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