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More of the Same or a Brave New World?: The National Commission of
Audit
Denis James
Economics, Commerce and Industrial Relations Group
Contents
Introduction
Government Involvement
The Australian Public Service
- Personnel Issues
- Operations
- Savings
- Performance Information
The Federal-State Dimension
Demographic Change and Intergenerational Equity
The Age Pension
Infrastructure
The Accounting Framework of the Commonwealth
Whole of Government Financial Reporting
Charter of Budget Honesty
Reporting Requirements
Matters of Interest to Parliamentarians
Concluding Commentary
Endnotes
In accordance with its pre-election commitment, the incoming Howard
Government established the National Commission of Audit in March 1996.
The Commission was required to examine and report on a number of matters
including -
- the current state of the Commonwealth's finances;
- the impact of demographic change on the future budgetary position
of the Commonwealth;
- the adequacy of Commonwealth sector infrastructure and, if this were
found to be deficient, possible remedies;
- the establishment of a methodology for developing and implementing
financial performance targets for Commonwealth departments and agencies;
- current service delivery arrangements between the Commonwealth and
the States, especially with a view to identifying areas of overlap and
duplication and defining appropriate roles and responsibilities for
each tier of government;
- the provision of advice on matters to be included in the Government's
promised Charter of Budget Honesty;
- the identification of further running costs efficiencies which might
be achievable by agencies in later years; and
- the determination of the most appropriate basis for benchmarking the
level of the aged pension.
In examining several of the above issues, the Commission was further
requested to report on areas of expenditure which might warrant closer
examination with the objective of restraining the growth of total outlays
and improving the quality of public expenditure.
The Report provides a large number of recommendations for achieving
greater managerial and operating efficiencies within the Commonwealth
public sector and for rationalising service provision between the Commonwealth
and the States. However, in many respects, the Report's recommendations
do not represent any major change in Commonwealth policy direction. Over
the past decade, many initiatives canvassed by the Commission had already
begun to be implemented, although there is no doubt that several of the
Commission's recommendations represent a considerable extension of these
policies.
For example, the previous Government had already introduced accrual
reporting for its departments and agencies with the move to full accrual
accounting being a logical extension. The introduction of running costs
arrangements, greater contracting out of activities and contracts for
senior public servants have already injected greater flexibility into
public sector resource management. The corporatisation and privatisation
of government commercial agencies has been progressed. Regulatory review,
corporatisation, competitive neutrality, the divorcement of regulatory
agencies from service providers, the facilitation of private operator
access to public infrastructure and other microeconomic reform initiatives
have already been enshrined in the 'Hilmer' Competition Principles agreed
to by the Commonwealth and the States. Gradual progress has also been
made through the Special Premiers' Conference and Council of Australian
Governments (COAG) forums in redefining the roles and responsibilities
of the Commonwealth and the States in such areas as the provision of disability
services, roads and vocational training. At the most recent COAG meeting,
housing and health services were also raised for discussion.
In its Report, the Commission enunciates three main principles which
it considers could form an intellectual framework to be used by governments
in formulating public policy. These principles also underpin the majority
of specific policy recommendations and examples provided by the Commission.
The principles are as follows -
- determine whether or not government involvement is warranted. The
Commission acknowledges that there is a 'social' case for government
involvement where society decides that particular, non-market outcomes,
such as an 'appropriate' distribution of income, are desirable. It also
sees a role for government in formulating and enforcing rules governing
efficient market behaviour. Finally, it states a case for government
involvement in instances of 'market failure', that is, where market
forces alone would not yield a socially optimal use of resources and
where 'public interest' considerations must be taken into account. For
example, a polluting industry might 'overproduce' since the pollution
costs it imposes on society are not reflected in the price of its products.
Governments should, however, always weigh the cost of its involvement
against the benefits which accrue.
- where government involvement is considered appropriate, program objectives
should be clear and effectively pursued; and
- in achieving specified outcomes, resources should be applied efficiently,
that is, at minimal cost.
However, whilst these principles would be endorsed by many public policy
analysts, they do not necessarily unambiguously define the appropriate
role of government. Even though they can be used to classify many activities
as being legitimate functions of either the public or private sector,
the classification of other functions may require value judgements to
be made, involving community preferences expressed through the political
process. There can thus still be an important political dimension in determining
the size, structure and functionality of the public sector. The Treasurer
has already acknowledged this political dimension in his statement, upon
receipt of the Commission's Report, that 'this is a report to the Government;
it is not a report of the Government. This is not a statement of Government
policy'.(1)
The Commission reviewed several areas of government involvement in economic
and social affairs, including assistance programs, government business
enterprises (GBEs) and government service provision.
In the area of financial assistance, the Commission considers that several
programs of assistance to business are misguided in that the 'market failure'
they aim to correct has not been proven while, in the case of assistance
to individuals and families, programs may not always be targeted at those
most in need. Examples cited are export market development grants, non-means
tested tertiary education and the non-means tested childcare cash rebate.
The Commission also draws attention to assistance provided in the form
of 'tax expenditures', that is tax concessions, arguing that these are
often not transparent. The Commission considers that such assistance should
be reviewed and possibly converted to actual outlays, which are more transparent.
At the very least, the Commission argues that the 'cost' of tax expenditures
should be provided in Budget program statements.
The Commission also recommends that the Government should shut down
or sell GBEs where there is no public interest reason for continued government
ownership. Examples cited are the Australian National Line and the Australian
Industry Development Corporation. The Commission points out that where
such authorities are providing commercial services with no public interest
component, there is no case for public ownership. Even in cases of 'natural
monopoly', which frequently occur where substantial infrastructure is
more efficiently provided by a single supplier, the Commission argues
that this does not preclude private ownership, as long as appropriate
government regulatory mechanisms are put in place.
Again, this is a principle which would be accepted by many public policy
analysts. However, there are also costs involved in regulation. It may
be difficult to impose regulatory conditions on a private supplier which
cannot be easily circumvented. There may be a need to ensure that the
interests of Australians are not subordinated to those of foreign interests.
There may be a need to ensure that benefits to Australia are not lost
through transfer pricing and other mechanisms. These are not arguments
against privatisation per se, but have been presented simply to
demonstrate that the potential sale of assets still needs to be assessed
on a case by case basis. This is a position which the Commission would
no doubt support. Surprisingly, the Report does not caution that where
assets are to be sold, such sales should be planned and well executed
and not driven by short term budgetary expediency. It is obviously essential
that governments obtain the best possible price for any assets sold.
The Commission recommends that services provided by government should
also be assessed against the guiding principles it has enunciated. Where
public interest or other relevant factors imply that a service should
be publicly provided, the agency concerned should operate on a fully commercial
and competitively neutral basis. The Commission nominates a range of Commonwealth
agencies providing services, all or part of which could be provided by
the private sector. These include the Department of Administrative Services
business units, the Defence Housing Authority, the Legal Practice of Attorney-General's,
Office of the Director of Public Prosecutions, Australian Protective Service,
Insolvency and Trustee Services of Australia, Australian Hearing Services,
Commonwealth Rehabilitation Service and the Australian Government Health
Service.
The Commission has formulated several recommendations which it considers
would lead to improvements in the efficiency of the Australian Public
Service. These recommendations are wide ranging and, at the personnel
level, encompass employment conditions, remuneration, superannuation and
human resource management. At the operational level, the Commission has
canvassed such issues as benchmarking, contracting out, reducing duplication
and overlap and program simplification.
Personnel Issues
Reflecting current thinking and the recommendations of the McLeod report,
the Commission states that the Public Service Act is cumbersome and not
conducive to the flexible management required in a modern public service.(2)
The Commission would see the Act reduced simply to a statement of the
core principles, values and characteristics which govern public sector
ethics. These would include probity, integrity, a commitment to the community,
responsibility to government, accountability, a focus on results, a commitment
to continuous improvement and application of the merit principle in staffing.
