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)

Government Involvement

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 Australian Public 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.

The Federal-State Dimension

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.

Demographic Change and Intergenerational Equity

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.

The Age Pension

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.

Infrastructure

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.

The Accounting Framework of the Commonwealth

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.

Whole of Government Financial Reporting

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.

Charter of Budget Honesty

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.

Reporting Requirements

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.

Matters of Interest to Parliamentarians

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.

Concluding Commentary

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.

Endnotes

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

More of the Same or a Brave New World?: The National Commission of Audit

Denis James Economics, Commerce and Industrial Relations Group

Personnel Issues

Operations

Savings

Performance Information

Specific Programs

Denis James
Economics, Commerce and Industrial Relations Group