Chapter 3

Committee view and response to the commission's recommendations

3.1        This chapter will summarise the committee's concerns about the National Commission of Audit's (the commission) processes, assumptions and recommendations.

Commission's flawed processes

Composition of commission

3.2        In its first interim report the committee commented on the composition of the commission.[1] The commission was weighted with hand-picked individuals from the business community and former senior public servants from Treasury and the Department of Finance. In addition, the commission was supported by officials from only three departments, the Treasury, Department of Finance and the Department of Prime Minister and Cabinet.[2]

3.3        The committee reiterates its concerns that there was no representation on the commission by people from the community, health or welfare sector or the union movement to bring their expertise to the commission's deliberations. Further, secretariat support given to the commission was not drawn from a sufficiently broad cross-section of the public service. As pointed out by the Australia Institute:

Proposals to increase the efficiency of service delivery need to be vetted by people who understand how systems work, not just what they cost.[3]

A predetermined outcome

3.4        The terms of reference for the commission were engineered by government and the commissioners were selected in order to achieve a pre-determined ideologically-driven outcome. The recommendations will benefit the business community and high income earners at the expense of hard working low and middle income Australians and the most vulnerable in the community. This outcome is certainly evident in the budget with analysis from the National Centre for Social and Economic Modelling showing:

The poorest 20 per cent of Australian families will pay $1.1 billion more into government coffers than the richest households as a result of the budget, highlighting the huge inequity in the government's four-year blueprint for fiscal repair.[4]

Conflicts of interest

3.5        The chair and secretariat head for the commission appear to have only considered the question of conflicts of interest with their previous positions at the Business Council Australia (BCA) in a superficial way. While a guide for how to address any conflicts was made available on the commission's website[5] none of the conflicts identified by the commissioners have been considered sufficient for commissioners to exclude themselves from discussions. When the handling of the BCA submission was discussed, Mr Peter Crone, head of the commission's secretariat, who was on leave from his position as Chief Economist and Director of Policy at the BCA, said he saw no conflict of interest in dealing with that submission.[6]

3.6        The committee considers that where a person refuses to see the potential for the conflict of interest it can't be adequately addressed. The committee called for the commission to make public the full declarations of conflict of interest signed by the commissioners and a list of any times when they have had to be excluded from discussions or receiving submissions due to conflicts of interest. This has not been provided with the commission arguing that it is not appropriate to make the declarations public.[7]

Lack of transparency

3.7        As highlighted in the committee's first interim report, the processes being used by the National Commission of Audit to gather and analyse information lacked transparency.

3.8        The committee is pleased to note, however, that public submissions are now available from the commission's website.[8] Prior to this, submissions were only available to the public in cases where a submitter took steps to make their submission public through publishing it on their own website. This process of leaving people to search for the information the commission was using in its deliberations was clearly inadequate.

3.9        The processes around meeting with the commission were ad hoc. The commission said it had over 100 meetings. Commissioners met with those who requested a meeting but not everyone who made a submission. The committee asked the commission to provide details of meetings with stakeholders but this was not provided as the commission considered it would be an 'inappropriate diversion of resources to compile this information for the committee by the deadline for responses'.[9]

3.10      While the committee is pleased to see the submissions to the commission were eventually made available on the commission's website, it is disappointed that information on the meetings with stakeholders has not been provided.

Timeframe too short

3.11      The committee considers that the rushed timeframe set for the commission by government was too ambitious for it to examine the size and scope of all Commonwealth expenditure and formulate advice to government that will encourage evidence-based policy decisions.

3.12      Mr Tony Shepherd, chair of the commission, suggested the commission's recommendations were all 'sensible' and should be adopted in full. However, Mr Shepherd admitted that the commission did not have time to work through each proposal in full with the relevant departments.[10] This is discussed in more detail below in relation to the lack of evidence for recommendations.

Secrecy

3.13      The committee agrees the work of the commission is important, if for the only reason that it has clearly informed the 2014-15 budget. The committee heard that 'everything is on the table'[11] but the timing of the release of the commission's report by the government occurred too late to provide proper scrutiny of the proposals before the budget was released.