The Commission sees no need for separate legislation to specify rules
relating to discipline, inefficiency and termination within the Public
Service, arguing that such matters can be dealt with through the normal
industrial relations process. It also argues that Public Service managers
need more flexibility in staffing matters, such as the ability to appoint
staff on fixed-term contracts or in the appointment of temporary staff.
Fixed term contracts, which the Commission claims currently apply only
to heads of Commonwealth departments, are seen to be a method of encouraging
efficient officers, enabling easier termination of unsatisfactory officers
and making it easier for interchange of personnel between the public and
private sectors. The Commission dismisses the notion that tenured public
servants are more likely to be apolitical and provide independent advice
to government.
The Report gives little recognition to the ideal of public service.
Indeed there are suggestions in the Report that senior public servants,
because they have 'limited alternative employment opportunities' and 'relatively
limited opportunities to amass wealth' are open more to 'capture' than
those on fixed term contracts. Such suggestions and unsubstantiated claims
are at odds with the high reputation for ethical conduct and probity enjoyed
by the APS and ignore the essence of independent advice, which may be
difficult to guarantee from external advisers.
The Report would appear to be misleading in asserting that fixed term
employment is only confined to heads of Commonwealth Departments. Section
82AE of the Public Service Act already provides for fixed-term employment
subject to defined conditions. There could, however, be a case for liberalising
these conditions.
The uniform remuneration of public servants is also identified by the
Commission as a hindrance to more efficient performance. With a greater
use of employment contracts, the Commission envisages that remuneration
could be better linked to performance. The Commission recommends that
employment powers and remuneration arrangements should be devolved to
at least the agency level. It further recommends that Public Service wide
salary setting processes should be abandoned in favour of arrangements
which are based on productivity and which are negotiated at the agency
level. In conjunction with these initiatives, the Commission also argues
that the current paid rates awards for public servants should be replaced
by minimum rates awards, again as a means of bringing public servants
into line with the conditions applying to private sector employees.
On the issue of agency level wage setting, it might be noted that enterprise
bargaining (since 1993) in the Australian Public Service has only progressed
at a moderate rate, particularly in the smaller agencies. This is not
to say that there has been no departure from standard APS working arrangements
by agencies. Smaller departments perceiving that the exercise is too expensive
in resources for the limited benefits available, formed a small agency
network to convey these concerns to the key APS agencies (the Departments
of Prime Minister and Cabinet, Industrial Relations, Finance and the Public
Service Commission). Consequently the 1995 APS framework industrial agreement
moved away from allowing or encouraging departments to set their pay rates
but did encourage agencies to set conditions (eg work hours) in line with
their operating needs through agency agreements.
The Commission's claim that minimum rate awards are a condition of private
sector employment is also somewhat misleading. Paid rate awards are common
in the banking, airline and oil industries and elsewhere. It should be
noted that the debate about paid rates awards is also fraught with difficulty
since many pay rates have only been established as 'paid rates' and no
comparable minimum rate has been determined. It would be an interesting
exercise to determine or locate a minimum pay rate for a 'police officer',
for example, and then to remove the classification from salary increments
(as well as training and on the job experience).
The paid rate versus minimum rate issue is receding with firms moving
into workplace agreements of one form or another and, although this is
rarely understood, once an agreement operates on top of a paid rate award,
the award can no longer be said to be a 'paid rate'.
The Commission is also critical of the superannuation system applicable
to public servants. The Commonwealth Superannuation Scheme, the Public
Sector Superannuation Scheme and superannuation schemes operated for the
defence forces are defined benefit schemes. Superannuation benefits under
such schemes are set according to a formula which takes into account such
factors as retirement age, length of scheme membership and salary at retirement.
The pay-outs are thus not related to contributions and fund earning rates.
Such schemes are viewed by the Commission as being unduly complex to administer
and limit the portability of superannuation across different employers.
The Report recommends that the Government should investigate the possibility
of replacing the existing arrangements with an accumulation scheme, whereby
benefits would be related to contributions and fund earnings. Such a move
would also permit employees to negotiate remuneration packages which allowed
them to determine a mix of salary and superannuation contributions. The
Commission further recommends that such arrangements should also apply
to judges and Parliamentarians.
The Commission also highlights the findings of the Downie Report that
the majority of expenditure on human resource management in the Public
Service was directed into administration rather than more strategic activities.(3)
The Commission's Report urges streamlining of the processing of personnel
matters, claiming that such an initiative could save up to $250 million
per annum.
However, as was recognised in the McLeod Report, many Public Service
employment practices are not as inflexible as they may first appear. A
number of work practices referred to in the Report, including excessive
handling costs in processing of leave and higher duties forms, have been
or are being dealt with under the current APS Enterprise Agreement, the
Continuous Improvement in the APS 1995-96.
Contrary to assertions in the Report, there has been a significant cultural
and structural change in the Australian Public Service in recent years.
Australia is recognised as being among the leaders in public sector reform
within the OECD.(4) Indeed, there has been criticism from some quarters
that 'managerialism' in the APS has gone too far with too much emphasis
on economising and not enough on other core values such as equity and
access, democratic decision-making and due process.(5)
Operations
A range of approaches has been suggested by the Commission to improve
the operational efficiency of the Public Service. Benchmarking is one
such tool, which enables Public Service standards to be set through comparison
with comparable activities in other jurisdictions or in the private sector.
Contracting out and contestability in the provision of services is seen
as another method of improving the efficiency of resource use. The Commission
quotes analysis undertaken by the Industry Commission which indicates
that of around $14.2 billion per year of government services which could
potentially be contracted out, only around $8.3 billion is currently being
contracted out. The Commission notes that it may not always be efficient
to contract out and that such action should only be taken when it is cost
effective to do so. The Commission has identified the Commonwealth payroll
system and the provision of information technology services as worthy
of examination to determine the cost effectiveness of potential outsourcing.
The existence of overlap and duplication amongst agencies is also highlighted
by the Commission. Examples are given of agencies which offer overlapping
services, such as in the provision of scientific and macroeconomic advice.
It also sees efficiency benefits flowing from an amalgamation of the five
parliamentary departments. While the Commission also urges a greater role
for information technology (IT) in service provision, for example electronic
funds transfers to social security beneficiaries, it is critical of the
large number of incompatible computer applications found within government
agencies.
The previous Government had already responded to this latter problem
by appointing Mr Andy McDonald as Chief Government Information Officer
with a charter to rationalise government information services, IT infrastructure
and propose a whole of government strategy for its development.
Other efficiency measures are enunciated by the Commission. It urges
the use of 'one-stop shops' where clients could have access to complementary
services offered by different agencies. It also suggests that a 'risk
management' approach should be taken in areas of government scrutiny or
surveillance, so that such scrutiny is targeted selectively rather than
being applied universally. Further efficiencies could be reaped from simplifying
existing programs, such as the diesel fuel rebate scheme or through the
simplification or eradication of regulation, such as the setting of standards
by the Commonwealth for child care centres.
Savings
In light of the efficiencies it identifies, the Commission considers
that their implementation could lead to significant reductions in the
cost of service provision. It recommends that minimum across the board
efficiency targets of at least 10 per cent of running costs should be
set for all government agencies (including the Department of Defence and
off-budget authorities), to be achieved over a three year period from
1996-97.
Other agencies were perceived to be in the position to reap even greater
efficiencies from the application of the Commission's recommendations.
For these agencies, the Commission recommends that significant administrative
savings targets, of at least 20 per cent, should be sought over the three
years. This savings target should be applied in addition to the ongoing
annual efficiency dividend of one per cent. A general review of all government
agencies to assess the scope to rationalise and restructure their operations
to deliver efficiency gains and improved outcomes was recommended by the
Commission. This review would also identify those agencies capable of
yielding significantly greater efficiency gains.
The Commission recommends, however, that the efficiency targets stated
above should subsume any efficiency targets already announced by the Government
in excess of the ongoing annual one per cent efficiency dividend.
