Are budgets worth the paper they’re written on?

In this little exercise I have gone through commonwealth government budgets from 1999‒2000 to 2013‒14 to study changes in the figures.

The figures for each budget can vary quite significantly. For quite a few years now we have had the Mid-Year Economic and Fiscal Outlook (MYEFO) which updates and revises the figures used in the budget as presented on budget night. Even before MYEFO, it was not uncommon for budget figures to be revised during the year and this often became apparent during the process known as ‘Additional Estimates’. Then there is the next budget: while it provides the figures for the coming financial year, it also provides another set of figures for the current financial year — which still has about seven weeks to run at the time of the budget. And each budget also contains projections for the next three years (the forward estimates). To complete the picture, in about September each year, the ‘Final Outcome’ is released which presents the actual figures, the actual revenue and spending, that occurred in the previous financial year (and it compares those final figures not to the original budget but the figures used on the more recent budget night). So, before the Final Outcome, there could have been at least six different sets of figures relating to any single budget.

I will focus on two sets of figures: the budget figures as presented by the treasurer on budget night and the final outcome (which is why I stop at 2013‒14). That will give us an indication of how accurate (or otherwise) the treasury and treasurer estimates of income and spending actually are.

There is also an issue about accrual accounting and cash accounting, and there often seems to be a few billion dollars difference between the two: for example, in 2007‒08 the ‘final outcome’ revenue for the government in accrual terms was $303 billion but $295 billion in cash receipts. (One reason I have commenced in 1999‒2000 is because that was the year that accrual accounting was introduced.)

Accrual accounting assigns income and expenditure when a commitment is made whereas cash accounting only enters money when it is actually received or spent: for example, if the government promises an organisation $100,000 on 10 June this year but doesn’t pay the money until 10 July, it would appear in the 2014‒15 budget under accrual accounting but the 2015‒16 budget under cash accounting. While the budget papers do contain both cash and accrual tables, I have stuck with the figures from accrual accounting as they now seem to provide the headline figures. (Although from my reading it appears that governments may sometimes pick the figure which best suits them at the time.)

In the eight years from 1999‒2000 to 2006‒07, actual revenue exceeded the budget estimate in every year by an average of $6.7 billion (or about $9 billion in constant 2013‒14 prices), varying from $2.8 billion to $13.1 billion, or from 101.5% to 106.8% of the budget night estimate. We might argue that a difference of 1‒2% isn’t too bad when one is trying to predict the future but it was only that close in two of those eight years (and it has been that close only once since). Also, because in those years the mistake was to under-estimate revenue, it wasn’t a problem for the government. (It also helps explain how Costello managed to achieve his surpluses — the cumulative under-estimates for those years amounted to $54 billion.)

The year 2007‒08 was a turning point but initially for a different reason. It was the year the GST was counted in the government’s revenue — before that it was discussed in a separate budget attachment. For that reason, government revenue jumped by almost $57 billion above the original budget night estimate but $44.4 billion of that was the GST revenue. Without the GST, the final outcome for revenue was still $12.6 billion above the budget night estimate. The influence of the GST on the budget can basically be ignored because although it adds to revenue it is simply offset in spending as a transfer to the states. It does mean, however, that the headline revenue figure in the budget is a little misleading: for example, in 2013‒14 the government’s final revenue was $374.0 billion but that included $55.5 billion in GST, which left $318.4 billion for spending on commonwealth government programs (including additional support to the states for hospitals and schools). Despite that I will use the full budget figure as it becomes too time-consuming to re-arrange every budget to remove the GST.

From 2008‒09, the budget night estimates have tended to over-estimate government revenue, with only 2009‒10 under-estimating revenue (by $2.2 billion).

Revenue Budget estimate (billion) Final outcome (billion) Proportion
2008-09 $319.5 $298.9 93.6%
2009-10 $290.6 $292.8 100.7%
2010-11 $356.4 $309.9 87.0%
2011-12 $350.0 $338.1 96.6%
2012-13 $376.1 $360.2 95.8%
2013-14 $387.7 $374.0 96.4%

In dollars terms that amounts to an average ‒$17.7 billion each year. The cumulative total of budget night forecasts for those six years was $2,080 billion but the actual revenue was only $1,974 billion (95%), meaning the Rudd and Gillard governments had available for spending $106 billion less than they were originally told. That also suggests that when treasury over-estimates revenue it does so by more than twice as much as when it under-estimates revenue.

The forecasts in the ‘forward estimates’ in each budget also provide a picture of how treasury thinking changes over time. (The figures are billions of dollars on an accrual basis and start at 2001‒02 because I would need to go back earlier than 1999‒2000 to get the full three-year forecasts for previous years and those earlier years are cash accounting).

