Tabling a Senate report on the capability of the Australian Public Service, Senator Ayres stressed veterans were among those to suffer most from an over-reliance on outsourced labour.

Titled APS Inc, the report found governments had spent more than $7.8 billion on labour hire services, with more than $2.1 billion in the last budget year alone, equating to around 12,000 permanent jobs.

The report follows the independent 2019 Thodey review, which found a "service-wide transformation" was needed to achieve better outcomes.

The report sees "a pressing need" to move from "the damaging trend of outsourcing core, ongoing public service work", with up to 20 per cent of the total workforce labour hire and contract employees.

It also says the APS is experiencing "a creeping politicisation", which it labels "a cause for serious concern".

Senator Ayres, who chaired the committee, noted of the four services who outsourced the most labour - Veterans' Affairs, Services Australia, Aged Care Quality and Safety Commission and National Disability Insurance Agency - royal commissions had been held into three.

"The report describes an industry of outsourcing and sleazy Canberra deals," he said.

"It's an industry that reaps billions of taxpayer dollars and hides its profits in offshore bank accounts, but delivers an inferior service for taxpayers and undermines public sector capabilities."

Some 42 per cent of Veterans' Affairs staff are engaged through labour hire arrangements at June 2020, the report found, leading to liability claims taking 25 days longer on average to be processed.

It found the huge outsourcing has led to an "eroding workforce capability", does not provide value for money and leads to poor service delivery outcomes.

"It's been a disaster. Veterans are dying waiting for their claims to be processed - their families, their friends and the Australian public deserve an answer," Senator Ayres said.

The committee made 36 recommendations including removing the average staffing level cap, that the main employment mode in the APS be permanent employment, that labour hire should only be used where a non-ongoing staff member can't be found and that the government develops a strategy to return work to direct APS employment.

The publication includes a dissenting report from coalition senators, which labels many of the Labor-chaired committee's recommendations "little more than a wish list for the union movement".

"Many recommendations have been lifted directly from union submissions and have ignored the evidence provided by APS agencies to the inquiry," the coalition report says.

"Notably, many of the recommendations from Labor senators would significantly increase the workload for various agencies and their APS employees for no demonstrable gain in outcomes for the Australian public."

Australian Associated Press