Performance Information
The Commission notes a Department of Finance conclusion that the overall
quality of performance information provided by Commonwealth departments
and agencies in their reports and budget documentation is poor. Hopefully,
these problems will be rectified when the Performance Information Review
(PIR), which has already been established, completes its three year task
of identifying shortcomings in program objectives and in current program
outputs and performance information. The PIR is an efficiency review process
which is being carried out on a bilateral basis between the Department
of Finance and each Commonwealth Department. It was established by the
previous Government in August 1995. The findings of each Review will be
reported to the relevant Minister. An annual overview report will also
be published. During 1995-96, four Departments were reviewed, and a further
ten will be reviewed in 1996-97(6). Provision of better performance information
should also flow from the more rigorous reporting standards required as
part of the Government's Charter of Budget Honesty.
Throughout the Special Premiers' Conference and COAG process, concern
has frequently been expressed, especially by the Premiers and Chief Ministers,
at the cost of duplication and overlap between Commonwealth and State
functions and at the inflexibility which is imposed upon State budgets
through the provision of conditional (or 'tied') grants from the Commonwealth.
Not only does duplication and overlap result in excessive resources being
applied to the administration of programs, it can also create confusion
for end users of government provided services and can lead to gaps in
service delivery or, conversely, oversupply of some services. The Commission
also voices a commonly heard complaint that where Commonwealth and State
programs are close substitutes or complements, costs can be shifted between
levels of government. State hospitals, for example, may not dispense drugs
to outpatients, with the resulting cost of drug supply falling upon the
Commonwealth's Pharmaceutical Benefits Scheme.
The Commission has adopted a traditional 'federalism' model for assigning
functions to the different tiers of government. It should be noted, however,
that not all commentators on federalism accept this model. Professor Cliff
Walsh, an Australian authority on federal-state issues, has frequently
argued that competition in the provision of goods and services should
extend to governments, with end-users being able to choose between service
deliverers.(7)
The model adopted by the Commission, however, defines exclusive roles
for each tier of government. Commonwealth involvement in federal-state
affairs could be warranted where one or more of the following criteria
apply -
- the goods and services provided are 'national public goods', such
as defence or activities having interstate or international characteristics;
- there would be significant 'spillover' effects for other States from
policies adopted by one State, for example in the provision of national
highways or rail infrastructure;
- there are significant economies of scale which justify provision by
a single national supplier; or
- the harmonisation of policy would introduce national efficiencies,
as in uniform business law or policies aimed at improving national mobility
of labour and capital.
The Commission subscribes to the principle of subsidiarity in arguing
that those levels of government closest to the end-users of services are
more likely to understand and be responsive to user requirements or preferences.
Although the Commission notes the disparity which exists between the revenue
sources available to each tier of government and their relative expenditure
responsibilities (that is, the extent of vertical fiscal imbalance), its
Report concentrates on the provision of Commonwealth grants to the States.
It certainly has not been prepared to broach the subject of the appropriate
assignment of taxing responsibilities between the Commonwealth and the
States which, by more closely relating the onus of revenue raising to
expenditures, might yield significant improvements in program delivery
and the overall efficiency of public sector administration in Australia.
This is such a significant issue that it is very surprising that it was
not addressed by the Commission.
Once the respective roles of the Commonwealth and the States in service
delivery have been determined, the Commission argues that, as a general
principle, where programs are assigned entirely to the State level, funding
should be in the form of general purpose grants, thus giving the States
greater discretion in their application. Where joint Commonwealth/State
responsibility is warranted, the Commission suggests that funds flow into
a pool that can be jointly used to undertake the complementary programs,
again allowing the States more autonomy in setting their priorities. Where
specific purpose grants from the Commonwealth are provided, the Commission
believes the Commonwealth should specify its desired outcomes and provide
the funding in a 'broadbanded' fashion so as to enable the States to be
flexible in meeting those prescribed outcomes.
However, again the Commission has chosen to overlook the vertical fiscal
imbalance issue. One might ask why, when functions are being handed over
to the States, they are to receive compensatory increases in general revenue
funding rather than being provided with more access to the national tax
base. Recent analysis indicates that the Commonwealth could relinquish
part of its control of the tax base without compromising either its ability
to pursue macroeconomic policy objectives or its fiscal equalisation role.
The Commission notes that in some functions, the Commonwealth may be
required to set and monitor national standards, with the States delivering
services in compliance with those standards. However, the Commission argues
that even in this respect, Commonwealth involvement may not be warranted
since standards might be set by State level co-operation or even competition.
Certainly, the States are becoming more practiced at co-ordinating their
activities, but it must not be forgotten that one major reason for establishing
the Special Premiers' Conference and COAG mechanisms was to bring to the
fore many matters involving the need for standardisation and co-ordination
which had been languishing in State and Commonwealth-State 'advisory councils'
without ever being satisfactorily addressed. Indeed, a fundamental tenet
of Australia's microeconomic reform agenda over the past decade has been
a recognition of the need for greater national uniformity and integration
of many of the services and infrastructure support functions provided
at the level of State governments, for example, uniform road user charging
and national electricity and rail network development.
To the above list of criteria for assigning federal functions to the
Commonwealth might be added the Commonwealth's role in facilitating fiscal
equality for all Australians regardless of State of residence. Australia
has the most sophisticated system of determining fiscal equalisation payments
across the States than any other federation. The per capita relativities
recommendations prepared by the Commonwealth Grants Commission form the
basis for the distribution of financial assistance (general revenue) grants
to the States. However, the Commission has adjudged the Grants Commission
process to be complex, hard to comprehend and costly. Even though the
$4.5 million in administration costs of the Commonwealth Grants Commission
only represent 0.03 per cent of the cost of the grants to which its recommendations
apply, the Commission has recommended that the Commonwealth should approach
the States with a view to developing a simplified set of indicators for
determining per capita relativities which would involve lower administration
costs.
Specific Programs
The Commission examined a number of specific programs against its criteria
and identified many areas where it considered efficiencies could be made.
The benefits of such efficiencies could be 'clawed back' by the Commonwealth,
since the Commission has recommended that where programs are transferred
to the States and funded by way of general purpose assistance, such assistance
should amount to only 90 per cent of the value of the previously specific
purpose grants. The specific programs examined by the Commission are:
Health: The Commission recommends that existing arrangements
for the delivery of health services should be renegotiated through COAG
with a view to transferring responsibility to the States. This would apply
especially to the delivery of aged care, health promotion, preventative
care and health support services. The Commonwealth would only retain a
standard setting and monitoring role. This process has already begun,
as announced by the Minister for Health and Family Services, Dr Wooldridge
on 1 May 1996.
It was also recommended that cost shifting within the broad Medicare
and Pharmaceutical Benefits systems could be avoided by broad agreement
to control health outlays and sharing the financial risk of such schemes
between the levels of government. Interestingly, the Commission recommends
an expanded role for the Health Insurance Commission as the national payments
agency for all government funded transactions in the health sector. While
there is certainly a degree of rationale in this recommendation, it sits
rather oddly with the Commission's view of a more devolved health system.
The Commission also recommends that 'price signals' should be used to
reduce the unnecessary use of health services. An extension of this principle,
recommended by the Commission, is the introduction of means tested co-payments
for access to medical services, in particular, general practitioner services.
It is also recommended that means tested user charges should be implemented
in the area of residential aged care. Calls by the Commission for the
introduction of co-payments for medical services, whether means tested
or not, can be seen to undermine one of the central tenets of Medicare,
that being universality of access to services.
Furthermore, while asserting that price signals would reduce the unnecessary
use of medical services, no evidence is presented by the Commission as
to the level of 'unnecessary' services, nor does it grapple with the complex
arguments surrounding the effectiveness of such price signals in actually
containing costs. The Commission, for example, has not addressed the apparent
lack of success of co-payments in containing outlays under the Pharmaceutical
Benefits Scheme (PBS) over the longer term.
The Commission urges greater competition in the provision of health
services through the introduction of purchaser/provider arrangements,
using as an example the purchasing of hospital services for veterans by
the Department of Veterans' Affairs. The Commission also recommends that
retail outlets other than pharmacies be permitted to dispense PBS drugs
and that pharmacists should be allowed to own an unrestricted number of
pharmacies. Such an initiative would depart considerably from current
policy on retail pharmacy. Although the Commission believes that these
initiatives would introduce more competition into the industry, they may
well have the opposite effect, with greater concentration of ownership.
