In April, the Informant examined the decision of Queensland’s Newman government to appoint a commission of audit to review the state’s finances. Its first report, issued last month, covered the overall state of public sector finances, and its second, due in December, will examine government programs and service delivery.
The use of audit commissions external to government is not new. There are relatively recent examples in NSW (Nick Greiner, 1988), Victoria (Jeff Kennett, 1992, and Ted Ballieu, 2011), Queensland (Rob Bordidge, 1996) and federally (John Howard, 1996). There are earlier precedents, too, such as the Whitlam government taskforce in 1973 (chaired by H. C. Coombs) and a royal commission on public spending in 1918, in the aftermath of World War I.
The recent Queensland commission’s findings, their veracity and the audit’s methodology will be scrutinised closely, as will its effect on the state’s public sector, which employs about 200,000 people. The audit found the government’s finances were in a parlous state, and Premier Campbell Newman has since committed to shedding many jobs. It’s worth asking why it took an external audit and a change of government for the full situation of that state’s finances to become known. What does this tell us about Queensland’s existing watchdogs: its auditor-general and, indeed, its Treasury? Was this an indication of a politicised public service, in which no one had the integrity to tell their political masters the truth, or ensure that others who could tell the public knew? The other peculiar issue is how Queensland’s finances deteriorated so quickly since 2006, given it’s a resource-rich state that should be riding a resource boom.
These issues may be relevant to more than one state. Queensland’s audit commission could be seen to be following the well-established tactic of new governments that wish to implement major reforms, and seek to justify them by blaming the previous administration’s mismanagement. It has been used by other non-Labor governments, such as Kennett’s, which wanted to implement neoliberal or ”new public management” policies. However, if the Queensland commission’s assessment of state finances is correct, then the use of such external instruments, while having a ”political” role, are also legitimate in identifying independently the extent of a financial problem and providing government with the ”evidence” for the subsequent actions – spending cuts – that inevitably follow.
Features of audit commissions
Before assessing the Queensland commission’s work, it’s worth noting the features of such bodies.
First, most of them, with the exception of the Coombs taskforce in 1973, were appointed by non-Labor governments. There are several possible explanations for this. One is that they have tended to be appointed after a Labor government’s term ended with poor financial outcomes. Another is that non-Labor parties tend to oppose ideologically a large public sector and, upon winning office, want to cut it back.
Second, such bodies are usually appointed by incoming governments that have been out of office for long periods: Newman (14 years), Borbidge (seven), Howard (13), Kennett (10), Ballieu (11) and so on. Parties out of office for long periods naturally suspect that the bureaucracy is both politicised and part of the problem: profligate, incompetent and top-heavy.
Last, audit commissions draw their members from outside existing government agencies, and the members usually have significant professional standing and expertise. Borbidge’s, for example, was chaired by well-accomplished academic Dr Vince Fitzgerald. Kennett and Howard’s were chaired by Professor Bob Officer, who was the chairman of finance and the deputy director of Melbourne University’s business school. Ballieu’s was chaired by Dr Michael Vertigan, a retired head of Treasury with a record of conducting state and federal government inquiries. However, as the Informant noted in April, the appointment of former federal treasurer Peter Costello as chairman of Newman’s recent commission differentiates it from these other audits, and makes it appear more politically motivated than it probably is. Such an appointment has few positives if the aim of the review is to provide credible evidence.
The Queensland findings
The commission’s findings are horrendous. Moreover, there has been little refutation of their overall accuracy. They include:
■ The government had embarked on ”an unsustainable level of spending that has jeopardised the financial position of the state”.
■ Government finances had deteriorated sharply since 2006 to the point that it was ”borrowing heavily to support the budget”.
■ State debt is now $64 billion and likely to be $100 billion by 2018-19.
■ The cost of Queensland of losing its triple-A credit rating added $100 million a year to interest payments.
■ The previous government’s projected budget surplus needed urgent revision – $3 billion in ”fiscal consolidation” (i.e. cuts) was needed for the budget to be in ”genuine surplus” in three years.
