

Senator Barbara Pocock said the amount, revealed after a Senate Estimates hearing, was “woefully inadequate” for a major agency that should be leading the way on reducing reliance on contractors and consultants.

Moves by government agencies, including the ATO, to curb reliance on external consultants and outsource workers are stalling just two years after Labor ordered them to bring skills back in-house, analysis shows.

Pocock, the Greens spokesperson for finance and public sector, said outsourcing public sector work to private firms was wasting taxpayer dollars and “undermining the strength and capability of our public service”.

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Jeff Lapidos, from the Australian Services’ Union, said “we were surprised the number was so low, and asked the ATO if there was a typographical error but they told us the number was correct”.

Details of the ATO’s 2025-26 target have been revealed during a period of increased scrutiny on the agency’s reliance on outsource debt collectors and call centres, which have coincided with a rising number of complaints of a deteriorating service.

The tax ombudsman has noted that staff turnover rates are extreme at the outsource centres, leading to a lack of suitably skilled staff taking calls.

Agencies have taken different approaches to a directive by the Labor government in late 2023, called the strategic commissioning framework, for all agencies to “move away from outsourcing work” that is the core role of the public service.

The ATO reduced external supplier expenditure by $80.4m last financial year, according to its annual report, before setting the $500,000 target this year.

An ATO spokesperson said that after exceeding last year’s target, “we are considering further opportunities to move core work in house”.

Services Australia, which encompasses Centrelink, cut external workforce expenditure by $733m in 2023-24, according to its annual report. The next year the reduction was just $2.6m.

This year it has set a target of just over $600,000.

A Services Australia spokesperson said that about 4,500 labour hire and contractor staff had joined the agency as public sector workers between December 2020 and June 2025.

The Department of Employment and Workplace Relations (DEWR), operator of the government’s employment service Workforce Australia, was the only agency to refuse to set targets to reduce its use of external contractors and consultants, according to the Community and Public Sector Union (CPSU).

The CPSU deputy national president, Beth Vincent-Pietsch, said DEWR engages 15% of its workforce through external private contract arrangements, including call centre workers responsible for assessing suspected breaches by employment service users.

“These matters are highly sensitive and involve vulnerable people and they should be handled by appropriately trained and supported public servants,” Vincent-Pietsch said.

A DEWR spokesperson said the department did not consider service delivery arrangements by third party providers to meet the definition of core work.

“The department’s core work is mostly done in house. Any outsourcing is minimal and in line with the limited circumstances permitted under the framework,” the spokesperson said.

‘Bit of an illusion’

Government agencies traditionally used outsource operators to cope with fluctuating demands in their services or to access a specialised skill set, before the practice ramped up under Coalition governments, according to the CPSU.

Many agencies now appear hesitant, or unable, to unwind them.

Emmanuel Josserand, a professor of management and adjunct fellow at the University of Technology Sydney said government agencies become reliant on outsource models for services like call centres because they appear to represent a cost saving.

“There’s a bit of an illusion there that you will get the same results with a lower cost through a company that is hiring staff and making a profit,” said Josserand.

“All you have done is transformed stable well-paid jobs into high pressure, lower paid jobs, while providing profit for the company that is making their margin by paying workers less.”

Guardian Australia has reported extensively on the experience of the ATO’s outsource call centre workers, who argue that despite having the same duties, systems access and confidentiality requirements as public sector employees, the pay disparity, lack of training and inferior working conditions are extreme.

Other agencies, including Centrelink and the National Disability Insurance Agency, also use privatised call centres.

One outsource worker on the ATO call lines has lodged a “same job, same pay” application with the Fair Work Commission, drawing on the Albanese government’s workplace reforms designed to stop employers using labour hire to pay workers less than direct employees.

“Maybe they cut costs on the phone lines of the ATO, but we end up with a service of lesser quality, and a lesser contribution to the economy because it doesn’t result in quality jobs,” said Josserand.

“These companies, whether they’re consultants or call centres, are really, really good sales organisations and it’s easy to be lured in.”