Education: The Commission recommends that the Commonwealth
should negotiate with the States to ensure that pre-school, primary and
secondary education becomes the sole prerogative of the States. Current
specific purpose funding for these functions should be untied. The Commonwealth
would accept full responsibility for vocational education and training
(VET) and tertiary education, with a reduction in general purpose grants
for any functions transferred from the States to the Commonwealth.
The Commission does not explain why vocational education should be transferred
to the Commonwealth when the States provide the majority of its funding,
staff and administer the systems and retain constitutional responsibility
for the sector. The Commission makes no attempt to assess the rationale
for, and impact of, the significant changes that have occurred in the
VET area in recent years. Its proposals appear to be derived from a belief
that the higher education and VET sectors should be treated in identical
fashion, but there is no argument provided to justify this view, beyond
an assertion that the two sectors have 'similar objectives and target
groups' and a reference to 'historical evolution'. In this, as in other
matters, it could be argued that the Commission may be somewhat too dismissive
of the complex legal, administrative and political structures that have
been mediated over decades within the Australian education system.
The Commission is not clear whether or not primary and secondary education
would be one of the functions for which it sees a valid role for the Commonwealth
in the setting of national standards. Certainly, many commentators would
see matters of equity and national curriculum development as requiring
some form of central co-ordination. As with other instances where funding
becomes untied, there may be concern that even if the Commonwealth is
allowed to perform a standard setting function, its power to enforce those
standards might be weakened.
Currently, the Commonwealth funds a relatively small proportion of public
schools but contributes a significantly higher proportion of funding to
non-government schools. If the States are provided with a pool of general
revenue funds in lieu of specific education funding, it would be difficult
to predict the impact this might have on the resources made available
to public and private educational institutions.
The Commission argues for a market oriented 'voucher' system for vocational
and tertiary education which would replace all direct Commonwealth funding
to universities and TAFE colleges. It suggests that the Commonwealth should
fund higher education by way of a fixed number of 'scholarships' for students
finishing year 12. Such vouchers would be redeemable at any accredited
institution. However, the Commission indicates that within this framework,
the Commonwealth should give consideration to identifying the specific
needs of special and disadvantaged groups. Comparable arrangements would
apply to students leaving school earlier than year 10 who wish to undertake
vocational courses. It also recommends that the Higher Education Contribution
Scheme (HECS) should continue. Such contributions would, of course, represent
a further revenue source for higher education institutions
The Commission recommendations on the introduction of a 'voucher' system
for higher education and VET are tendentious. There is no explanation
or argument as to why this system is to be regarded as any more efficient
than the current arrangements. The Commonwealth will continue to meet
the costs of the system, for a set number of students, but in a different
form. It is not clear why this should result in fundamental changes when
the existing system allows for institutions to compete for students and
for their choices to be reflected in funding levels. It could equally
be argued that the annual expenditure of $5.3 billion of public funds
on the higher education system warrants a system which emphasises Ministerial
responsibility and administrative controls.
Service Delivery to Aboriginals and Torres Strait Islanders:
The Commission recommends that the Aboriginal and Torres Strait Islander
Commission (ATSIC) should withdraw from the delivery of services. In the
Commission's view, it should only adopt a co-ordinating and 'purchaser'
role, whereby it contracts out the delivery of services to its clients.
Funding for ATSIC should, according to the Commission, be provided on
the basis of an agreed set of outputs, which ATSIC would purchase from
appropriate service providers. In some respects, these recommendations
by the Commission are intriguing, since ATSIC is already essentially a
funding rather than a service organisation. The Commission also states
that there is unnecessary duplication in the operation of the Aboriginal
and Torres Strait Islander Legal Service and claims that this service
should be amalgamated with mainstream Legal Aid Commissions.
While acknowledging the need to ensure an appropriate degree of self
determination and self management in the implementation of specific indigenous
programs, the rationale for the creation of ATSIC, the Commission urges
improvements in program delivery and accountability for outcomes.
The Commission also addresses the issue of native title and argues that
the Commonwealth should explore, with the States, a less expensive native
title determination process. It considers that reforms to this process
should ensure that native title claims are resolved more quickly and with
more certainty.
Family Services: The Commission draws a distinction between
the provision of family support, which should remain the prerogative of
the Commonwealth, and family services, such as pre-schools and child care,
which it recommends should be essentially handled by the States. The Commission
argues that the current involvement of both tiers of government in the
provision of family services gives rise to unnecessary duplication and
overlap and provides significant scope for cost shifting. It therefore
recommends that responsibility for most of these services should be transferred
to the States, with the Commonwealth providing general purpose assistance
for the functions transferred.
In the Commission's view, the Commonwealth should restrict its involvement
to the provision of work related care, reflecting the Commonwealth's interest
in the efficient working of the labour market. However, even in this instance,
the Commission argues that the Commonwealth should restrict its role to
the provision of income related childcare assistance for the purchase
of work related places for children up to the age of five and for outside
school hours care. The Commission also notes the potential for cost shifting
to the Commonwealth from State pre-schools and states that this would
have to be prevented through Commonwealth -State negotiations.
The Commission recommends that operational subsidies should be withdrawn
from publicly funded childcare centres to ensure competitive neutrality
and improved equity in the provision of services by public and private
childcare providers.
Finally, on the issue of family assistance, the Commission recommends
that the Commonwealth and the States should find ways of better targeting
pensioner concessions and ensuring that pensioners are more equitably
treated through the provision of concessions and subsidies. On the basis
of the federalism model adopted by the Commission, it argues that the
provision of service specific pensioner subsidies should lie with the
States.
Housing: Along with the provision of health services,
the determination of appropriate roles and responsibilities in the area
of housing is already on the COAG agenda. The Commission is of the view
that, ideally, only one level of government should be involved in housing
assistance, since the formulation of housing policies requires assistance
programs to balance the supply and rental price of locally available public
and private housing. The Commission considers that the States may be in
a better position to provide housing assistance at the level and cost
appropriate to State needs and conditions.
The Commission therefore recommends that the COAG negotiations should
be expanded to consider the possible transfer of all responsibility for
housing assistance to the States or a situation where the Commonwealth
retains responsibility only for housing assistance to those eligible for
income support.
In line with its guidelines for improving public sector efficiency,
the Commission also recommends that more competition should be encouraged
in the management of the stock of public housing.
Environment: The Commission sees environmental protection
to be primarily a State responsibility. It notes that the Commonwealth
Environmental Protection Agency was established to facilitate a nationally
co-ordinated approach to environmental protection, to administer environmental
protection matters within Commonwealth jurisdiction and to meet international
obligations. However, the Commission concludes that the Commonwealth's
co-ordinating role is already met through the Intergovernmental Agreement
on the Environment (IGAE), which sets out the responsibilities of Commonwealth,
State and local governments in relation to environmental issues, and other
environmental committees and councils.
The Commission recommends that the IGAE be clarified to encompass a
presumption that the States should take responsibility for such functions
as environmental protection, landcare, endangered species recovery and
the consequences of world heritage obligations. It further recommends
that Commonwealth and State agencies should use a greater range of economic
instruments, such as appropriate valuation and pricing resources, to achieve
more socially desirable outcomes.
In the delineation of appropriate roles for the Commonwealth and the
States in the area of environmental protection, however, governments should
bear in mind two of the intergovernmental assignment criteria which the
Commission itself has enunciated, that is, the existence of 'national'
considerations and the spillover effects of State policy decisions. Issues
of environmental protection, bio-diversity and the like affect the amenity
of all Australians, not just the inhabitants of a particular State. On
the Commission's own criteria, therefore, the implementation of environmental
policy in Australia would appear to require continuing Commonwealth involvement
in both a co-ordinating and a directing role.