Government revenue Forecast 3 years earlier Forecast 2 years earlier Forecast 1 year earlier Budget night Final outcome
2001‒02 $153.8 $161.2 $158.8 $162.5
2002‒03 $163.1 $171.1 $164.9 $169.6 $175.0
2003‒04 $183.3 $175.5 $179.6 $178.3 $187.6
2004‒05 $185.7 $189.4 $185.0 $193.2 $206.2
2005‒06 $199.3 $194.2 $201.4 $214.5 $221.9
2006‒07 $204.7 $212.2 $222.9 $231.7 $237.1
2007‒08 $223.1 $233.4 $240.7 $246.8 $303.7*
2008‒09 $245.3 $252.1 $260.7 $319.5* $298.9
2009‒10 $265.6 $274.6 $336.9* $290.6 $292.8
2010‒11 $287.3 $350.9* $294.8 $321.8 $309.9
2011‒12 $366.9* $320.8 $356.4 $350.0 $338.1
2012‒13 $349.7 $381.9 $383.1 $376.1 $360.2
2013‒14 $407.2 $405.2 $402.2 $387.7 $374.0

* First includes the GST, which was not included in revenue figures in previous years

If you wonder why Labor had problems in its last budget, check out that last line of figures. The final outcome was below all of the previous forecasts, the only time that has happened since 2000 (although it also appears likely to happen to Hockey’s 2014‒15 budget but we won’t know for certain until September). The previous two years were above only one forecast, the one made two or three years earlier. In contrast, the Howard government during the 2000s saw the final outcome above all previous forecasts.

You can also see that treasury became a little uncertain between 2001 and 2004 after the ‘tech bubble’ burst and adjusted forecasts up and down and that has happened again in recent years, although for 2013‒14, and now for 2014‒15, each subsequent forecast has been lower: for 2014‒15 the figures run:
  • $425.8 billion forecast in 2011‒12
  • $424.8 billion forecast in 2012‒13
  • $411.6 billion forecast in 2013‒14
  • $391.3 billion estimated on budget night (which was reduced to $385.9 billion in the MYEFO)
The forecast three years out tends to be lower than the final outcome: that was the case in 11 of those 13 years. Leaving aside the change that the inclusion of the GST caused for the forward estimate for 2011-12, the only year in which that forcast three years out has been higher was in 2013‒14. That suggests the obvious: that revenue normally grows and it is difficult to predict by how much it will grow (which can also be influenced by inflation as these are ‘nominal’ dollars not adjusted to ‘constant’ or ‘real’ dollars). If you check the above table, you will see that revenue grew in all but two years (2008‒09 and 2009‒10) and, even with the problems since, has continued to grow although not as much as forecast.

Individuals’ income tax and company tax are the two biggest sources of revenue for the commonwealth government. The final outcome for individual income tax revenue was around 102% to 104% of the budget night estimate from 1999‒2000 to 2006‒07, with the exception of 2002‒03 when it fell to 98.1%. The year 2007‒08 was a good one for the government with individual income tax coming in at 105.5% of the estimate but since then the budget night estimates have been very good to poor: for four years (2008‒09 to 2011‒12) the individual tax income was between 99.3% and 100.4% of the budget night estimate, but in 2012‒13 it fell to 98.5% and in 2013‒14 to only 95.8%.

Company tax is more volatile and the forecasts rarely get it right. In the nine years from 1999‒00 to 2007‒08, the company tax came in at 98‒102% of the budget night estimate on only three occasions but, otherwise, it was generally under-estimated (coming in at 117.5% of the estimate in 2002‒03). Since the GFC, however, the estimates have failed to foresee the slowness of the recovery. In 2007‒08 it had come in $210 million above the budget night estimate but collapsed to 82.6% of the estimate in 2008‒09 (‒$12.8 billion). The estimate was better in 2009‒10, although actual revenue was lower — only $53 billion compared to $61 billion in 2008‒09. In the last four years (2010‒11 to 2013‒14), however, the estimate has been wrong every year and has over-estimated company tax by a cumulative $29.1 billion. It has provided as much as 25% of government revenue but in 2013‒14 was down to 18.4% (since 1999 it has averaged just over 19%).

The Howard government claimed to be low taxing but it achieved the highest revenue as a proportion of GDP in 1999‒2000 when it took 26.4% of GDP from the economy (it’s budget night estimate had been a high 25.9%). It did try to lower its GDP take in the following years aiming for 22.5% to 23% of GDP but generally its final take continued to be a little higher (most often just over 23%). Based on the budget night estimates, Labor also aimed for about a 23% take of GDP (other than during the GFC when it estimated 25.5% but actually took 24.9%). Since then the government’s take has been lower, and lower than the budget night estimates, falling to 21.7% in 2010‒11 and even in 2013‒14 was 22.7% (after predicting 23.5% on budget night). The Hockey budget of 2014‒15 estimates a take of 23.6% of GDP. It does seem odd that in the last few years as revenue growth slowed it also became a lesser proportion of GDP: one would think that it would remain more consistent and that revenue would fall if GDP fell or grow at a similar rate to GDP but that doesn’t appear to be the case. (If anyone can explain this, please do in a comment.)

Now I turn to spending forecasts. They could be more difficult as they are subject to government decisions that are taken after budget night and in that sense treasury can’t always be blamed if they are wrong. For example, the Rudd government decisions during the GFC boosted ‘social security’ spending by $22.1 billion above the budget night estimate and education by $3.8 billion. That would not have been the problem it became if the original revenue forecast had been accurate. Even with the increased spending, the total actual expenditure was only $5.1 billion above the revenue estimate on budget night: it was the fact that revenue came in $20.5 billion below that estimate that turned what should have been about $5 billion added to the deficit to over $25 billion. (Although, obviously, that additional expenditure was made because it was becoming apparent that the economy was in danger and revenue was falling.)

