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1. Ending instability and achieving results: Business groups had repeatedly and unanimously called for an end to Queensland's political instability (eg see Jones C. and Vale B., 'Call to end uncertainty', Courier Mail, 24/1/01), and the economic importance of political stability was clearly put (Craig A. 'Stability key to state growth', Courier Mail, 14/2/01). Also the community has been seen by some observers to have voted as they did in the 2001 state election to get stability ("Beattie defies the odds', Courier Mail, editorial, 18/2/01; and Balough S., 'Call for stability gets Beattie home', Australian, 19/2/01), and business, farm, mining and science groups have welcomed the result because it would provide stability (Anderson F. etal, 'Stability seen as poll benefit', Courier Mail, 19/2/01).
Stability has clearly been seen to be needed because the community faces severe difficulties, requiring change and real performance from government. Examples of the expectations of influential interest groups are:
2. Signs of stress in the Queensland community
3. Economic under-performance: Indicators of poor national and state economic achievements in the 1990s, despite perceptions of rapid 'growth' and the 'miracle' of taking little damage from the Asian financial crisis, are:
Though constructive economic changes took place in Australia during the 1980s and 1990s, the rate of change was slower that many other countries achieved (perhaps because, in Australia, leadership was seen as the role of government with little complementary economic leadership in the community).
4. The One Nation phenomenon: The support gained by One Nation, which has contributed to substantial political instability, has been seen to reflect the resentment of those who can't fully understand, or cope with, economic change. (Barker G. 'Antidote to One Nation', Financial Review, 12/2/01). The author's 1998 analysis of this situation, Assessing the Implications of 'Pauline Hanson's One Nation' includes suggestions for practical options.
5. Innovation Strategy: The present author analysed the state innovation strategy (see Comments on 'Innovation: Queensland's Future' ). That analysis argues that the recognition that the plan gives to the economic importance of knowledge and innovation is long overdue in Queensland. Thus the proposal is of great symbolic value. However the actions proposed in the draft plan appear unlikely to achieve their goal because of technical limitations including:
Queensland's innovation plan may achieve political benefits (ie convince inexperienced community leaders and the media that enough is being done about innovation) whilst merely creating a 'toy' innovation capability for the political system to play with. Such an initiative could, in the longer term, discredit its highly desirable goals. Much earlier proposals to stimulate development of market-based (rather than public-sector-based) infrastructure to support innovation appear technically stronger (though they require leadership outside the political process) (see Premier's Department, Towards a Strategy for technological Development in Queensland, unpublished, 1983) Recent media comment suggests that limitations in Smart State are being publicly recognised. For example:
6. 'Pushing' Economic Change: The Queensland Government launched an ambitious Information Technoloy (IT) strategy including: incentives for multinationals and small businesses, incubation facilities, and high speed Internet access across the state. $1bn has been pledged over 5 years to make Queensland the 'smart state' and IT its second biggest industry. The plan emerged after consulting industry groups, education authorities, government and IT professionals. Resources are to be provided for: incentives for firms to move to Queensland; assistance for established companies and IT educators; individuals and rural businesses to become Internet connected; IT infrastructure; R&D; and facilities and a whole-of-government plan to introduce the latest IT. Initial funding will include: incubators for start up businesses; a Distributed Systems Technology Centre; a high performance computing centre; training for multimedia, visualisation, and computer / video games development; education; and small business assistance. Incentives will be given to attract IT firms, and legislation will make e-commerce easier. Government wants the community and business to become major users of e-commerce. Local councils will also be encouraged to form IT strategies. Increased bandwidth between Brisbane and Cairns will be supported to increase competition - together with broadband developments on the Brisbane-Gold Coast corridor. Other proposals include: an Internet portal for communication and information in Queensland; training to encourage people to go online; e-commerce training for SME's; industry / government partnerships for multimedia content and applications; business development programs and services to targeted industries; encouraging students to pursue communications and information careers; electronic delivery of government services; creation of a whole-of-government intra-net; and support for apprenticeship schemes. (Hellaby D., ''Smart state' gets $1bn', Australian, 7/9/99). Sound's great - What's wrong with that? Some elements of the IT strategy are presumably of value (eg better legislative framework; enhanced broadband communication links). However, the overall plan is unfortunately undesirable because: (a) it is impossible for committees, consultants or consultation to 'pick commercial / economic winners' - though the interest groups who were consulted may never understand what they got wrong; and (b) such an approach produces investments, organisations and systems which are politically oriented (ie intended to please the producer groups who were consulted) rather than market oriented (ie likely to please to customers of the producer groups who were consulted). The strategy must thus be a net money-sink rather than a money-source - and will need ongoing public funding. Those on the gravy-train have a biased view: Queensland's IT industry reportedly expressed strong approval of the IT strategy (Meredith H., 'Labor plays smart to woo IT industry', Financial Review, 13/2/01). Unfortunately the IT industry has as much policy objectivity as the US 'military / industrial complex' (and Japan's 'construction state') - in that: government is its biggest customer; there is often a revolving door between public agencies and major firms; and personal / political kickbacks are (at times) alleged in granting contracts. The IT industry nationally (and in Queensland recently) appears to have organised a 'gravy train' by (a) convincing gullible ministers that IT (rather than innovation) is the key requirement for a 'new' economy (b) offering marginal cooperation by international firms in supporting local operations in exchange for large scale public spending. As for the Smart State strategy generally, such arrangements merely provide 'toys' for the political establishment to play with.