Regional Development, Urban Management and Local Government:
The Commission notes that the Commonwealth provides substantial (around
$1 billion) general revenue grants to local government (through the States),
as well as providing assistance under a number of other programs, including
the Regional Development Program, the Urban Flood Mitigation Program,
the Better Cities Program and the Local Government Development Program.
The Commission is of the view that these latter, specific purpose programs
involve overlap with State and local government responsibilities and that
there is no clear rationale or constitutional basis for Commonwealth involvement
in these activities.
Noting that the incoming Government had already pledged to abolish the
Building Better Cities program and significantly reduce the Local Government
Development Program, the Commission recommends the abolition of all remaining
specific regional and local government programs.
The Commission has also recommended that local government financial
assistance grants should be 'integrated' into revised State payments.
No further details are provided, but this recommendation would appear
to imply that the local government financial assistance grant should be
absorbed into State general revenue assistance. It might be noted that
such a recommendation is contrary to a finding by the 1985 Self Committee
(upon which the current local government general revenue assistance legislation
is predicated) that the Commonwealth does have a valid role in the provision
of assistance to local government.(8)
Workers' Compensation: The Commission notes that workers'
compensation arrangements vary across State and Commonwealth jurisdictions.
Furthermore, the actual costs to workers, employers and society of work
related injury and disease significantly exceed the amounts covered by
workers' compensation premiums. There is also considerable scope for cost
shifting from workers' compensation schemes to Medicare and to the social
security system.
The Commission therefore recommends that the Commonwealth negotiate
with the States to limit the extent of cost shifting and ensure that medical
and other services to claimants are provided efficiently and competitively.
The COAG process is viewed by the Commission as the appropriate means
of setting goals for the standardisation of workers' compensation arrangements,
while a new Ministerial Council should be established to pursue these
goals.
The Commission further recommends that the relevant Commonwealth agency,
Comcare, should align workers' compensation provisions for its employees
with the national standards and, in particular, reduce the scope for unwarranted
stress related compensation claims.
Industrial Relations: The Commission recommends that the
Commonwealth should undertake negotiations with the States to develop
greater uniformity and simplification in industrial relations regulatory
arrangements, preferably through complementary, template legislation.
It further recommends that co-operative, integrated processes and administration
between the Commonwealth and State industrial tribunal and awards inspectorates
should be facilitated and encouraged. The capacity of the Australian Industrial
Relations Commission (AIRC) to work more closely with State industrial
tribunals should be strengthened. One set of courts should be created
to handle disputes, whether arising from Commonwealth or State jurisdiction.
On this latter point, it might be noted that section 13 of the current
Industrial Relations Act already facilitates integration of the
State and Federal Tribunals by allowing joint appointments, that is, a
person holding office in both tribunals - the idea being that where a
matter has direct concern to a State, it is appropriate for an official
to be on the AIRC from the State's tribunal to hear that matter. In addition,
State and Federal industrial registries can be run jointly and Federal
and State registrars are encouraged to meet and co-operate.
The Commission was required to report on the impact that demographic
change might impose on Commonwealth finances. The crux of the issue is
that the Australian population is ageing and there is concern that government
support for the 'baby boomer' generation, born in the late 1940s and 50s,
could impose a significant burden on future generations.
The Commission acknowledges the potential future budgetary difficulties
arising from demographic change and recommends a range of measures to
address these. In order to reduce the cost of aged care and health related
services, the Commission recommends that, while maintaining universal
access to nursing homes for those in genuine need, funding arrangements
for such services should be changed so that those able to do so contribute
to their own care. This would imply means testing access to nursing home
benefits. The Commission also suggests that, in the case of income poor
but asset rich patients, the cost of nursing home benefits could be recovered
from the estates of deceased beneficiaries. It also suggests that there
might be scope for financial institutions to offer insurance cover against
the cost to the individual of age related long term care.
The Commission also sees a major advantage in encouraging personal savings
and superannuation so that more individuals in the community are capable
of providing their own income support. It notes, however, that some individuals
might be dissuaded from accumulating assets for fear of losing social
security benefits. It also makes passing reference to the possible impact
that taxation may have in distorting saving and superannuation decisions.
It is surprising that the Commission did not consider a number of the
more significant policy issues bearing on community saving behaviour,
such as the differential tax treatment of interest, dividends and capital
gains (especially important in an inflationary environment) and the tax
treatment of home ownership. However, it claims that an investigation
of taxation arrangements fell beyond its terms of reference, but recommends
a comprehensive review of tax and social security arrangements in terms
of how they affect incentives to save.
On the broader issue of intergenerational equity, the Commission notes
that the recurrent expenditures of government generally benefit the current
generation and should therefore be paid for by the present generation.
Government capital investment might provide longer term benefits and thus
could be financed by borrowings which are repaid by future generations.
However, the Commonwealth Budget is dominated by recurrent outlays. Thus,
while the Commission realises that governments may run 'cyclical' budget
deficits or surpluses over the course of the trade cycle as a result of
its macroeconomic policy initiatives, it argues that the Commonwealth
should aim for a 'structural' budget outcome which is close to balance
or slightly in surplus rather than one which is 'consistently running
in sizeable deficit'.
While it is hard to disagree with the need to avoid consistent 'sizeable
deficits', a case might be made for the budget to show modest deficits.
To begin with, some Commonwealth outlays which provide services over time
are classified as recurrent in the Budget accounts. Defence equipment
is a case in point. Secondly, even some Commonwealth grants to the States
and local government which are classified as recurrent (such as identified
road grants and any capital grants which might be subsumed into general
revenue funding as a result of the Commission's own recommendations) may
be used for capital formation at those other levels of government. Finally,
some recurrent expenditures, especially on health and education, may be
regarded as generating human capital. The Commission discounts this latter
proposition on the basis that the benefits of human capital development
often flow substantially to the individual. However, it would be hard
to deny that future generations benefit from the fruits provided by a
well educated, healthy population.
Currently, the age pension is benchmarked against 25 per cent of male
Average Weekly Earnings. The Commission was requested by the Government
to examine whether this is an appropriate benchmark. The Commission notes
that since this benchmark was first introduced in 1969, there has been
a substantial increase in the number of women participating in the paid
labour force. The Australian Bureau of Statistics now produces measures
of Average Weekly Earnings for both males and females, whereas in 1969
it did not. Furthermore, the distribution of wages tends to be skewed.
The average wage is elevated by a small number of very high incomes and
is thus higher than the median wage (that is, the wage level below which
50 per cent of wage earners lie). One option offered by the Commission,
if benchmarking is to continue, is for the pension rate to be benchmarked
to the median Average Weekly Earnings of both males and females. If an
'average' measure is to be used, this could be the average of male and
female Average Weekly Earnings. The impact of either of these measures
would be to reduce the level of the benchmark applied to the age pension.
However, the Commission also questions the role of benchmarking security
payments against measures such as wages. It points out that, if the objective
of the benchmarking is to assess relative living standards, it might be
more relevant to compare social security payments against after tax incomes.
The 25 per cent benchmark currently in use would translate, at current
tax rates, into 33 per cent of after tax male Average Weekly Earnings.
Estimates of overall pensioner benefits should also include a wide range
of pensioner concessions and subsidies.
The Commission also notes that when announcing benchmarks, governments
should have an eye to the future affordability of meeting such commitments.
They should also bear in mind the impact of such guarantees on the incentives
for individuals to provide for their own income support.
The Commission therefore also suggests possible alternatives to the
benchmarking approach. One option might be for pensions and other benefits
to be adjusted only on the basis of regular reviews in the light of all
relevant circumstances, including budget pressures. Another might allow
for the adjustment of pensions and related benefits for past changes in
the Consumer Price Index and other adjustments to be the subject of periodic
review in light of budget circumstances. The Commission recommends that
the Government should review its pension adjustment policies.
The Commission also recommends that the Government should decouple rates
for the age pension and those for unemployment related benefits. In the
Commission's view, this would prevent pension adjustments automatically
flowing on to unemployment related benefits without regard for possible
negative effects on incentives to find work.