Health and social security are two of the government’s bigger expenditure items. While spending has continued to increase over the years (the reasons for that are a separate issue), the estimates of spending have been relatively good. Health, in particular, achieved 98‒102% accuracy in 11 of the 15 years from 1999‒00 to 2013‒14 and social security still managed to achieve 10 years despite the extra spending in 2008‒09. That makes sense because the spending is actually estimated by each line department, not treasury, and they basically know what they will spend under prevailing policies — major changes generally occur only when policy is changed during the year. In this context, I am taking no account of whether or not a government is spending more than it receives in revenue, only that the forecasts of spending are reasonably accurate.

Estimates and forecasts of revenue are important. Governments base their policy and spending decisions on them. When governments introduce new spending proposals, they do so on the basis of forecasts over the forward estimates — they usually allow that the future costs can be met within those revenue forecasts. But when the forecasts are wrong, and over-estimate future revenue, everything goes wrong: the government is locked into expenditure that no longer fits under the available revenue and that leads to deficits. That is a reason that deficits are sometimes considered acceptable when revenue growth slows, as at present — as long as government can foresee better revenue growth in future years.

While I have suggested that a +/‒2% estimate isn’t too bad as an estimate, it can still make a difference to the government in dollar terms. Even with the smaller budgets back in 1999‒2000 a 2% variation in total revenue would have amounted to $3.3 billion and in 2013‒14 would have been $7.8 billion (about three-quarters of the amount raised by the Medicare levy, so it is significant). So getting revenue forecasts and estimates right is important — but it never happens. It demonstrates how little control the government actually has over the economy. The economy moves to its own pace, influenced by many factors, including overseas events, and even the ‘expert’ treasury officials can’t predict it accurately, not even one year ahead.

It is not a problem when the economy is going well because then the errors tend to be under-estimates and every government would be pleased to see more in its coffers than it anticipated. But when the economy is in the doldrums, as now, faulty estimates and forecasts put additional pressure on government programs that are meant to provide services to all of us.

I do wish treasury could get it right but, given the economic reality within which it operates, I won’t hold my breath. And I don’t think this week’s budget will be any different.

What do you think?
After reading Ken’s piece, do you still think we should always blame the government for the financial mess or should treasury share the blame for giving the government faulty advice? Should governments only spend 95% of what treasury tells them they have so as to allow for treasury’s mistakes? We look forward to your comments — and answers.

Next week 2353 looks at a different approach to homelessness in ‘Hope for the homeless’.

The saga of Billy Gordon

On January 31 this year, Billy Gordon joined a very select group — indigenous members of parliament in Australia. He won the seat of Cook in far north Queensland from the LNP and joined the Queensland parliament as part of the minority ALP government. Late in March, the State parliament sat for three days and effectively confirmed that the minority Palaszczuk government had the confidence of parliament.

Queensland parliament sits again this week. During the month of April information relating to Gordon’s past criminal convictions, structuring financial affairs to avoid the payment of child support and claims regarding domestic violence in a previous relationship were given publicity. Palaszczuk, in what could be considered to be a gutsy political move, as she needs the seat to govern in her own right, moved to expel Gordon from the ALP and pressured him to resign his seat. Opposition Leader Springborg wasn’t far behind when talking to 4BC’s Patrick Coldren. Gordon resigned from the ALP prior to the expulsion and has chosen to remain in parliament as an independent, supporting the Palaszczuk government.

Along with a number of other jurisdictions around the world, Queensland has legislation that wipes the slate of certain criminal offences if they were committed a number of years ago. In Queensland the legislation is known as the Criminal Law (Rehabilitation of Offenders) Act 1986 and the cleansing of people’s records occurs after 10 years. Gordon’s convictions are considered wiped under this legislation. Gordon is understandably investigating legal action against those who publicised the information.

For some reason, we expect a higher standard of ethics and morality from our politicians than we do of others. Gordon, who also ran for the ALP in the seat of Leichhardt in the 2013 federal election should have disclosed his record, despite obviously not being proud of it. As Gordon was working for an ALP senator, the ALP should have been aware of the convictions in any case. Palaszczuk certainly ‘jumped the shark’ by calling for his resignation from parliament — and we’ll get to the LNP’s response in a minute. Unfortunately it is fair to suggest that Gordon’s life story is not uncommon amongst indigenous people in north Queensland as this government report to a 2014 Crime Enquiry documents. Gordon and the ALP could have declared his history and run his campaign on the basis of how well he understood his community and was a wonderful role model because he had turned his life around.

Up until January 31, the seat of Cook was a LNP seat held by David Kempton. The Guardian, while reporting a potential second government MP being involved in a domestic violence issue, observed:

Meanwhile, the Australian newspaper is reporting that the Liberal National party frontbencher defeated by Gordon at the state election was behind the initial complaint made by his ex-partner.

David Kempton, who lost Cook to Gordon in January, helped the woman make a complaint about unpaid child support in the days after the election, the paper says.

The independent Speaker, Peter Wellington, on Tuesday said it appeared Gordon’s former partner was being “used” by political forces in an orchestrated attempt to bring down the Labor government.