3.14      The interim report was provided to the government two weeks late in mid-February and the final report was provided at the end of March. Neither report was released to the public until 1 May 2014 which was well after the South Australian and Tasmanian state elections and the Western Australian Senate election. Clearly the government wanted to keep the size and scope of the possible cuts from the public for as long as possible.

Disjointed reviews

3.15      The government has stated that tax expenditure will be the subject of a separate review which has not yet started. In the committee's second interim report it was noted there is also a welfare review being undertaken by Mr Patrick McClure, which is being conducted separately to the work of the commission and has not yet been released.[12]

3.16      The committee believes this fragmented approach to the review of government expenditure and revenue, with separate processes being conducted in isolation, will result in an approach which lacks cohesion and awareness of any possible unintended consequences.

Lack of costings

3.17      The committee requested the costings for each of the commission's recommendations. The commission admitted that it did not prepare costings for all of its recommendations and did not undertake detailed financial modelling:

The Commission has prepared indicative savings from its Recommendations. However, without decisions on detailed programme design and timing of implementation – which are matters for government – it is not possible to be definitive.

Detailed costings undertaken as part of the budget process would give greater clarity around the financial implications of the Recommendations.[13]

3.18      Instead, the commission provided advice on the 'broader order of magnitude of savings potentially arising from its Recommendations', emphasising that without detailed financial modelling, the estimates provided should be treated as indicative only.[14]

Lack of evidence

3.19      Not only was the committee concerned by the lack of costings for each recommendation, it was also concerned by the limited evidence base.

3.20      As noted by the Australia Institute:

...an audit report, like any well researched report, usually contains extensive notes, clarifications and references to external sources of data. For a document of its length and breadth, the Commission of Audit is sparsely referenced, and, of greater concern for those interested in evidence-based policy, the references that are provided are overwhelmingly to publications by the government itself.[15]

3.21      The committee questions the lack of transparency and depth regarding the evidence base for the commission's recommendations. For example, when discussing the evidence which led the commission to recommend GP co-payments, Mr Shepherd admitted the commission did not have the technical expertise for that analysis and ultimately recommended that the Minister for Health review the issue. He also admitted:

The evidence that we have relied on was basically just the ever-increasing cost.[16]

3.22      The committee requested the evidence relied on for overservicing by GPs. The commission's response again emphasised the broad aim of improving the overall healthcare system but no specific evidence was provided.[17]  

Terms of reference based on flawed assumptions

3.23      The terms of reference make a number of assumptions which the committee has proved incorrect. For example, the real picture of the economy and public service, discussed below, is at odds with what the commission and government have been saying.

Government spending

3.24      The committee heard that Commonwealth spending is not 'out of control' as assumed in the terms of reference for the commission. Government spending is reasonable, small and efficient, not only by historical Australian trends but also by international comparisons.[18]

Debt and deficit

3.25      The terms of reference assume there is a debt crisis which can only be achieved by cutting expenditure. In fact the committee heard that when compared with other OECD countries Australia's level of debt is reasonable and modest.[19] Mr Shepherd admitted there is no immediate crisis but he stressed the need to take action to avoid one in the future.[20]

3.26      The committee considers the case for a 'budget emergency' to be considerably overstated. The only budget emergency is one confected by the government.

Targets

3.27      The commission was asked to make recommendations to achieve savings sufficient to deliver a surplus of 1 per cent of GDP prior to 2023-24. As discussed in the committee's first interim report, this was a target chosen by government and there was a lack of clarity around how it was chosen. Witnesses suggested that, if current growth trends continue, the economy may be in surplus before 2023-34 even without substantial cuts to government spending.[21]

Limitations

3.28      The commission's terms of reference are one-sided as the tax or revenue side of the equation is not included. The committee has previously noted the disjointed approach by the government with expenditure and revenue being reviewed separately.[22]