7. Supplying skilled potential employees is not enough: That strengthening the 'supply' side of the labour market, while essential, is not likely to be enough on its own is supported by a Dusseldorp Skills Forum's study, Australia's Young Adults: The Deepening Divide (1999). It found that: '..... during the 1990s there has been a ..... trend towards lower skill jobs for young adult(s) .... and ..... a clear shift ..... towards employment in jobs that require only elementary or intermediate skills. ..... These findings ..... contrast with the central policy emphasis of the past 15 years .... (which sought to) to enhance ..... skills and maximize employability'.
8. Jobs! Jobs! Jobs! Queensland's unemployment is forecast to remain at 8% despite the record $826m state allocation to jobs and training - of which $675m goes to vocational education and training under a Breaking the Unemployment Cycle strategy (Olsson K., 'Big spending keeps unemployment stable', Courier Mail, 19/7/00). Furthermore public naivety about what is likely to create jobs remains (eg see Greber J and Maynard N., 'Giant projects pour jobs into the state', Courier Mail, 1/2/01). In fact, small and medium enterprises tend to be the largest job creators, and the rate and quality of job creation depend on overall demand and the development of the economy respectively. Industrial era (ie capital intensive mass production) 'projects' will not: tend to be a large overall source of jobs - nor will they be highly productive (ie contribute a great deal to community affluence).
9. Major mineral resource investments have been a significant factor in driving growth during the 1990s. However resource companies tend to have produced miserable financial returns for two decades - a situation which their shareholders will no longer tolerate (eg see Gottleibson R. 'Oresome prospects', Australian, 3-4/6/00). As noted in Defects in Economic Tactics, Strategy and Outcomes resource producers tend generally to face unfavourable market conditions because it is hard to generate market power in producing undifferentiated commodities. During the 1990s resources companies thus faced an expectation of low commodity prices, and their strategy in trying to profit often appeared to be to acquire large high quality resources and become a very low cost producer. However as 'everyone' did much the same, supply increased faster than expected and prices fell faster than expected. Thus reasonable rates of return at project planning time, usually turned into poor post-hoc returns. Arguably the address by Rio Tinto head (Robert Wilson) to the Securities Institute in Melbourne in 1999 was of ground breaking significance in indicating mining firms' shift from a naive production focus to concern for value-added. A particular problem facing resource producers in Australia whose strategy was limited to industrial-era tactics (ie seeking competitive advantages on the basis of capital intensive mass production) was that their major competitors were in low-wage less-developed countries (whose involvement necessarily eroded the productivity obtainable from such activities). As noted in Defects in Economic Tactics, Strategy and Outcomes manufacturing industries found in the 1970s that this tactic was unsustainable - resulting in de-industrialisation in many countries and radical changes in the organisation of production (eg the shift from mass-production to knowledge-based production; and the break-up of hierarchical organisations into networks which accelerated learning). Perhaps large resource investments will continue in future in Australia, but time may be needed for the sector to be re-invented first. It was recently noted that some $10bn in potential resource projects were seeking funding - but now finding this very difficult to obtain (Bromby R. 'Investors wary of resources floats', Australian, 20/9/00). Thus the fact that there has been a new 'flood of exploration applications in Queensland's mineral-rich north-west' (Grebner J. 'State on brink of mining bonanza', Courier Mail, 8/1/01) does not mean that Queensland is on the 'brink of a (new) mining bonanza'. One strategy now being tried for some minerals appears to involve building market (pricing) power by gaining control of a large share of production (particularly to counteract the purchasing cartels used by Japan).