In reporting upon the extent, condition and adequacy of Commonwealth
sector infrastructure, the Commission essentially mirrors the conclusions
of a number of other reports. While reporting a decline in infrastructure
funding as a share of Gross Domestic Product (GDP) over time, the Commission
considers that there is no evidence of 'overall' infrastructure inadequacy,
although there is some evidence of both shortages and excess capacity
in particular types of infrastructure. It might be argued, however, that
perceived infrastructure shortages in particular sectors are still cause
for concern.
The Commission reiterates the need for appropriate pricing of infrastructure
services and the use of cost-benefit analysis, which also takes into account
social and other 'spillover' costs and benefits, on a case by case basis
for assessing infrastructure projects. A growing role for the private
sector is also seen in the provision of infrastructure. Recommendations
by the Commission relating to the need to eliminate duplication by different
levels of government would, of course, also apply to infrastructure provision,
as would its recommendations concerning the need for government regulation
to ensure the efficient operation of infrastructure by private providers,
especially where some natural monopoly element may be present.
One infrastructure issue, which is mentioned in passing by the Commission,
is becoming more important. There is growing awareness that more strategic
planning is necessary in integrating and co-ordinating infrastructure
development, such as in multi-modal transport and the provision of urban
amenities to expanding cities. The Commission notes that the Prime Minister,
in a 1995 address, gave his support for an infrastructure advisory body
linked to COAG.
Currently, most government departments and agencies operating on the
Commonwealth Public Account manage their accounts on a cash basis. The
Budget itself is compiled on a cash basis, as are forward estimates of
outlays. Reflecting this process, Parliamentary appropriations are also
prepared on a cash basis.
However, a cash based accounting system may not give a true picture
of the actual annual resource costs incurred by agencies in performing
their activities. As such, a cash based system is an imperfect tool for
efficient financial management within agencies and makes it difficult
for performance and accountability to be scrutinised and benchmarked by
Parliament, the community or even by the agencies themselves.
Already, all Commonwealth agencies are required annually to table audited
financial statements on an accrual basis, but few have implemented accrual
based financial management information systems and practices which would
enable them to budget and manage their programs on an accrual basis.
The Commission therefore recommends that the Government should formally
adopt accrual principles as the basis for an integrated budgeting, resource
management and financial reporting framework, both at the agency level
and at the aggregate Commonwealth budget sector level. The Commission
states that such a framework needs to be in place by December 1997. At
the agency level, accrual budgets should form the basis of financial performance
targets to be reported upon in their annual reports. Such targets should
be ready for implementation with the 1998-99 Budget.
The Commission further recommends that the Commonwealth Budget should
be presented in the Budget Papers on an accrual basis as from the 1998-99
Budget. The forward estimates, which form the basis of much Budget policy
consideration, should also include the accrual implications of policy
proposals and commitments.
The Budget appropriations included in the Appropriation Bills would
represent the cash flow implications of the accrual budgets for each government
agency. The Commission notes that the present division of appropriations
between Appropriation Bills No 1 and 2, which is designed to facilitate
parliamentary consideration of the legislation within the terms of section
53 of the Constitution, is not conducive to good resource management.
The Commission therefore recommends that the Government, in consultation
with the Parliament 'as appropriate', should review the structure and
presentation of items contained in the Appropriation Bills. It further
recommends that, at the same time as the Appropriation Bills are introduced
into Parliament, agencies should provide documentation which clearly establishes
the accrual basis for the proposed appropriations.
The Commission recommends that Commonwealth departments, agencies and
statutory authorities should also be required to table audited annual
financial statements, on an accrual basis, in the Parliament by 30 September,
with their first reports relating to the financial year 1997-98.
While the Department of Finance should be responsible for co-ordinating
a strategy for the implementation of a full accrual accounting framework,
the Commission is of the view that chief executive officers and senior
managers should be responsible for the accrual resource management reforms
in their own agencies, as they will be held responsible for the performance
of their agencies which will be highlighted by those reforms.
The Commission was required to report on the state of the Commonwealth's
finances, including identification of assets and liabilities and contingent
liabilities. The Commission has addressed this matter by presenting a
set of consolidated financial statements identifying the financial position
of the Commonwealth Government as a whole, that is including the general
government sector, public trading enterprises (PTEs) and public financial
enterprises (PFEs), for 1994-95. The general government sector includes
those government departments and agencies which are substantially involved
in the provision of non-market services. As such, it encompasses the Commonwealth
budget sector, although it also includes a number of agencies, such as
the CSIRO, the National Library and the ABC, which operate off-budget.
At a whole of government level, the Commission reports a consolidated
deficit of $10.6 billion. This result reflects the fact that the general
government sector returned a $12.1 billion deficit, while its GBEs were
in surplus. This result is not surprising since in 1994-95, an $11.6 billion
deficit (on a cash basis) was recorded by the budget sector. Had the accounts
been prepared for 1995-96, on the basis of current budget estimates, the
overall financial outcome would most likely have been somewhat healthier.
The Commission recommends that whole of government statements should
be prepared on a trial basis for 1995-96, although they need not be audited.
The statements for 1996-97 should be fully audited and ready for tabling
in Parliament by 30 September 1997. In addition to the year end statements,
the Commission recommends that the Government should, as from the financial
year 1997-98 prepare mid year statements as of 31 December. These need
not be formally audited but should be reviewed by the auditor. The tabling
of such mid-year consolidated statements would represent one element of
the Charter of Budget Honesty.
The Commission also recommends that the primary financial statements
should contain a statement of revenues and expenses, a statement of assets
and liabilities and a statement of cash flows for the whole of government
as well as for the general government, PTE and PFE sectors. The statements
should also separately identify the budget sector.
Much of the debate since the release of the Commission's Report has
centred upon its finding that, at the whole of government level, liabilities
exceed assets by $73.4 billion. As the Commission itself points out, this
difference is more than accounted for by unfunded employee provisions,
mostly superannuation, of $74.8 billion which the Commission treated as
a liability.
The unfunded superannuation liability is the actuarial value of future
superannuation entitlements of members of the major Commonwealth schemes,
Parliamentarians and certain members of a number of GBE schemes. The total
unfunded superannuation liability is $69.3 billion. Such entitlements
are unfunded in the sense that the Commonwealth has provided no special
reserve for meeting these commitments, preferring instead to meet annual
superannuation payments from annual revenue collections. However, as has
been pointed out by various commentators, there would appear to be little
difference between the payment of superannuation entitlements and the
payment of the age pension and other income support schemes. These too
are financed from annual revenue collections and are 'unfunded' yet they
have not been treated by the Commission as a liability.
Nevertheless, the Commission has given consideration as to whether or
not the Commonwealth should fund its superannuation schemes. Of course,
if superannuation were to be moved from a defined benefits basis to an
accumulation basis, this problem would ultimately resolve itself, although
there would still be a considerable period of transition during which
Commonwealth funding would be necessary.
The Commission has found that actuarial analysis shows that the Commonwealth's
projected unfunded superannuation liability will decline as a proportion
of GDP over time. That is, the affordability of the schemes improves over
time. The Commission's brief analysis of accruing costs and actual superannuation
payments also suggests that the question of intergenerational equity is
not an issue.
The Commission also highlights the difficulties involved in attempting
to fund the Commonwealth's superannuation liabilities should it so desire.
A once off tax impost would be huge and would impose the entire burden
on present taxpayers. Borrowing would simply increase the Commonwealth's
assets and liabilities without closing the unfunded superannuation gap.
The Commission concludes that the only practicable approach would be for
the Commonwealth to target for small budget surpluses over time and apply
these to funding its superannuation liabilities. In the short term, however,
this would still impose a heavier burden on the present generation of
taxpayers who would be required to contribute both to current and future
superannuation payments.
