Decentralising the public service is a costly and ineffective way to grow regional wealth that risks damaging the performance of government agencies, the Productivity Commission has warned.
The government's own economic advisory body in a new report has rubbished decentralisation as a long-term cure for stagnant regional economies, saying agencies heading to the bush risked losing skills as staff exited for new jobs rather than relocate.
"Staff turnover during a relocation can create a 'brain drain' resulting in loss of productivity and corporate knowledge," the commission said.
Agencies needing highly technical skills faced an even greater risk of worsening productivity, it found.
The Transitioning Regional Economies report released on Friday undercuts Coalition government claims that forcing non-policy arms of the 152,000-strong Australian Public Service to shift from Canberra will grow regional economies.
While it had the potential to create jobs for bush towns, in most cases it only redistributed economic activity across regions and failed to lift net employment, the commission said.
"As a regional development strategy, decentralisation is unlikely to make a long-term, systemic difference to regional growth and resilience," it said.
"Government efforts are better directed toward improving the planning and delivery of infrastructure and government services.
"Where regions lack a strong base of infrastructure, employment opportunities, education and health services, and social networks, it may be difficult to attract and retain employees to live in the region."
After warning in an interim report in April that decentralisation was no miracle cure for regional economic woes, the commission has expanded its critique of the policy, which if pursued in Australia threatens to rip jobs out of the capital.
In its December report, it endorsed moving public service jobs into the bush when it benefited regions and made agencies more cost-effective.
But when relocations hit the services of agencies, the commission said governments needed to consider whether they should pursue a project aiming to lift the fortunes of a targeted bush town while imposing nationwide costs.
"In such cases, the Australian community may reasonably expect an open and transparent explanation of why a net cost is justified, what development benefits are likely to be realised, and how any risks will be managed," it said.
The report comes as the government considers which agencies to relocate from Canberra to the regions after former deputy Nationals leader Fiona Nash announced the government would expand its decentralisation push in April.
About 57,500 public servants, or 38 per cent of the federal bureaucracy, work in Canberra, a figure which has declined.
The expanded decentralisation push was a massive escalation of the National party's policy, pursued with the acquiescence of their Liberal coalition partners, of moving small agencies in the agricultural portfolio out of the capital and into the regions.
Governments needed to find out whether relocating agencies would make them more cost-effective before making a decision, the commission said.
"The fundamental purpose of government departments and agencies is to provide services at a standard that fulfils their departmental objectives, at the lowest possible cost to taxpayers," it said.
Labor MP for Canberra Gai Brodtmann said the report showed the government's argument for decentralisation was "a thought bubble with no substance."
"The government should respond to the findings of the Productivity Commission report by ending its sustained attack on Canberra," she said.
The Infrastructure and Regional Development department overseeing decentralisation said the government would decide on relocations next year.
Community and Public Sector Union national secretary Nadine Flood said the report showed a hardening in the Productivity Commission's position on decentralisation compared to its interim findings.
"The commission's findings clearly support the CPSU's position that the Turnbull government has taken entirely the wrong approach to putting Commonwealth jobs in regional communities," she said.
Regional Australia Institute policy and research general manager Kim Houghton remained supportive of the Coalition policy, saying decentralisation would benefit regions if it addressed their growth constraints.
Follow Doug Dingwall on Twitter.