10. See Wilson N. 'Oil prices soar but no one's looking for more', Australian, 21/9/00
11. Environmental Challenge to Australian Agriculture: "According to a West Australian renewable energy scientist .... the huge cost of reigning in the nation's countless environmental problems will stretch the capacity of the nation to pay ... almost offsetting in monetary terms the economic benefits derived from agriculture since European settlement. The sums of money likely to be involved ... may tend to make environmental solutions of academic interest only. The environmental challenges ... have the potential to wither away Australia's agricultural export industries, to devastate rural towns and to reduce the living standards of all". Salinity problems make it difficult for agriculture to use even the limited water resources that are available in the dry inland wheat belts. Research is showing technical options for dealing with the salinity problem - but implementing this may not be commercially or economically viable (Hoy A. 'Broken Land, The Bulletin, 9/1/01). Queensland's situation in respect of widespread salinity problems appears to lag that in some other states - but eventually it is likely to be no less severe (Ryan S. 'Rivers given more time in race to beat salinity', Courier Mail, 6/9/00). [Participation in a national program to address these issues has been announced (Franklin M. 'Beattie joins $1.4bn salinity action plan', Courier Mail, 19,1/01)].
12. Greenhouse: If anyone takes the Kyoto agreement seriously, Australia's CO2 emissions are allowed to increase by only 8% between 1990 and 2010 - but emissions were already up 19% by 1998 (Taylor L. ''Cabinet burning the midnight oil over gas'', Financial Review, 26/5/00). Achieving the target (which many of Australia's competitors in its traditional industries are not currently required to do because of their less-developed economic status) would require an unprecedented industrial redirection as current indicators are that Australia's greenhouse emissions have not yet been decoupled from the rate of overall economic growth (Cummins K. 'Emissions tracking economic growth', Financial Review, 14/7/00). This issue has been essentially ignored in Queensland.
13. Cost estimates were discussed in 'No climate magic bullet' (Stanford J., Financial Review, 22/11/00). And Allen Consulting Group estimated that meeting Kyoto targets could reduce Queensland's employment levels by 3.5% - with most impact on regional areas (O'Malley B. 'Greenhouse limits threaten jobs', Courier Mail, 12/10/00)
14. Production rather than a value-creation focus traditionally dominated in mining firms - see Runge I. Mining Economics and Strategy, Society for Mining, Metallurgy and Exploration, 1998:
15. Cooper W., 'Mineral Processing in Queensland', Queensland Government Mining Journal, Sept - Oct, 1998
16. Stop the world: Several observers argued that the 2001 Queensland electoral outcome reflected a desire to stop economic change eg 'Amid fear and distrust of economic rationalism, globalisation and all political parties, voters saw (Beattie) as their only protection'. The Kennett and Court Government's could not control the volatile conservative vote, and as they carried the Howard Government's commitment to economic change', (Editorial, Australian, 19/2/01); and Thornton J. 'Vote maps radical continental shift', letter to Australian, 20/2/01.
17. East Asian economic paradigms (which apply in some of Australia’s most important trading partners) are quite different to the consumer oriented democratic capitalism which Australians are accustomed to. Communitarian / mercantilist economic goals (ie seeking to build the national power of particular ethnic / cultural groups, rather than to benefit consumers) appear to dominate in various forms in East Asia. For cultural reasons emphasis is placed on the 'real' economy, and 'abstract' (eg financial, legal) outcomes are seen as less important. Thus in East Asia market share (power) is valued rather than profitability. [This is similar to the preference which often exists for the rule of man, rather than the rule of (abstract) law]. Likewise (Confucian?) social hierarchies (rather than financial results) provide the discipline on economic actors. While assessing the advantages and disadvantages of such paradigms is a complex issue, important implications include:
18. Parliament: A juvenile farce? For example, a group of Marsden State High students were reportedly 'shocked, stunned and disillusioned' by the behaviour of Members of Parliament (Lawrence E., 'They're like a bunch of kids!', Sunday Mail, 14/3/99)
19. The lack of policy raw material: there are few capable independent economic or public policy 'think tanks' in Queensland (though a 'Brisbane Institute' is now established); the economy is populated by small firms and branch offices; research and development spending by business (and Government) is well below the national average - which is below that of developed countries; political parties tend to use ad hoc policy machinery; and public agencies often lack serious effort to acquire strategic information (according to a state Interdepartmental Committee, Initiating the Preparing the Future Project, (unpublished), Premier's Department, March 1998).