Whilst explicitly acknowledging that there are significant arguments
for and against, the Commission considers, on balance, that the Commonwealth
should in future, fund its employer superannuation liability as it accrues
'because of the discipline it would impose on governments to focus on
living within their means' and to 'improve market perceptions about the
Commonwealth's financial management'. Such a policy could be seen as supportive
of a more general macroeconomic strategy, subscribed to by the Commission,
which believes that the raising of Australia's overall saving levels will
reduce our reliance on foreign borrowings and hence our current account
deficit. It has been estimated that such funding would add around $2 billion
per annum to the Commonwealth's revenue needs.(9)
Such a move could set new directions in government funding. A logical
extension of the Commission's philosophy could see the re-establishment
of the National Welfare Fund, which was set up in the 1940s to justify
tax increases on the basis that they would be used to provide income support.
In his first Headland speech in June 1995, the Prime Minister, Mr Howard,
committed a Coalition Government to a Charter of Budget Honesty which
would encompass both reporting requirements and the statement of clear
fiscal policy objectives.
Currently, the Commonwealth Government is not required to state its
fiscal policy nor to set fiscal targets and report against these. Despite
this lack of compulsion, past Australian Governments have generally outlined
their forecasting framework and the general thrust of their fiscal policy
in Statement No. 2 of the Budget documents and in various other major
economic statements. However, they have only occasionally publicly set
fiscal targets for themselves, one recent example being the 'trilogy'
pledges of the Hawke Government in 1984.
In order to promote economic and financial transparency, to raise general
awareness of the Government's fiscal intentions and to encourage governments
to act responsibly, the Commission recommends that legislation should
be introduced requiring governments to clearly state their fiscal strategy
and to set out comprehensive fiscal reporting standards. The legislation
would require governments to set fiscal targets and benchmarks, although
these would not be enshrined in legislation.
The Commission envisages that benchmarks would reflect current fiscal
issues. They may specify that a particular level of public saving should
be achieved or that a specified debt level should be reached. Such benchmarks
should be unambiguous and leave no doubt as to whether they have been
achieved or not.
Already the Government reports on the economic and fiscal outlook in
Budget Statement No. 2. A brief outlook restatement is also provided in
the Government's mid year review, which is published in the form of a
Press Release. The Commission recommends that
- the results of the mid-year review should be published in January
(if the Budget is released in May) and be expanded to contain information
beyond the current budget year;
- a fiscal policy statement outlining the Government's current fiscal
strategy should accompany the presentation of these two reports; and
- a report on the economic and fiscal outlook using the latest update
information and incorporating all post-budget policy decisions should
be published approximately one week after the calling of every federal
election.
The fiscal policy statements would be the medium through which the government
announced its fiscal targets and benchmarks. They would also provide information
on a range of economic indicators, such as the headline budget balance,
the underlying budget balance, public debt by sector and so forth. The
Commission recommends that such indicators should also be published prior
to elections. Fiscal policy statements would also identify discretionary
measures that are intended to smooth the economic cycle and would contain
an explanation of any change in such discretionary settings.
The Government currently issues monthly Statements of Commonwealth Financial
Transactions, which provide details of outlays, revenues and balances
for the month in question along with cumulative totals for the financial
year to date. The Commission proposes that these statements would continue
to be produced, although they would eventually be prepared on an accrual
basis.
As mentioned in the section dealing with whole of government reporting,
consolidated reports showing the state of the Commonwealth's finances
would be prepared and published twice a year. Tax expenditures should
be treated as closely as possible like program expenditures in these and
all other published fiscal reports.
The entire Report of the Commission deals with important public policy
issues which would be of obvious interest to Parliamentarians, but the
Report also addresses a number of matters which could impact directly
upon Parliamentarians or the parliamentary environment and processes.
Superannuation: In its recommendations on superannuation,
the Commission supports a review of the current defined benefits arrangements,
with a view to their replacement by accumulation schemes. Scheme benefits
would reflect contributions and fund earnings. The Commission has found
that the existing Parliamentary Contributory Superannuation Scheme involves
a cost to the Commonwealth of 78 per cent of Parliamentarians' salaries.
It criticises the design of the scheme as being inequitable for short
term Parliamentarians and for not allowing Parliamentarians to tailor
their remuneration packages to suit their individual needs. It concludes
that the Scheme could be made more flexible, for example, by allowing
Parliamentarians to vary their remuneration mix between salary and superannuation.
The move to an accumulation scheme would, according to the Commission,
result in superannuation arrangements similar to those applying to senior
executives in the private sector.
Amalgamation: In its recommendations on the elimination
of duplication and overlap in the Commonwealth public sector, the Commission
raises the issue of the amalgamation of the parliamentary departments.
The Commission states its view that all five departments should be combined
into a single new department which might be called The Department of the
Parliament. It suggests that there could be an Office of the Senate and
an Office of the House of Representatives in this Department if required.
It further suggests that some scope might exist for contracting out some
services currently provided by parliamentary departments. It might be
noted that the Commission cites the amalgamation of the parliamentary
departments as an example of the significant efficiency gains (of at least
20 per cent) which could be made by reorganising public sector activities.
The Commission has attempted to highlight the cost of support services
to the Parliament by calculating that the cost of operations by the five
parliamentary departments works out to $600,000 for each Parliamentarian.
This statistic is, however, quite misleading. The operations performed
by the parliamentary departments are not directed solely at Parliamentarians,
but contribute to the functioning of a democratic system, benefiting all
Australians, of which Parliamentarians themselves are a part. For example,
the Parliamentary Committee system, whose costs are included in the above
average, has played an important role in investigating and recommending
action on a range of issues of economic and social importance, both within
the private and public sectors.
Contrary to assertions in the Report, efforts to amalgamate parliamentary
departments have been pursued in the past but failed for want of parliamentary
support. Institutional changes in the Parliamentary Departments must have
regard to the continued capacity of the Parliament to function independently
and effectively. Were such changes to be seen as being dictated by the
Executive Government, the preservation of parliamentary independence and
the constitutional separation of functions performed in the two Chambers
could also be an issue.
It could well be argued that, issues of privilege apart, the existence
of five separate departments of the Parliament, each with its own structures,
hierarchies and Heads, each being responsible, on average, for 282 staff
(in comparison to a Commonwealth average of 6031) is anachronistic. The
amalgamation of administrative units performing routine corporate functions
in each of them, for example, or the outsourcing of such tasks is another
matter and should be examined. The reduction in such overheads is discussed
elsewhere in the Report and there appears to be no reason for treating
the Parliament as a special case in this regard.
Whilst there is no doubt scope for contracting out certain activities
of parliamentary departments, consideration should be paid to the specialised
and often unique requirements of Parliamentarians.
Financial Reporting: Parliamentarians would also be assisted
in their scrutiny task through the provision of more comprehensive and,
hopefully, more useful financial and performance information relating
to government departments and agencies. The poor state of published performance
information has been criticised more than once in Parliament, especially
during the Senate Estimates process. Parliamentarians may also benefit
from the recommended review of the presentation of the Budget Papers which
is designed to ensure that accrual information is integrated with macroeconomic
data in a meaningful and user friendly way.
The question of a review of the structure of the Appropriation Bills
would also be of interest to Parliamentarians, since this could have implications
for the relationship between the Senate and the House of Representatives
on the issue of money bills.
Finally, the Commission notes a recommendation by the Joint Committee
of Public Accounts that a new parliamentary committee be established and
have all fiscal documents referred to it for examination and report. Such
a committee would have the power to call government Ministers before it
and to conduct public hearings on government fiscal strategy in the three
months prior to Budget presentation. The Commission is rather dismissive
of this suggestion, arguing that such a process would blur the distinction
between the Executive and the Parliament in terms of Budget formulation.
The Commission has therefore recommended that the Government should consider
whether it wants to increase parliamentary scrutiny of fiscal policy.
The Commission's Report is to be commended for bringing together in
one document some of the more significant strands of the public sector
reform debate which have been current for the past decade or more. However,
despite the breadth of the Enquiry and its recommendations, it may be
argued that many of the reform proposals advanced by the Commission tend
to have a common foundation and motivation stemming from an essentially
'cost oriented' paradigm of public sector administration and reform. It
is also noteworthy that the overall direction of most of the reform proposals
appears to lead to one all-embracing outcome - the reduction in Commonwealth
net budgetary outlays and a hoped-for enhancement of Australia's national
savings performance.