3.29      Given the government forgoes a considerable amount of revenue in tax expenditures and concessions, the committee decided to look into this area to examine possible savings. The committee found it is not an area which is regularly reviewed and lacks transparency. The committee believes that if the government is prepared to consider a co-payment fee to visit a GP, which would affect the health of the most disadvantaged, it should also be considering over $100 billion of tax concessions. However, the Treasurer has already moved to reassure the mining industry that there will be no cuts to the diesel fuel rebate which is expected to cost $2.4 billion over the next financial year.[23] Instead, breaking one of its own election promises not to increase taxes, the government has announced that the fuel excise will now increase in line with inflation twice a year.[24]

3.30      Even the commission admitted it was necessary to go outside its terms of reference to offer a view on some areas of taxation such as the GST (recommendation 9) and comment on superannuation tax concessions.[25] The committee also notes the following recommendations which are outside the commission's terms of reference:

• to ensure that taxation receipts remain below 24 per cent of GDP (recommendation 1); and
• the view that the level of the minimum wage is too high (recommendation 28).[26]

3.31      The committee notes the commission's report is silent on the government's Direct Action Policy to reduce greenhouse gas emissions. Mr Shepherd indicated that consideration was not included as no information or detail was available during the timeframe of the audit. Given the policy is expected to cost $3.2 billion,[27] and the statement by Mr Shepherd that 'everything is on the table', the committee finds this omission remarkable.

Employment

Public service

3.32      The terms of reference also assume the public service is too large and inefficient. In fact, the committee heard that the public service is very efficient by world standards.[28] The public service has already been subjected to efficiency dividends and one off increases to efficiency dividends so there is little left to cut without affecting front line services.

3.33      In the committee's view the public sector is efficient, reasonably sized and provides good value for money for the Commonwealth. No consideration has been given to the effect of further job cuts to the public servants, the loss of services provided to the community as well as the flow-on effects to the local economies such as the ACT. Signs of an economic downturn in the ACT are already evident.[29] The further cuts to the public service announced by the government in the budget will further compound this effect.[30]

Privatisation

3.34      The commission appears to accept uncritically that privatisation of government services leads to more efficient outcomes. This was certainly the view of Mr Shepherd:

The results have been mixed, but I would say that overwhelmingly the privatisations have been successful. Some lessons learnt, I guess, would be that when you do privatise you should ensure that you retain the level of public service that is already being provided and you do not put in jeopardy the quality and competence of the services that have been provided. You can do that, and you can build that into a privatisation so that you can protect the future. I have been involved in many infrastructure projects—PPP [public private partnerships] projects. The last major one I was involved in was a toll road in Melbourne, and we had instituted on us standards of customer service that had never been seen in a toll road in Australia before, and we met those standards. That is a private development, and the customer service is far superior to anything else being offered by the private sector or Public Service in Australia, because that is built into the contract. There is a price to pay for that, but you can do that. I think the trick with privatisations is not to throw the baby out with the bathwater, and not to do it for ideological reasons but to do it for sound economic and business efficiency reasons.[31]

3.35      However, there has been no consideration of examples of privatisation where increased efficiency has not been the outcome. The ACTU stressed to the committee:

We also take issue with a number of the terms of reference which really are one way towards an in-principle view that matters such as outsourcing and contracting out are always more efficient. We detail in the submission that recent experience both here and in the UK has shown that privatisation and outsourcing have not always proven to be efficient and cost-effective means of delivering services.[32]

3.36      The Australia Institute indicated that the commission ignored a large body of research highlighting problems with privatisation and stated:

Providing a list of assets that should be sold the Commission of Audit provides scant evidence that such privatisations would deliver lower costs to consumers or increase the efficiency of the markets they operate in. Of even greater concern the Commission of Audit provides no effective guidance about the kinds of assets that are most suited to privatisation and the kinds that are not, nor does it provide meaningful guidance about the best process by which different kinds of assets should be privatised. Despite empirical evidence to the contrary, the Commission of Audit simply seems to believe that any privatisation is good privatisation.[33]

3.37      The commission's assumption that privatisation will result in more efficient outcomes has not been the result in every case. The committee believes further work is required before making privatisation decisions. Relevant examples in other jurisdictions should be reviewed and each decision should be subject to a full cost-benefit analysis.