Public recognition of the problem is however starting to emerge. For example, "There is a vacuum when it comes to serious policy debate in Queensland and people don't want to hear the old stuff trotted out again and again. They want to vote for someone who has potential solutions" (Jones C. and Vale B. 'Call to end uncertainty', Courier Mail, 24/1/01 - quoting the director of the Retailers Association of Queensland). And a recent survey reportedly showed that community understanding of public policy issues is often derived from talk-back radio (Saunders K., 'Bad news Borbidge', Courier Mail, 2/2/01).
20. Economic dependency has devalued knowledge: Economically Queensland has relied on its 'comparative advantages' in natural resources (ie in industries such agriculture, mining and tourism) rather than developing 'competitive advantages' through the knowledge, skills and positioning of its organizations. For success in resource based industries, the major requirement has often been for the community to 'follow instructions' from external investors interested in those resources. [Note: Queensland has the highest dependence on foreign investment of any Australian state, and Australia's dependence is amongst highest of all OECD countries (David A. and Wheelright T. The Third Wave' - Australia and Asian Capitalism, 1989)]. Prominence in politics and public administration (and business) has thus traditionally been gained by those who were most willing to 'follow orders' and to mobilize public agencies (and the community) to also do so - through a strong (authoritarian?) Executive.
21. Perception of Queensland:
22. Undesirables: 'Queensland has an unenviable reputation for low political and parliamentary standards' (Brown W. and Brown A. 'Power to clean', Courier Mail, 3/2/01). The low standard was set in the 1920s by AWU representatives in the ALP under Theodore and McCormack. AWU influences also created Queensland's gerrymandered electoral system early this century (op cit). Queensland has also had a history of conservative 'undesirables' in its political institutions especially in the 1980s (see Charlton P., 'Plenty of dark behind the candles', Courier Mail, 16/1/00). And recent public allegations about AWU / ALP practices suggest that those who promised 'reform' of the latter may have been unable to escape from traditional AWU culture. For example:
23. The Risk of Political Instability:
24. What is a ‘banana republic’? A classic ‘Latin American banana republic’ was a country which started suffering social stress and political instability as a result a failure to adjust to global market changes. This led populist (leftist) governments to try desperately to force the pace of change, but to fail at great cost, partly due to politicising the public service and to the inability of the local business community to provide up-to-date practical leadership. Donald Horne suggested that governments in such countries tended to adopt damaging policies because they lacked competent economic advice from their local (business) community, due to a high dependence of foreign investment (The Lucky Country Revisited, 1987). The populist (leftist) governments were then followed by authoritarian right-wing regimes to enforce the rights of foreign investors - without whose ongoing financial support an economic, social and political crisis would eventuate. Indicators of Australia’s progress towards the banana republic include:
25. Defects in the Political Process:
26. Off on a technicality - see Strutt S., 'Beattie team gets all clear from CJC', Financial Review, 20-21/1/00. 'The Goss government in 1993 modified the state's Criminal Code to remove rorting the state's electoral role as a criminal offence, according to a ... draft submission to the (Shepherdson) inquiry' (Franklin M. and Griffith C. 'Premier stands by purge of his party', Courier Mail, 19/1/00).
27. Prior Inquiry: Fifth Report of Commission Appointed to Inquire into the Activities of Particular Queensland Unions - Australian Workers Union of Employees - Vol 1 - July 1991. This inquiry was closed early by the Goss Government.