There is little dispute that the question of the adequacy of Australia's
national savings performance in recent years is a pivotal issue in Australian
macroeconomic policy, as it lies at the heart of concerns about the size
of Australia's net foreign debt. While there is debate as to the real
significance of Australia's 'foreign debt problem', the Commission implicitly
subscribes to the view that the raising of Australia's overall savings
levels will reduce our reliance on foreign borrowings and hence our current
account deficit (the so-called 'twin deficits theory').
This is consistent with a common view among mainstream public policy
makers and the Government that Australia's best interests would be served
if our foreign debt levels were reduced. The chief avenues for reducing
foreign debt commonly advanced by the Government's economic policy advisory
agencies have involved (1) initiatives to increase national savings and
(2) the pursuit of higher national productivity through further microeconomic
reform.
The proposals contained in the Commission's report entail both microeconomic
'reform' of a number of the major individual programs of the Commonwealth,
particularly in the areas of social policy, industry assistance measures
and payments to the States, as well as broad strategic administrative
proposals directed at reducing the overall demands of the public purse
on the economy, whether these demands originate at the level of Federal,
State or local government. These involve significant contractions in the
Commonwealth's role in a diverse range of policy arenas.
As the Commission's Report rightly states in its introduction, the Commonwealth
cannot isolate itself (or other layers of government) from the broader
processes of structural reform and change which it has itself promoted,
facilitated and imposed on the private trading sectors of the economy.
And it is possible to identify some areas of public administration where
internal reform proceesses have been tardy or non-existent. But from an
overall perspective and by comparison with most other advanced western
economies, Australia has made very significant advances in the field of
public sector reform. It is widely regarded as an international pacesetter
in the field, in spite of the complexities and rigidities imposed by our
Federal system of Parliamentary democracy and our formal written Federal
and State Constitutions.
Notwithstanding Australia's successes to date, reform of government
administration should be considered an on-going challenge to good government
and the democratic process, continually adjusting to changing circumstances
and community expectations - and with public sector financial constraints,
operational efficiency and quality service delivery being afforded high
priority (but not the sole priorities) in the pursuit of reform. Thus
to gain community support, reform processes must embrace the broadest
possible perspectives about the community's expectations of government.
It is questionable, for example, whether a majority of citizens would
give unqualified support to the notion that the cheapest form of government
service delivery (for any given service standard) would necessarily always
be in its best interests - a premise which appears to underpin much of
the Commission's approach.
Likewise, on the issue of the apparent overlap of Commonwealth and State
involvement in the delivery of certain government services, it may well
be that many in the community place a high value on 'contestability' among
governments in meeting the aspirations and expectations of voters. Indeed,
such duplication might be interpreted as an inevitable outcome of healthy
democratic processes within a Federal system of government, yielding real
(but unmeasurable) benefits to the nation in terms of the quality of our
democracy and which outweigh the more easily measurable additional costs
which such arrangements can impose on the overall costs of government.
Thus, the Commission's emphasis on striving for the least-cost mode
of service delivery (for any given standard of service) as the paramount
underlying policy tenet could suggest in some contexts a somewhat narrow
and limited understanding of the processes of government and the underlying
rationale for 'how we got to where we are' with many Government programs
and institutions. Similarly in its consideration of the Australian Public
Service, the Report gives little recognition to the ideal of public
service and the reasons behind the evolution of the APS into its current
form which embrace, but extend well beyond, issues of least-cost service
delivery to government and the community.
Similarly, in its assessment of a framework for determining where government
involvement is warranted and where it is not, the Commission tends to
imply that such assessments can be undertaken in a rather straightforward,
objective and value-free manner, apparently without regard to political
process and community expectations. In reality, the determination of the
appropriate role of government lies at the heart of the democratic process
and extends well beyond the pursuit of purely 'social' justifications
for government involvement.
Nevertheless, the Commission's report proposes a range of novel policy
initiatives which warrant further examination. While some of these have
been on the debating table as 'policy options' for some time, several
are of quite recent origin and quite novel, especially -
- those relating to Commonwealth macroeconomic policy responsibility
and the proposals for more comprehensive fiscal reporting, both of which
are central to the Charter of Budget Honesty;
- its suggestion that the Commonwealth should break with a convention
which has been in place since Federation and fund its accruing superannuation
liabilities is also reasonably novel, at least at the Commonwealth Government
level;
- the Commission's recommendation that local government financial assistance
grants be 'integrated' into State general revenue assistance; and
- the suggestion that the chief executive officers and senior managers
of public sector agencies should be responsible for the accrual resource
management reforms in their agencies so that they will be directly responsible
for the performance of their agencies.
A number of the other initiatives recommended by the Commission simply
extend processes which are already in train in the Commonwealth public
sector. Many of the Commission's findings are based upon or parallel those
arising from a range of other governmental inquiries, task forces and
working groups. One valuable contribution which the Commission's Report
makes is the bringing together into one document, some of the manifold
issues involved in public sector reform.
Certainly the Commission's Report does break new ground in a number
of areas although in some major areas of policy debate, it might be argued
that the Report raises more questions than it answers; this is not to
belittle what is a wide-ranging commentary on public policy reform options.
But fundamental questions arise over some quite radical initiatives such
as its proposals for pursuing an on-going structural surplus on the Commonwealth
budget and its suggested funding arrangements for the Government's superannuation
liabilities.
There are a number of significant policy issues affecting the efficiency
of public administration and broader national savings policy issues which,
surprisingly, were not addressed by the Commission. For example, the significant
public administrative shortcomings arising from the fiscal imbalance between
Commonwealth and State taxing and expenditure responsibilities is a widely
accepted inefficiency in Australia's public sector financial arrangements,
yet this major issue is by-passed in the Commission's analysis. And for
a Report which seems to have, as one of its fundamental tenets, the need
to improve Australia's national savings performance substantially, it
is surprising that the Commission is not more forthcoming in its assessment
of the more significant policy issues and distorting factors bearing on
community savings behaviour - for example, the differential tax treatment
of interest, dividends and capital gains and the taxation treatment of
home ownership.
Given the time constraints facing the Commission in the preparation
of its Report, it is understandable that many of its recommendations take
the form of broad principles or requests for further review of issues.
This has not prevented the Commission, however, from attempting to make
a significant number of specific recommendations based upon its principles.
However, the public sector is very complex and is not necessarily amenable
to 'reform by formula'. Individual reforms may need to be subjected to
considerably more scrutiny than the Commission was able to undertake,
and even within individual reforms, many policy decisions will have to
be made on a case by case basis.
- The Canberra Times, 22 June 1996
- Public Service Act Review Group. Report. AGPS. Canberra. December
1994
- The Management Advisory Board/Management Improvement Committee. Achieving
Cost Effective Personnel Services. Joint Publication No. 18. AGPS.
Canberra. 1995
- Boucher, T. The APS and the World: A Comparison in Management.
Public Service Commission. 1995
- See for example Uhr, J. Ethics and the Australian Public Service:
Making Managerialism Work. Current Affairs Bulletin. April 1990.
pp.22-26; Pusey, M. Economic Rationalism in Canberra: A Nation-building
State Changes its Mind. Cambridge University Press. 1991; Pollitt,
C. Managerialism and the Public Services: the Anglo-American Experience.
1990.
- The four Departments reviewed in 1995-96 are those of Housing and
Regional Development, Human Services and Health, Veterans' Affairs and
Immigration and Ethnic Affairs.
- See, for example, Walsh, C. Reform of Commonwealth-State Relations:
'No Representation Without Taxation'. Federalism Research Centre.
Discussion Paper No. 2. August 1991. p. 6
- National Inquiry into Local Government Finance. Report. AGPS.
Canberra. 1985
- Toohey, B. An Exercise in Scaremongering. The Canberra Times.
June 22, 1996 p. 11
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