The Australian says Kempton was the first of three current or former LNP MPs to have had close contact with Gordon’s former partner in the weeks leading up to the child support allegations being sent to the premier and ultimately leaked to the media.

The LNP MP Warren Entsch, whose federal electorate of Leichhardt overlaps Cook, has rejected Wellington’s claims but confirmed he helped the woman with the child support issue after he was approached by Kempton.

Asked about rumours that Kempton, a lawyer, is now representing the woman, Entsch said: “He could well be.”

Entsch defended releasing to the media details of his correspondence with the woman, including the abuse allegations and Gordon’s criminal record, saying he had been forced to act because of the premier’s inaction.

The paper says the former LNP MP Gavin King, who until January held the neighbouring seat of Cairns, was also in contact with the woman for three weeks before the initial allegations were made public last Friday.
We should be applauding how the LNP is demonstrating the care and concern it has for the welfare of Gordon’s ex-partner as well attempting to restore faith in the political system — Yeah right!

At the January 31 State Election, the last seat to be declared was Ferny Grove, located in Brisbane’s north west. The seat was held by the LNP and the ALP had a small lead after the distribution of preferences. The fly in the ointment was that the Palmer United candidate was an undischarged bankrupt and therefore ineligible to stand for parliament. The brouhaha was all to do with the preferences of the ineligible candidate and if they had enabled the ALP to get over the line. With the Electoral Commission discussing whether the result should be taken to the court of disputed returns, and Premier Newman losing his seat at the election, the de-facto leader of the LNP at that stage, Lawrence Springborg, ‘kindly’ offered to run a ‘caretaker’ government until the situation became clear which, based upon the last time a similar occurrence happened in Queensland, could take seven months. William Bowe at Crikey explains the issues here and why Springborg was ‘dreaming’ (to pinch a line from The Castle).

Australian political tragics may remember the “Utegate” affair. One of the Rudd government’s responses to the GFC was to propose an alternate vehicle financing system to support car dealers, as some traditional financiers had suddenly removed themselves from the business. Rudd was in possession of a ute donated by an Ipswich car dealer (and fellow Norman Park resident). The car dealer subsequently approached the ALP MP representing the Ipswich area for access to the alternate vehicle financing system; the MP sent an email to Treasury; and suddenly then opposition leader Malcolm Turnbull was producing evidence that the car dealer was receiving preferential treatment due to his donation of a car to the prime minister. The documentation produced by Turnbull was later proven to be fraudulent and assisted in the downfall of Turnbull’s leadership. The car dealership is no longer trading after being inundated by the 2011 south-east Queensland floods.

At the same time as Billy Gordon was elected in the seat of Cook, Rob Pyne from the ALP replaced Gavin King from the LNP (and mentioned above as helping Gordon’s accuser) in the neighbouring seat of Cairns. Rob Pyne self-disclosed an email he received asking for details of a past conviction, which was obviously sent to him in error.

Springborg has claimed that his party will not accept the support of Gordon: an interesting concept considering the government he was a minister in changed parliamentary procedure to one where the major parties’ whips first advise the speaker of the number of votes for and against, before the independent MPs are asked for their vote. In short, the sight of Springborg or Langbroek running from the parliament to ‘void’ the vote of Gordon (in a similar way to Abbott and Pyne running from Craig Thomson) won’t occur — unfortunately!

There are two questions here.

The first is the morals and ethics of those who seem to be involved in promulgating false or damaging information. Churchill is quoted as suggesting ‘A lie gets halfway around the world before the truth has a chance to get its pants on.’ Are the various constituents of the conservative political parties in Australia so morally bankrupt that the ends justify the means or are they so simplistic that they believe that people will swallow the information provided without question? While there is no doubt the ALP would have damaging information on many LNP MPs across the country, they seem not to publicly release information that is irrelevant to the MP’s current role in life.

The second is how do we expect the disadvantaged to gain a voice in the management of our society unless past ‘sins’ are forgiven. Alecia Simmonds, writing on Fairfax’s ‘Daily Life’ website states the case far more eloquently than I can:

That Billy Gordon may also be a product of a racist society where Aboriginal and Torres Strait Islander people are poorer, sicker, more disadvantaged than any other group in Australian society seems to have escaped us. In our rush to pronounce upon his character we have strangely forgotten about his context; one where one in every 43 Aboriginal adults are in prison and Aboriginal people are eight times more likely to be taken into police custody.

It's hypocritical for us to ask Aboriginal politicians to redress their communities' problems and then be shocked when it turns out that they have experienced those problems. Or, in Gordon's case, that they are living examples of them. Many, like Gordon, may come from what he calls a 'troubled and fractured past.' And his past is our own past; Australia's 'troubled and fractured' history of colonisation.
While arguing that, if in fact Gordon is convicted of domestic violence, he should resign, Simmonds finishes her article with:

Finally, if we are to ask politicians to tell voters about their criminal pasts then I would suggest that we also ask politicians to tell voters about any civil matters that they've been involved in. Because it doesn't take a genius to work out that we have two systems of justice in this country: one for the rich and one for the poor. If you're a sandstone-educated white man, sipping mimosas harbour-side in Point Piper, then you're unlikely to have had any underhanded dealings channelled through our civil courts where you'll get a slap on the wrist and a fine. If you're Billy Gordon, cutting sugar cane or working in pubs in Far North Queensland, then you can exchange the fine for a prison sentence and the law's casual disinterest for hawkish vigilance.

