Abbott prepares for major shake-up of public service

The Prime Minister is planning sweeping changes to the highest ranks of the public service to make it more responsive to the Coalition government.

With his first budget behind him, Prime Minister Tony Abbott is determined to turn around what he believes has been a significant brain drain of the best and brightest from Canberra in the past decade.

The retirement of Finance Department Secretary David Tune on Friday is just the first step in what will be a one- to two-year reform of the service.

Among a significant shake-up, high-profile Treasury Secretary Martin Parkinson will leave at the end of the year after being granted an extension of his contract, and will almost certainly be replaced by someone working outside the department.

By the end of the first term of the Abbott government, change is expected in many key agencies including the Department of the Prime Minister and Cabinet.

The search for a new treasury secretary will involve the government scouring the private sector, including the upper echelons of Australia's major banks.

Mr Abbott has told colleagues he wants to change the culture of the public service and has formed the view the bureaucracy needs to ''own'' outcomes, retain its brightest graduates, and be less passive in its dealings with the senior ranks of the government.

He wants to see the federal bureaucracy move away from implementing programs, a job he believes is best left to the states, and is determined to end the tradition of Treasury secretaries effectively anointing their successor.

Health Department secretary Jane Halton is the strong favourite to replace Mr Tune.

Professor Halton has served as the head of health since 2002.

Mr Tune will be the fourth department head to leave the government, which sacked three secretaries shortly after it won office.

Mike Callaghan, a former Treasury official who also served as chief of staff to Peter Costello and now works at the Lowy Institute, is considered a possibility for the Treasury role. Former Treasury official and Finance Department chief Peter Boxall, a member of the government's commission of audit panel, is also in the running. The Business Council of Australia's chief economist Peter Crone, who also worked on the audit, could also be considered.

And in what would be a surprise move, there have been suggestions Prime Minister and Cabinet chief Ian Watt could move to Treasury.

Such a move would be unusual as Dr Watt took up his five-year role only in September 2011, but prime ministers typically like to appoint their own department head.

Among other agency chiefs Attorney-General's department chief Roger Wilkins, who has served since 2008, will eventually be replaced by someone with national security expertise.

Department of Foreign Affairs and Trade chief Peter Varghese is said to have disappointed some in the cabinet with his management of the integration of AusAid and DFAT.

One Coalition insider said he needed to focus on running his department and ''not being the junior foreign minister''.

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