Welfare and support

Youth unemployment

3.38      The committee heard about high levels of youth unemployment.[34] The commission recommended that young people aged 22 to 30, who do not have dependants or special exemptions, should be required to relocate to higher employment areas or lose benefits (recommendation 27).

3.39      Requiring individuals to relocate is a blunt instrument which does not take account of practicalities such as transport and accommodation or loss of social support networks and is not supported by the committee.

3.40      As part of the budget the government has announced a package of reforms in this area. Job seekers applying for Newstart or Youth Allowance, who have not been previously employed, will be required to wait for six months before they are eligible for payments by participating in the Work for the Dole program. In addition, individuals under 25 will have to apply for Youth Allowance which is about $100 less per fortnight. Newstart and Youth Allowance will also be frozen for the next three years.[35]

3.41      The committee believes that in order for young Australians to find a job, government needs to provide good education, training and support. The budget seems based on a premise that young Australians don't want to work, rather than the reality faced by many that it is difficult for them to find employment. The committee fails to see how denying these young Australians support so they can pay for rent and food while they look for work is going to improve their situation. Indigenous Australians are likely to be particularly affected by changes to the welfare system.[36]

3.42      Given these budget measures and the negative effect they will have on many young people, the committee finds it of great concern that funding for the national peak body for youth affairs has been cut and the Australian Youth Affairs Coalition will be forced to close its doors at the end of June 2014. Four full-time and two part-time staff will be made redundant. Parliamentary Secretary to the Minister for Education, Senator the Hon Scott Ryan responded:

This government does not believe that a single peak body is necessary for it to hear the views of Australian youth, nor that a single peak body is capable of representing the diverse interests, experiences and background of young Australians...The government is currently developing plans to consult with young Australians using a more focused and targeted approach.[37]

3.43      This move shows the government is treating the views of young Australians with complete disdain by forcing an organisation which provides a national voice for young people to close its doors.

Disability Support Pension

3.44      The commission recommended changes to the Disability Support Pension (recommendation 29). The committee notes the government has gone even further to include a review of the eligibility of those aged under 35 and participation in compulsory programs if they are deemed to be able to work more than eight hours a week.[38]

3.45      The committee notes that many Australians with a disability want the chance to work if they are able. Taking support away from people does not, as a consequence, create a job for that person. Real jobs and appropriate support for them at work are critical for a successful transition to work and the committee can see no evidence of these wider considerations by the government.

National Disability Insurance Scheme

3.46      While supporting the National Disability Insurance Scheme (NDIS), the commission recommended a slower phasing in of the scheme (recommendation 16). This is not supported by the committee. The NDIS will significantly improve the quality of life and services for those living with a disability who have already been waiting for assistance for too long.

Health

3.47      All Australians should have access to high-quality health care not just those who can pay for it. The recommendations from the commission's report for GP co-payments (recommendation 17) would result in the end of universal health care. As noted in its second interim report, the committee received no evidence to support the argument that there is overservicing by GPs and, as noted above, no evidence has been provided by the commission. People visit their GP for preventative measures including screening and vaccinations. They also visit the GP to manage chronic diseases such as diabetes or heart disease.

3.48      Evidence received by the committee indicated that putting a barrier in place to seeing a GP, such as a co-payment, has the potential to hurt the most vulnerable in our society and may cause people to delay treatment and tests, resulting in a need for more expensive hospital care.[39]

Co-payments

3.49      In a discussion with Mr Shepherd he stressed that the commission's recommendations had not been worked through with the relevant departments and the co-payment issue has been referred to the Minister for Health.[40]

3.50      The committee is very concerned that the recommendations made by the commission in this area do not have a sound evidence base. In addition, they do not appear to have been thoroughly reviewed and tested for unintended consequences.