28. Two examples in the Premier's Department are typical of what seemed to be widespread abuses namely:
29. Impact of AWU Culture on the Public Service: It has been reported that five young ex-ALP members alleged to the Shepherdson inquiry that 'a chance to land public service and ministerial office jobs awaited those who complied with AWU faction requests. Those who did not comply faced political death' (Griffith C., 'Inquiry told of jobs for the boys', Courier Mail, 12/10/00 - emphasis added). [[Does this not suggest that landing Public Service jobs during the (alleged) reform process in the early 1990s which was often controlled by AWU dominated ministerial offices might have depended mainly on whether individuals were seen as likely to comply with AWU faction requests?]]. Furthermore rorts have been alleged within the Griffith University Labor Club, which was reportedly a recruiting ground for the Centre (AWU) Faction (Griffith C. 'AWU faction targets unis' and 'University campus can be a breeding ground for all kinds of nonsense', Courier Mail, 23/10/00). [[That Club's members were hardly irrelevant to the process of (alleged) reform of the Public Service]].
30. Towards Good Government in Queensland (1996). The main theme of that analysis was that supposed 'reform' under the Goss administration eroded the Public Service's skill base and eliminated the best source of advice and support able to help in implementing widely desired reforms. This slowly led to administrative breakdowns (eg muddles in health and education services, fumbled infrastructure planning) and to an inability to implement pre-election policies promising real economic development (eg Defects in Economic Tactics, Strategy and Outcomes). Arguably Queensland's practical ability to achieve almost any goals, or to make further realistic policy progress, were set back many years. Ultimately these (invisible) weaknesses led to the demise of the Goss Government - an event which neither political advisers nor media analysts generally foresaw or understood.
31. Queensland's 1980's Public Service (which had generally been a professional body struggling under difficult circumstances) suffered the indignity of being virtually 'gang-raped accidentally by a bunch of bumbling thugs' under the ever-watchful eyes of a comatose Parliament and a gullible media. The rorting / win-at-all-costs culture which pervaded many ministerial offices was one, but not the only, cause of the problem. Towards Good Government in Queensland also pointed out the effect of (a) Peter Wilisnki's theories about public service reform - based on his view that the bureaucracy was the major obstacle to reform - a view which emerged from his misunderstanding of the Whitlam government's difficulties in the 1970s and (b) the 'Yes Minister' school of populist public administration theory. John Button (a federal minister in the 1980s) argued that 'Yes Minister' was a good portrayal of the bureaucracy - and pointed out that public servants liked the show because it was realistic (As It Happened, 1998). But what he didn't realize was that for the bureaucracy 'Yes Minister' was a realistic portrayal of the erratic nature of the political system they were obliged to cope with - and a parody of the bureaucracy (just as the reverse was the case for politicians). The problem is that both sides have different understandings of what is going on, and have to play games - without really understanding the other (especially not through 'Yes Minister'). [[The tragedy of the 1990s was that ministers, media and the public have believed that 'Yes Minister' gave them an understanding of what was going on - and they have devastated Australia's system of public administration in using it as a way to think about 'reform']].
32. Reversing the de-skilling of the Public Service has proven very difficult because of (a) the small business / branch office character of Queensland's economy and the absence of independent bodies with a deep concern for public policy issues - which provides limited scope for high-level external recruitment, and (b) the threat which re-skilling would pose to those in 'senior' positions on the basis of their political connections.
33. Administrative machinery has seemed badly 'constipated'. This was indicated by complex Cabinet and budget procedures and by the methods used for approval of investment (eg water resource development) which lead to delays. A report quoting an ex senior Labor policy advisor gave a grass-root view of the situation:
"Widespread terror, harassment and bullying which have characterised the Queensland public service in the past decade could bring down the State Government, a former Labor advisor and senior public servant said ... (she) said an obsession with accountability which pervaded the Goss and Borbidge administrations had become entrenched under Premier Beattie. .. the obsession was bleeding the public service of its best officers and its spirit. Threats of phone taps, constant or intermittent surveillance and demands for self justification had produced "fistfuls of stress claims". In the Justice Department there was "widespread terror' of administrative chiefs and unprecedented claims of bullying. ..(The Premier described the performance and morale of the Public Service as the 'best in Australia'), and the Director General of his Department described levels of staff satisfaction in the (Justice) Department as 'above the public sector norm' )... (she) said that under the Goss government accountability and efficiency were single-mindedly pursued to the point of vendetta. The public service near suffocated ... performance indicator reports, mission statements, strategic planning exercises, corporate planning forums, client service standards, portfolio planning statements, monthly reports, annual reports ... (she) said that "reform fatigue" and the "koala road" had given to the 1995 election to the coalition. Make no mistake the damage was immense .... the Borbidge government which followed persisted in continuing to implement reform in the one dimensional interests of that holy trinity - efficiency, productivity and accountability. And now the Beattie administration .... was failing to send the message to its CEOs that the public service has to be treated "humanely" " (Olsson K., 'Bullied public service fed-up', Courier Mail, 17/8/00 - which quoted comments ascribed to Ms Susan Moriarty) [Note: everyone outside the political system appeared to agree with Ms Moriarty].