If we genuinely want a democracy where our political representatives reflect the diversity of our population, and if we genuinely want these representatives to have had life experiences broader than undertaking an Arts/Law degree at Sydney University, then we need to treat people like Gordon with more empathy. After all, his context is our context; it's a product of our shared history and we need those who have suffered its worst effects to help change it.
What do you think?
2353 questions the ethics of those politicians who use another's past indiscretions for political advantage and the final quotes from Alecia Simmonds raise issues about the 'type of person' we want in parliament. They are important issues. Please let us know where you stand.

Next week, as a prelude to the Budget, Ken asks 'Are budgets worth the paper they're written on?'

Beware, there is a plan

There is much talk about the ‘chaos’ of the Abbott government but take a close look at what has been done, what it is talking about, and the reports it is gathering together. We need to look beyond the political catch-cries of the ‘debt and deficit disaster’ and ‘Labor’s mess’ and examine what is driving this government.

A simple starting point that helps explain Hockey’s 2014-15 budget is his mantra regarding the ‘end of the age of entitlement’. After obtaining government, and refusing assistance to SPC early in 2014, Hockey rolled it out:

Treasurer Joe Hockey has bluntly warned Australians that the days of governments saving businesses and jobs had passed, telling them, ''the age of entitlement is over, and the age of personal responsibility has begun''.

For Hockey that was not something new but something he brought to government with him. He had spoken about it earlier, while still in opposition, in a speech in London in 2012 and he did not abandon it. (I think many politicians have a rigid agenda about at least one item that they return to in one form or another: just as Peter Reith, even now as a political commentator, continually returns to the need for labour market reform.) The underlying message of Hockey’s ‘end of the age of entitlement’ is that there will be no more ‘socialist’ welfare policies. It is a clear catch-cry that government provided welfare is ‘socialist’ and discourages the independent, self-interested economic spirit which his, and the current Liberal party’s philosophy is based on. As Hockey said in London:

Entitlement is a concept that corrodes the very heart of the process of free enterprise that drives our economies.

In that approach everyone has to pull their weight, that is work, and get ahead by their own effort. It actually follows, in a slightly twisted sort of way, that government support (‘entitlement’) for the top of end of town is ‘good’ because it supposedly promotes economic activity that, in turn, provides the jobs that the otherwise lazy ‘dole bludgers’ require when they no longer have an ‘entitlement’ to socialist welfare. But Hockey did also warn that businesses need to be viable and not expect government assistance — it is just that not every member of the government agrees with him, particularly the Nationals when it comes to supporting farmers.

At the end of March, Hockey released the government’s tax paper. While he claimed everything was ‘on the table’, a number of commentators did suggest that it was primarily about increasing the GST, either in nominal value or the range of goods and services covered, or both. Even if we try to believe that the government will look at issues like ‘negative gearing’ and concessional tax rates for superannuation, we can’t be sure because Abbott continually repeats one of his new three-word slogans that under his government taxes will be ‘lower, simpler, fairer’. And he consistently promises that company tax will be lower: although company tax has provided as much as 25% of government revenue it currently provides about 18% (or about 22% if we take out the GST, which we must remember all goes to the states and territories and adds nothing to funding of commonwealth spending); so lowering the company tax rate requires higher taxes elsewhere or more cuts to government spending — no prize for guessing which way this government will go. Why was the government apparently so keen to increase the GST when it gains nothing from it? (Although the government has currently ruled it out because it cannot get bipartisan support, it has managed to put it in the public arena and it is being discussed, so I think it will raise its head again — read on.)

The answer lies in another White Paper the government is preparing on ‘federation’. Its purpose is described as follows:

Increasing overlap between the roles and responsibilities of all levels of government over recent decades has undermined the efficiency and effectiveness of our Federation. Hence, the Prime Minister and the Premiers and Chief Ministers have agreed that the Reform of the Federation White Paper should focus firmly on clarifying roles and responsibilities between different spheres of government and the need for all levels of government to coordinate action to ensure the best possible results for citizens.

A discussion paper was issued in February this year which raised the problems of vertical fiscal imbalance (VFI):

VFI refers to the mismatch between the expenditure responsibilities of the States and Territories relative to the revenue they raise, making them reliant on transfers from the Commonwealth to finance their activities. Around 45 per cent of total State and Territory revenue now comes from the Commonwealth (including the GST), although this varies across jurisdictions.

The existence of VFI is not necessarily a problem in itself, but a high degree of VFI creates perverse incentives for both levels of government. It allows the Commonwealth to act in ways which can compromise the autonomy of States and Territories in their own sphere, thus creating confusion about democratic accountability. A high degree of VFI also creates incentives for the States and Territories to blame the level of Commonwealth funding for problems in State-delivered services, rather than to make the case to their own electorates for raising more funding from their own revenue sources. [emphasis added]

Now you can see why increasing the GST is important. It is not directly for the federal government but will allow the federal government to pull back from services under the control of the states, particularly in health and education. In March 2012 Abbott told the Victorian Employers’ Chamber of Commerce and Industry, in discussing his plan for a Commission of Audit when in government:

"Other questions that the Commission of Audit might ponder could include: whether the federal Health Department really needs all 6000 of its current staff when the Commonwealth doesn't actually run a single hospital or nursing home, dispense a single prescription or provide a single medical service?