■ Treasury’s forward budget estimates were ”overly optimistic”.
■ The previous government, which enjoyed a revenue surge between 2001 and 2007, left no reserves for unexpected circumstances (e.g. the global financial crisis and natural disasters).
■ Public service productivity was poor.
■ Capital spending was financed increasingly by loans – an increase from 34 per cent in 2005-06 to 96 per cent in 2010-11.
The commission’s report is highly critical of both the growth in Queensland Public Service staff numbers and, more importantly, expenses due to classification creep and wage rises. Some of these problems were known beforehand, though they were not acknowledged by the Bligh government. For example, the public service’s growth and costs, which the commission identifies as a key underlying cause of the budget blow-outs, had been detailed by external researchers, such as the Institute of Public Affairs’ Julie Novak in a public paper in 2009.
The audit recommendations
The 206-page report recommends a two-stage fiscal strategy.
The first is to achieve a surplus in 2014-15 by what it describes as ”a $3 billion process of fiscal repair over three years”.
The second is a debt-reduction strategy of $25-30 billion, to restore the debt-to-revenue ratio to 60 per cent by 2017-18. Once this is achieved, the government should ”set medium-term targets of maintaining a zero fiscal balance in the general government sector on average over the economic cycle, and of keeping total government debt levels constant to [general state product]”.
In recommending how to achieve these targets, the commission acknowledged ”there are limited prospects to boost revenue. It is likely, therefore, that a major part of the adjustment burden will need to be borne by the expenditure side of the budget.” And so has been the case.
For example, in the first stage, the commission supported the government’s policy of capping public sector wage growth at 3 per cent a year as the most important measure in reducing recurrent spending. This means a substantial cut in jobs. On June 19, Newman told state Parliament there were 20,000 too many public servants in Queensland. Although some contract staff have already lost their jobs, the commission’s report has ignited fears that the cuts will extend to ”permanent” public servants; an option the LNP eschewed in opposition. There is little doubt now, given the report’s tone, that such cuts will occur.
Other suggested spending cuts included reviewing discretionary grants, targeting government services, and assessing partnerships with the federal government to determine the costs to the state. The proposed national disability insurance scheme was cited as an example of such a review.
The thrust of the commission’s proposals is towards reducing services by way of ”demand management”; i.e. contracting out, privatisation, means-testing and charging. It recognises political realities by saying the state ”would continue to have a role in those instances where no other provider exists (for example, in the more decentralised parts of the state)”. The report also advocates ”exiting expenditure activities more appropriately supported by other levels of government”. The examples given are residential aged care, primary and community healthcare and services for job seekers, which the report suggests should be handed over to the Commonwealth or the private sector. Whether the Commonwealth would accept is another question.
Revenue-raising strategies included a deficit levy (which the government rejected), broadening the base of land tax, increasing gambling taxes and mining royalties, increasing the progressiveness of transfer duty and the rate of landholder duty, and improving taxpayer compliance. None of these received strong endorsement from the commission, so the focus will stay on spending cuts.
The Queensland audit commission’s findings are an damming indictment of previous Labor governments’ financial management, but also their lack of integrity. Even if some see the commission process as politically motivated and manipulative, the audit findings are hard to refute.
The immediate issue is how deeply Newman will need to cut Queensland’s public sector and whether this can be done without creating future problems.
But the long-term, and more important, task is the reform of Queensland’s system of government. Accurate financial information should never be suppressed, and the public service must provide frank and fearless advice. The paradox of public service ”reform” in the age of new public management is that public servants inevitably see their jobs as giving ministers what they want and need. With so many jobs now under threat, it’s hard to see this kind of politicisation decreasing.
Understandly, the audit commission did not address this issue, which fell outside its scope. Yet the Newman government, with almost 90 per cent of the seats in Parliament, has the power to address it, and for the sake of Queensland citizens it must.
Dr Kate Jones is a research fellow and and Professor Scott Prasser is the executive director at the Public Policy Institute in the Australian Catholic University.
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