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|Introduction +||A report on The Role of Government in
Queensland, which had been commissioned by Commerce Queensland and
written by Mr Des Moore, was launched in Brisbane on 4 May
In brief this commentary suggests that:
|Launch||Introduction by Ms Beatrice Booth (President,
Commerce Queensland would like to see government spending in Queensland (and thus taxation) reduced. The Service Delivery and Performance Commission is a positive start in achieving this, and Des Moore's report will be discussed with the Commission. Des Moore was commissioned to undertake this project because of his earlier analysis of options to rationalize federal government spending.
Presentation by Mr Des Moore (A New Vision for Queensland Governments, 4/5/06)
On 10 February 2006 the Council of Australian Governments (COAG) agreed to a new national reform agenda - which emphasized increased competition
There is a need to put an end to any dying cause - and government has become like this. But Queensland should not have to wait for intergovernmental agreement. It can act alone to apply increased competition. This requires a government intent on maximizing the private sector's role.
The dividing line between the public and private sectors is unclear - as the private sector can provide public goods (eg security services in Iraq).
Such arrangements can benefit consumers both economically and socially - and there is bipartisan support for such a shift. Even the ALP now sees effective regulation / competition as more important than public ownership.
Increases in the private sectors role can lead to reduced taxation.
There is value in adopting proposals for a clear purchaser-provider split as recommended by the 1996 Commission of Audit. Services could be funded by government and delivered by the private sector. This could start with hospitals - by contracting out services. Victoria has used PPPs for hospitals, while NSW has used the private sector for construction and 30 year operation of 9 schools (with considerable savings). Clear performance standards need to be defined for such contracts.
The community has accepted greater private participation in schools despite the additional costs incurred in fees on top of taxes - and there has been an increase in private school student from 28% to 30% over 10 years. There has been an even more dramatic increase in support for private hospitals in Queensland (up from 36% to 47%) with a resulting $2bn saving to taxpayers. The Queensland Government decided to get out of financial services', after the Commission of Audit had pointed out that government was not efficient in business activities.
Queensland's budget outlook is deteriorating - and capacity to finance expansion is being reduced. Increases in recurrent spending now make it difficult to provide recurrent funding for capital works. Forward budget projections assume 4% pa revenue increases - though gross state product (GSP) will increase 7% pa and past revenue growth has been 7% pa. Thus there must be a slowdown in spending growth of around 3% pa. Goods and Services Taxes (GST) have grown 10% pa since 2001, but in future will only grow 4% pa. Projected budget revenues of $30bn for 2008-09 are $30bn - which is $2bn down on the amount that would have been available if past growth had continued. The GST bonanza is over.
The shortfall can only be made up by the private sector. The private sector's contribution to total final demand in Queensland is below that in 3 large states.
While Queensland has had the fastest economic growth, in per capita terms its performance is not good. Over the past 7 years there has only been a very slight improvement in Queensland's relative GSP / capita status. An appendix to the Role of Government report (by Michael Cunningham) showed that Queensland's productivity performance has been comparatively poor. In 2003 Treasury produced a report on The Drivers of Economic Growth which sought to identify state-based policy interventions which might lift productivity. Cunningham's analysis suggests that a more broadly-based approach would be preferable.
Deregulation would be useful. There is a need for a review of Hotspots for Regulatory Reform, and perhaps a shift of responsibility from State Development to Treasury.
Queensland's convergence with national productivity levels should have been faster. Better results would be achieved by encouraging the private sector - though not by trying to pick winners (such as the magnesium smelter which resulted in losses for many investors). The quality of economic activity is critical. Government should encourage the private sector across the board - both in government activities and in the broader economy.
A 1/5 to 1/7th reduction in tax is proposed - amounting to around 4% of state spending. Such reductions could be defeated by negative reactions from those affected by corresponding spending cuts, unless there is strong support for tax cuts. At present Queensland's taxes are 14% below the average for Australian states, and this could become 30% below. These cuts could be financed by (a) reducing concessions in various areas (eg for exploration) (b) amalgamating departments (c) eliminating government printer and public works functions (d) reducing growth in public service employment (to 1% pa cf 3% in the past); enhancing the private sector's role in government functions (eg through non-government schools; private hospitals; and various services).
Comprehensive support should be announced for the role of the private sector.
$22bn in public assets should be sold. Electricity generating assets earn a below average rate of return on capital. Non-government schools and private hospitals should be encouraged (eg by low interest loans, and ready accreditation).
There could be an inquiry into establishing an upper house of parliament as a house of review - to get better accountability. This should not require any overall increase in numbers of members of parliament.
The main challenge is to allow individuals to decide for themselves.
Comments and Questions
|CPDS Comments||CPDS Comments
There is no doubt that there is an urgent requirement for practical proposals and a clear sense of direction to overcome very real deficiencies in government performance (and potential financing difficulties) in Queensland.
The Role of Government in Queensland is a useful starting point for achieving this. It has, for example, highlighted:
However the Report's proposal for an increased private sector role in the economy generally and in public services delivery in particular can not in itself be sufficient to deal with presenting difficulties.
In relation to various points raised during the launch of the Report, it is noted that:
The key challenge is not to increase private participation at the margins of government, but rather to rebuild competence in mainstream public administration.
There seem to be serious challenges that need attention by governments, and realistic proposals for the role of government should be based on identification and analysis of these (rather than on theory).