"Whether the Federal Education Department really needs all 5000 of its current staff when the Commonwealth doesn't run a single school?” [emphasis added]

So for Abbott and Hockey the two papers are linked. Abbott can keep his promise to lower commonwealth taxes because his government will be providing less assistance to the states, other than through redistributing the GST (they hope for an increased GST). No need for commonwealth support of hospitals or schools because they are not commonwealth services.

And how many other commonwealth government services can he be rid of? The answer lies partly in deregulation and privatisation. During the Howard years, Peter Reith said that if a service was available in the Yellow Pages, there was no need for government to provide it. They applied that to IT services and outsourced departmental IT services and created a host of problems. Similarly they privatised employment services. While that still costs the government money, it has faith, because it believes in market liberalism, that such services are more efficient and cheaper. I won’t go into the argument as to whether or not that is true but only make the point that it is an underlying belief of recent Liberal governments.

Although ‘post and telegraph’ was specifically mentioned in the constitution as an area of commonwealth responsibility (that is, for which it could legislate), we have seen that power used to privatise most aspects of those services. The same goes for banking which was deregulated and the government-owned Commonwealth Bank sold off.

Now we have this government, with Pyne leading the charge, attempting to deregulate another sector: higher education. If it is successful, it will further reduce federal government funding for the sector and reduce commonwealth revenue requirements — allowing more room for ‘lower’ taxes. Universities were originally established under state legislation and it was not until after WWII that the federal government moved into the area to fund the demand for teachers to meet the needs of the ‘baby boomers’ and also to enhance education for the post-war reconstruction. It was not until 1974 that the commonwealth assumed full responsibility for universities (and the establishment of CAEs under the Whitlam government). Now with that power, introduced by a Labor government, Pyne and Abbott look to dismantle the system and effectively privatise it. Universities are already largely independent and this will make them more so without the constraint of meeting government funding requirements: it will also reduce, if not remove, the capacity for government to influence requirements for the broader economy — as was done with the post-WWII need for teachers — but that also fits the plan as it will be the market determining what professional skills are required and what it will pay for universities to provide them. It’s a shame that there is not a ‘market’ for teachers in the public sector — no, that will be totally up to the states under the Abbott/Hockey plan.

Part of the reason the commonwealth government moved, over the years, into areas like health and education was to ensure some form of national consistency or, as in the case of universities, to meet particular national needs. A prime example was in trade-training (provided largely through TAFE at the state level). For many years there was a ridiculous situation (that almost everyone knew was ridiculous) that a tradesman, say a plumber, in one state could not operate in another state unless he went through a process of registration in that state to recognise his qualifications — and if the plumber moved to yet a third state, he would need to go through the process again. Simple enough one would think but the states demanded more money to make the necessary changes. A similar process occurred in the more recent development of the national curriculum for schools when the states also sought more money to implement it. So, if the commonwealth has moved into such areas, it has often been for good reason and it was the states that demanded commonwealth funding as part of the price of their agreement.

It is true that the federal government does not have specific power to make laws about schools and hospitals, except to the extent that the states agree, but while it controls the purse strings, it obviously can have an influence and, as was done in health, link funding to the achievement of particular outcomes and attempt to ensure that the outcomes are consistent at a national level. And, in some areas, like the environment, it can call on its ‘foreign affairs’ power in terms of meeting international agreements to which it is signatory (which was how the Franklin dam was stopped — a valid commonwealth law over-rides state law to the extent to which the two are inconsistent). But the Abbott plan sees no need for the commonwealth government to exercise such powers and would prefer to leave the environment to the states.

So beware, this government is not as shambolic as it sometimes appears. It wishes to deregulate and privatise and hand as many services as possible to the market; it will hand back as many public services as it can to the states on the pretext that the states should be responsible to their own electorates for the costs of education, health and similar services. Abbott may be able to provide ‘lower, simpler, fairer’ taxes because the federal government will be providing little in the way of services. He can increase the GST and argue it is because the states need the money, not his government, and boast that he can lower taxes but that will only be for the commonwealth: it is likely that state charges will need to rise to meet the additional fiscal responsibility they will have to take on — so individuals may be no better off, perhaps even worse off. But that is consistent with the overall plan, the neo-liberal plan of lower taxes and small government, at least at the commonwealth level where Abbott and Hockey can apply it.

With that approach, perhaps we won’t need a federal government other than for defence, foreign policy, astronomical and meteorological observations, post and telegraph, and lighthouses. That rings a bell — something in our original constitution!

Floating above the economic approach, we have Abbott’s moral view of ‘Team Australia’, a white Australia that was only ‘bush’ before the arrival of the first European settlers, that requires values acknowledging the role of knights and ladies, that considers ‘work’ is the only validation of a person’s worth to society — unless of course you are rich and helping the economy in that way (whatever way that is — perhaps spending money on Qantas flights to travel to the casinos of Monaco!)