The above problem probably arose from politicisation of the Public Service, which had the effect of de-skilling it from the top down(36). A lack of relevant knowledge / experience requires a management style which is either:
Neither style can produce sound judgements about what is, or is not, important, practical or sensible.
34. Providing infrastructure is a core role of government yet a September 2000 Department of State Development plan for Strategic Infrastructure for Queensland's Growth (SIQG) did not appear to be endorsed by key institutions. Comments to the author from such institutions labelled it as 'rubbish' or 'unworkable'. The present author produced a preliminary review of SIQG.
That Review focussed on: (a) the current absence of effective means for planning infrastructure because user-pays and competitive service delivery undermined the traditional planning methods by government departments and statutory authorities (b) the innovations attempted through SIQG - ie an active approach to infrastructure and attention to 'soft' infrastructure (c) and the technical defects in the methods used for achieving those goals. In particular, despite its ambitious goals, practical concerns about SIQG were that:
35. Bipartisan support for politicisation of the Public Service was indicated by a press report quoting both the Premier and the Leader of the Opposition (Franklin M., 'Only four survive Beattie's reshuffle', Courier Mail, 17/4/99). The author raised this question with both major political groups and eventually responses were obtained indicating their respective approaches - which contain serious defects. In brief the Government's position was that appointments HAVE been made on merit [a truly astonishing view given that merit was not really required to be considered (see Note 39), and that there was no way to ensure that those who selected appointees (supposedly) on merit actually had the required knowledge and skills to make such judgements]. The Opposition's position was less farcical, ie it suggests that there is no need for senior appointments to be based on merit as Ministers are responsible to Parliament. However, the Opposition's approach was no more satisfactory. The fact that the political system may be 'responsible' does not ensure that it can, unaided, 'pick Public Service winners' who can provide technically competent advice or policy implementation where the considerations involved are outside the knowledge and experience of the political system(36).
36. The Effects of Politicisation: Professionals (with their emphasis on objective reality and technical requirements) are vital for effective government as a counter-balance to politics with its emphasis on media 'appearances'. Professionalism can usefully be defined as a combination of both high level knowledge and practical experience of what should happen when that knowledge is applied. In a Public Service context, if (most) appointments are made by persons with relevant 'professional' knowledge and experience, persons with high level knowledge and relevant experience tend to gain senior positions. However politicisation creates a different regime, in which persons with partial professional competence (eg some theoretical knowledge but little experience, or the reverse) may gain political support because its is much easier to bluff the political system with trendy rhetoric than to see the practical significance of policy theories, cope with complex situations, be credible with peers and achieve real results. Political appointments tend to be focussed on persons known to the political system - who can be those relying on such linkages to get ahead. This can then affect the professional competence of the whole Service, through the inability of political appointees to tolerate subordinates with higher professional capabilities or to appropriately lead, train or select other staff. In practice our political system has proven singularly unable to accurately identify persons who do combine high level knowledge with practical experience (ie are true professionals). For example quite a number of cases can now be identified where politically selected CEOs have been seen as Ministers' greatest problem after about 18 months. Our political system has also been singularly unable to tell what harm it is doing. The idea of 'information asymmetries' (which the Institution of Engineers recently used to good effect in the submission about Queensland's Professional Engineers Act) provides an explanation of why politicisation of senior Public Service positions can be disastrous. It is equivalent to the client deciding who should be a qualified professional engineer or doctor. Unless something is done by professional organisations to restore professionalism (ie to re-emphasise a proper balance of real knowledge and experience) as the basis for senior Public Service then the context within which a large fraction of younger professionals work is NOT going to be hospitable to their professional development. Some work is being done by the Institution of Engineers in relation to the question of eroding technical / engineering skills in the Commonwealth Public Service (eg Brook S., 'Faulty engineering formula for disasters', Australian 21/1/00). And other trade and professional bodies have made similar comments (in Breusch J., 'Public Service has lost expertise', Financial Review, 11/1/00). However there has yet been no systematic work done to identify the overall effect of well-meant but ill-advised politicisation / amateur-isation of senior Public Service appointments - a predicament which appears to be nation-wide. It can also noted that concern has been expressed by Queensland's judiciary about a lack of professional merit in recent Supreme Court appointments (eg Monk S. 'Judge blasts 'political' appointees', Courier Mail, 15/11/99; and 'Gibbs wins peer support' Sunday Mail, 20/2/00) and the Chief Justice has produced an account of the requirements for professional merit in judicial appointments ('Equal Justice for all', Courier Mail, 16/2/00). In NSW also there have been reported calls for an expert panel to advise government on judicial appointments (Merritt C., 'Call to rethink judicial selection', Financial Review, 24/3/00). It has also been suggested that politicising senior positions and the judiciary can adversely affect the political process - as illustrated by the recent US presidential elections (Quiggin J., 'Florida debacle has lessons for Australia', Financial Review, 21/12/00).