A review of Queensland's challenges at the start of the 21st century identified problems such as:
Currently, in addition to prospective budgetary constraints mentioned above, challenges affecting government in Queensland arguably include:
To improve prospects of meeting such challenges, institutional reforms along the lines suggested in Improving Public Sector Performance in Queensland could be considered, as a complement to a more effective (rather than merely a bigger) role for the private sector in Queensland's economy generally.
Queensland's Service Delivery and Performance Commission does not seem to be focusing on options that would be likely to achieve significant outcomes.
|Report Outline||Outline of The Role of Government in Queensland
(Report to Commerce Queensland, May 2006)
Introduction: Report focuses on period since 1998, and argues for a shift in emphasis to more private sector role in provision of 'government' services. Little progress has been made on Commission of Audit proposal for purchaser / provider system. While Queensland has grown faster than other states, it remains bebind 3 others in per-capita incomes and convergence has been slow. A larger private sector contribution to total expenditure would help - though there have been improvements the private sector's role is relatively small. A larger private sector role is in government / community interest, and would improve budget.
Developments in the Role of Government: Government role has declined in most OECD countries since 1990s - more so in Australia than in Europe and particularly in education. This reflects: greater ability of individuals to manage their own affairs; recognition of adverse effects of taxation; increased protection for individuals from a more competitive economy; importance of private sector driven technological change; skepticism about role of government. There has been bipartisan agreement not to increase taxes to expand size of government - and COAG agrees on the need for more competition-driven and regulatory-reducing reforms. Options include: privatization with competition regulation; PPPs and contracting out; greater encouragement to private sector for involvement in 'government' services. Opposition to this has been based on distrust of private sector's profit motives, and fear of reducing political power - and there seems little substantive basis. Communities already are increasingly using private sector services (eg in education /health) - and there is support for government financial assistance to allow people to use private services.
Existing Roles of Government and Private Sector in Queensland: While Queensland has been slow to recognise increased efficiency resulting from privatisation of services and PPPs in Victoria, governments have been willing to use private sector enterprises as providers of 'government' services. Since 1997-98 business investment has been main driver of growth and now comprises 75% of total investment. The much slower growth in public investment raises questions about the latter's adequacy. Though private employment has grown faster, Queensland's public sector employment is high by interstate comparison. Union membership is much higher amongst public sector employees. General government spending is relatively low by national standards - though some items are higher. Queensland's tax rates are 14% below the national average. GST revenue has allowed self-raised revenue to fall to about 50%.
Performance of the Queensland Economy: Rapid population growth has been the main cause of Queensland's faster economic growth - though there has been a 0.7% pa closing of the gap in GSP per capita. Slow rate of convergence does not reflect retirees or low workforce participation - but rather reflects industrial structure involving sectors with low employee incomes. Reduced regulation of higher income industries might reduce per capita income differences.
Queensland's Budgetary Outlook: Increased spending for health is likely to eliminate projected future budget surplus. Strong balance sheet allows considerable scope for borrowing but budget should be in surplus. However revenue projections suggest deteriorating capacity to finance spending growth. Revenue growth to 2008-09 (4% pa) is below 7% growth of both GSP and past growth of all revenue. Main reason for this is lower contribution form GST - as GST 'bonanza' is over. This reinforces desirability of increasing private sector role in providing government services.
How the Private Sector's Role can be Increased: A competitive framework for supply of 'government' services provides the choice preferred in educated societies - as illustrated by greater use of private services even where costs are greater. Greater accountability imposed by market framework explains this. Re-establishing an upper house of parliament might improve accountability. There should not be a two tier system with lower standards for public services to those on low incomes, but rather subsidies which private firms can compete to gain. Such an approach could be used for non-government schools (eg by more state grants; low interest loans; easy accreditation; minimal curricula requirements; ignoring existing schools; allowing 'profits' if these are spend on school; giving non-government schools preference in new areas; rationalising under-used government schools; and now reducing student / staff ratios in government schools. Under competition schools would have greater parent / family involvement. Great increase in private hospital patients results from increased federal government assistance. Liberalisation of state policies would assist this eg involving: general policy support and cooperation; reduction in public hospitals; 12 month waiting times for privately insured patients in public hospitals; and low interest loans. Despite $55bn 'additional' infrastructure program, investment is likely to fall over the next three years. Given rapid growth in private investment there is a need for clarification how 'public' infrastructure to balance this is to be provided. This could involve: general endorsement of PPPs; and general endorsement of privatisation not only of much of electricity industry but also of most of the $22bn in public corporation assets. The government's decision not to proceed with the sale of all electricity assets can be challenged (eg because of lower rate of return on capital being achieved relative to cost of capital for companies).
A Package to Lower Taxation and Regulation: Despite worsening budget position state taxes could be reduced $1-1.5bn - compared with $7bn state revenue. This requires giving priority to reduced taxes over marginal programs (eg petroleum subsidies, concessional electricity tariffs, 'general public services', savings by Service Delivery Commission, government printer, centralised public works maintenance, business incentives, reducing public service growth, amalgamating departments) and encouraging private sector involvement in government functions. Sale of major public corporations would allow reduction in gross state debt, and thus reduce recurrent spending. Savings would result from more private provision of health and education services. These initiatives would need to be accompanied by major efforts to reduce business regulation. DSD's 'Hot Spots for Regulatory Reform' has not yet produced a comprehensive reform program. As with tax reductions, the question is whether it is better to get benefits to community generally or to benefit a few.