There is no room for ‘leaners’ in Abbott and Hockey’s plan; no room for ‘entitlement’ (aka ‘socialist’ welfare); no room for government services that the market can provide; no room for public services that the states can provide. It is the age of ‘personal responsibility’: bugger the ‘fair go’ and government assistance, you have to look after yourself! And as a result, the commonwealth government will proudly offer you lower income and company taxes — even if the states have to raise theirs.

Yes, there is a plan but not one that we can look forward to. Little wonder they don’t spell it out!

What do you think?

About Ken

Ken thinks Abbott and Hockey do have a plan. Perhaps not a good one but at least a plan — or perhaps we should call it a ‘hidden agenda’ since they won’t talk about it. Let us know whether you think Ken is right.

Next week 2353 looks at ‘The saga of Billy Gordon’ and raises important issues about where we should draw the line regarding a politician’s past indiscretions and their use for political purposes.

Instant Experts

To be in public life you need to have a sense of self-belief. How else would you cope with those that feel they can criticise your actions, private life, as well as decisions you have made in the past?

‘Stars’ such as elite sports professionals, actors, performers and so on can demonstrate that they excel in their field of endeavour. While you personally may not like how people like Michael Clarke or David Bowie perform their job, there are plenty of people that do — and they are entitled to their opinion. ‘Stars’ also usually keep their public pronouncements to areas where they have demonstrated expertise and considerable knowledge. If you don’t like the field of endeavour or the person, the public opinion of the ‘star’ is usually ignored and the world moves on.

It’s not the same for politicians. Politicians have a large influence over our everyday lives. On a recent Saturday morning, the Brisbane Times was reporting a newly elected Queensland parliamentarian whose former partner claimed she suffered domestic violence; leading to the premier referring him to the Police for investigation. He is also claimed to have structured his affairs to avoid his obligations in respect to child support. There was also a discussion on the number of federal politicians with more than one mortgage — the implication being that they may allow personal considerations to be a factor in any discussion or vote on the future of negative gearing in Australia. Neither of these issues would be ‘newsworthy’ if the subjects were the staff at the local supermarket.

Ask a politician why they went into politics and few of them would say it’s for the money or to gain fame. Until fairly recently they generally saw a need for something to be done in their community and decided that they were the ‘somebody’ that should do it. In recent years we are seeing the career politician emerging where they join the young [insert party here] club at university while doing a degree, then move on to the senior party and usually take a position in an existing politician’s office, or in the party hierarchy, before ‘blooding’ themselves in an ‘unwinnable’ seat then later being offered a winnable seat as a reward.

Once a person gains a parliamentary seat, they (depending on skills and popularity) may be offered a ministry. The person who can gain the most support then becomes the leader. While the system has worked for a century in Australia (and longer in the UK) with reasonable success — as evidenced by Robert Menzies, a lawyer, and Ben Chifley, a train driver, becoming prime ministers in the 1940’s — there seems to be a pattern for recent ministers to not understand the issue at hand. The Australian government’s website explains the role of a minister as a member of the legislature who has been chosen to also work as part of the executive, usually with responsibility for matters on a specific topic (his/her portfolio). It is a similar practice in the UK and other ‘Westminster’ parliaments such as in Canada and New Zealand. The website also notes that there is no mention of political parties, ministers or the roles of prime minister and opposition leader in Australia’s constitution.

In contrast, the United States of America has a different system whereby the president selects people they believe will perform well in the ‘secretary’ roles — which are similar to the ‘minister’ roles in Westminster parliaments. The person selected usually has some involvement in the industry he or she will regulate. The president can choose anyone he likes to be a ‘secretary’ but the US congress holds ‘confirmation hearings’ to endorse the decision. As party politics are involved in the selection and confirmation process, the confirmation process isn’t always smooth — as discussed here in respect to former Defence Secretary Chuck Hagel. Hagel lasted two years as secretary of defence: his resignation cited differences of opinion with the Obama administration.

In the ‘good old days’, while politicians nominally ran the various sections of the government in the Westminster system, they relied on the ‘frank and fearless’ advice of the permanent public servants provided to their (let’s face it) temporary leaders. The New South Wales Public Service Commission (PSC) discusses the concept here, while acknowledging that at times the action is fraught with danger. The guide includes the following cautions:

One approach (recommended by Stephen M. Goldman (2008) in “Temptations in the Office: Ethical Choices and Legal Obligations”) is to prepare yourself carefully before you give the advice by:
  • Digging into the facts. Seek out a complete account of the situation, including facts and acknowledgement of biases
  • Gauging similarities with past situations. Recognise any significant particulars between the current problem situation and past situations
  • Analysing your decision-making process. Don’t over-estimate or under-estimate your instincts or your rational analyses. Use them as “checks and balances” against each other. Propose options. Suggest a number of practical alternatives, both short-term and long-term, that could be taken to meet the Minister’s or manager’s objectives.
The NSW PSC also has advice for managers/ministers that are being told something they really don’t want to hear:

Your style of communication may not be compatible with the communication style of the person who is giving you difficult or distressing information. However, as a professional, it is your duty to get the information they are attempting to communicate even if you consider the way they are communicating is annoying or distracting. This is particularly important when people are giving you criticism or unwelcome advice, because if you become angry or defensive you may cause that individual to stop communicating with you, and more broadly, you may develop a personal reputation, a culture and work practices that will result in you becoming isolated, uniformed and ineffective.