3.51      It has also been pointed out that while the commission suggests people are visiting the doctor too often, it does not take account of regional circumstances 'where people visit the doctor less often, have less access to GPs and have poorer health outcomes as a result'.[41]

3.52      The committee was concerned that in the rush for savings, these recommendations would be accepted by the government with little or no further work. Unfortunately this is exactly what has occurred with the government announcing a $7 co-payment for GP visits and medical tests. Since the budget, medical professionals have already repeated the concerns expressed to the committee that some people, particularly those on low incomes, will defer care or go to hospital emergency department rather than pay the GP fee.[42]

3.53      Evidence reinforcing these concerns continues to emerge following the budget announcement:

Data collected by researchers at the University of Sydney for the Bettering the Evaluation and Care of Health program shows almost a quarter of GP visits result in pathology or diagnostic imaging tests being ordered.

Helena Britt, director of the family medicine research centre at the university's school of public health, said such tests were crucial to help doctors care for patients with multiple chronic conditions.

''We've had people in our study with 16 diagnosed chronic conditions,'' she said. ''You've got multiple pharmaceutical products and other treatments going on. They all have to be kept an eye on. But if the patient can't see really why they need to have the pathology tests done, and it's another $7 cost - that's $14 in all, then maybe they just won't go and have the tests".[43]

3.54      The effect on Indigenous Australians is also likely to be particularly severe. Mr Mick Gooda, the Aboriginal and Torres Strait Islander Social Justice Commissioner, has pointed out:

Aboriginal and Torres Strait Islander people access Medicare services at a rate which is almost one third lower than what is required on a needs basis. Our people need encouragement to access medical services, not more barriers. Increasing out-of-pocket expenses for health care will further entrench barriers to equitable healthcare.[44]

3.55      The government is trying to sell the end of universal health care with the announcement that the money from the co-payment will go into a $20 billion Medical Research Future Fund. There is very little detail available about this proposed fund.[45] This proposal does nothing to address the looming crisis with the government taking billions out of the health budget which will result in fewer hospital beds, crowded emergency departments and longer waiting times for hospitals.

Other recommendations

3.56      The committee was concerned to see the recommendation to reform national disaster relief (recommendation 41). The government's test stated in the commission's terms of reference is 'government should do for people what they cannot do, or cannot do efficiently for themselves, but no more'.[46] The committee considers that a natural disaster is surely a text book example of such a situation.

Conclusion

3.57      The committee supports the regular review of government expenditure and the need to find sensible efficiencies. However, it considers the work of the commission has been a missed opportunity to have a conversation with the community concerning questions such as what kind of society Australia wishes to promote.

3.58      The committee does not agree with the direction and society envisaged by the commission. Rather than a compassionate society to assist the most vulnerable, the commission provides a blue print for a 'dog eat dog' world.

3.59      The recipe for an American-style health system is of particular concern. Instead of tearing down Medicare, the government should be building it up and extending it to dental care.

3.60      The committee process has shown that the government rhetoric about a budget emergency is not supported by the evidence. The recommendations are unfortunately entirely predictable: cuts to services for the most vulnerable.

3.61      The commission's recommendations are unbalanced. All the work to find savings is being done by cuts to government expenditure but revenue is not included. A complete and cohesive picture is needed rather than the disjointed approach being undertaken by the government.

3.62      The committee is fundamentally concerned with the lack of costings and evidence to support the commission's recommendations. Given many of the recommendations of the commission have already been translated into budget measures and others may be adopted in future budgets, the committee calls on the government to provide greater transparency for each recommendation.

Recommendation 3

3.63      The committee recommends that the government release the costings and evidence base for each recommendation from the National Commission of Audit.

Recommendation 4

3.64      The committee recommends that by 31 December 2014, the government provide a response to each of the recommendations made by the National Commission of Audit. The response should indicate whether the recommendation has been accepted by government and when it will be implemented and where a recommendation has not been accepted, the government should provide reasons.

 

Senator Richard Di Natale
Chair

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