It must have seemed to be a good idea for federal Treasurer Joe Hockey to appear on Q&A to discuss the release of his ‘Intergenerational Report’ during March 2015. Sadly for Hockey, it wasn’t. Hockey was shown to be out of touch on the economics of current ‘hot button’ issues such as negative gearing and infrastructure spending by John Daley, CEO of the Grattan Institute. As Hockey raised the usual talking points that had no doubt been tested by focus groups of party faithful and fed to him by senior advisors vetted by the prime minister’s chief of staff he was, as reported in Fairfax media, outclassed by someone who knew what he was talking about.

Education Minister Christopher Pyne was probably expecting a relatively friendly interrogation from David Speers on Sky (given the reputation of the broadcaster), however it didn’t happen. Pyne also forgot the adage that if in doubt say nothing, as his claim that he is ‘the fixer’ has come back to haunt him on a number of occasions since.

Prime Minister Abbott is not immune to criticism here either. Abbott claimed at a press conference that he had no concerns about metadata when he was a reporter in the 1980s. At best, Abbott was badly informed when he claimed to a group of journalists (the usual job description includes the ability to research quickly and accurately) that he wasn’t concerned by something that didn’t exist.

Prior to entering politics, Hockey was a banking and finance lawyer as well as a policy director for the New South Wales premier. Pyne also was a lawyer prior to being elected to parliament at the age of 25 and Abbott has various qualifications in economics and arts and, prior to being elected to parliament, was a journalist, concrete plant manager and director for an anti-republic organisation. While they have had varying experience prior to politics, and all have tertiary qualifications, it is unrealistic to expect that they become instant experts on all the matters in their portfolio.

As we discussed earlier, Menzies and Chifley were considered good prime ministers, but they also certainly didn’t have the personal experience to be instant experts in all the detail needed for a government to function — especially in wartime. The difference between the 1940s and 2010s is a permanent public service not afraid to give ‘frank and fearless’ advice, because in the 1940s the public servant delivering the dissenting view was a permanent employee and wasn’t neutered by the fear of their contract not being renewed. The public servant also was a long term employee — not someone appointed by the government of the day — nor did they have to deal with the ‘Minister’s personal staff’ (who have been ‘approved’ by the party hierarchy) disagreeing with them.

Not that the US system is any better. While the ‘secretaries’ are usually chosen because they have some direct experience in the area covered by their portfolio (unlike Australia), there is considerable opportunity through the selection and confirmation process for ‘the best person for the job’ to be ruled out due to some previous alleged misdeed or political belief.

Australia is also subject to political ‘ethnic cleansing’ of ‘permanent’ heads of departments, as witnessed in Victoria and Queensland following the recent changes of government. A master of the art was former Prime Minister Howard, who effectively sacked six ‘permanent heads’ soon after his election because of their perceived closeness to the former Hawke/Keating ALP government.

So Australia has the worst of both worlds. Not only do our ministers generally have no direct experience in the portfolio they control, the higher echelons of the public service are on employment arrangements that can be legally broken by either side should they feel the need. Could it be possible that the ‘need’ could be giving ‘frank and fearless’ advice to their minister?

The Political Sword has discussed the marketing and media management of politicians on a number of occasions. Is the ultimate expression of the failure of Australia’s current political system demonstrated by ministers clearly not being across the details of their portfolio? Is this because the political minders only give the minister the message or theme of the day rather than the information they need when someone goes ‘off script’?

The Westminster system of government clearly has the potential to deliver better solutions to the problems faced by the citizens of the country concerned, as the minister takes advice from experts in the particular field, employed by the government on a permanent basis and thinking with a ‘long term’ view. The experts know that they have the right and obligation to present dissenting options to the minister if needed and discuss the possible detrimental effects of the possible decision — which the minister subsequently makes with all the information at hand. The opinion given should not have any effect on the continued employment of the public service officer. The US system has flaws when the ‘confirmation’ process for the various (probably partisan) senior staff and advisers to the President can take some time or be declined for potentially some party political objective.

The problem is when the politics overrules good government. Those that operate successful businesses look for the best and brightest to manage the business elements the owners don’t understand — such as small business operators timetabling regular meetings with accountants and lawyers to assess the current situation and future plans. The current government maintains that Australia should be run like a business; and then buries the people that could provide the best advice under a layer of political appointees. The result is that ministers open their collective mouths to change feet as demonstrated above and policy is decided on party priorities rather than national priorities.

The scandal in all of this is that both sides are equally culpable; we’re paying for it now and will continue to in the future as less than optimal policy will be implemented.

What do you think?

About 2353

After reading 2353’s post, what do you think? Perhaps we can’t expect our politicians to be instant experts but are we, as a nation, allowing politics, instead of what is in the national interest, to rule our policy? Should the public service be encouraged to return to ‘frank and fearless’ advice? Is there another way?

Next week Ken suggests that the Abbott government may not be as shambolic as it appears in his piece: ‘Beware, there is a plan’.