37. Destroying Intangible Public Assets: New methods have been introduced in Queensland to improve the management of public assets, and to increase their value (for reasons argued by the 1996 Report of the Queensland Commission of Audit, and by Treasury). For example, methods like accrual accounting(72) are now being used. This includes the presentation of a balance sheet, reflecting the value of the Government's tangible assets. However such efforts are ultimately quite futile in the face of Public Service politicization. The share-market typically values a large company as much more the total market value of its tangible assets valued separately (eg $26.2 bn and $7.5 bn respectively for a sophisticated mining company - Runge I., Mining Economics and Strategy, Society for Mining, Metallurgy and Exploration, 1998). Thus intangible assets (the tacit knowledge of staff, and the institutional structures that allow them to work together) can provide most of such a company's value to its stakeholders (op cit). This is because, for example, such skills determine whether tangible assets can be well used. Though its intangible assets are not included in the Queensland Government's balance sheet, they are equally significant to the Public Sector's value to its stakeholders. And it is those very costly intangibles which have been destroyed by Public Service politicization and de-skilling.
38. Opposition to politicisation is growing:
39. Professional Merit? The fact that merit was NOT a required consideration in SENIOR appointments in Queensland's Public Service in the 1990s is proven by:
One observer apparently saw the above as a test of the (now defunct) Westminster tradition (see McDermott P., `Tenure of Senior Queensland Public Servants', Australian Journal of Public Administration, March 1993). And where merit was not a required consideration in senior appointments, there was no way to prove that it had been meaningfully considered at any level, as senior officials are responsible for more JUNIOR appointments.
40. A dispute was reported between the Premier's Office and the Parliamentary Legal, Constitutional and Administrative Committee (PLCAC) about a consultancy to review the Ombudsman's Office (see Sommerfield J. and Griffith C. 'Beattie's role in contract blasted' and 'Opposition hits tainted tender', Courier Mail, 13/3/00 and 14/3/00 respectively). This was significant because of a prior strategic review of the Ombudsman's office by Professor Wiltshire in 1998. The Ombudsman is the agency which handles public concerns about administrative actions in Queensland. Thus its workload is a 'litmus test' of the public's experience of our public administration. The rapid growth of the Ombudsman's workload apparently led to the suggestion that Parliament look for systemic failings in Queensland's administration (see Wiltshire K., Strategic Review of the Queensland Ombudsman (Parliamentary Commissioner for Administrative Investigations), April 1998 and PLCAC, Review of the Report of the Strategic Review of the Queensland Ombudsman (Parliamentary Commissioner for Administrative Investigations), Report No 14, July 1999). [[Precisely why the Premier's Office should have the final say in a review of the Ombudsman's Office (when the Ombudsman is one of officers Parliament relies upon to keep the Executive in check) was beyond the present author]].
41. A Criminal Justice Commission survey of perceptions about Public Service honesty and behaviour was reported to be seen by QUT's Professor Preston as reflecting 'widespread disenchantment about the public sector' (Tallon S., 'Public service fails trust test', Sunday Mail, 5/3/00) - though Professor Preston's reported conclusion may not have been proven by the CJC's survey;
42. The Net-Bet affair involved a clearly foolish recommendation (ie to grant an internet casino licence to a firm with strong ALP connections). This occurred without any procedural failures which separate investigations by the Auditor General and the Criminal Justice Commission could identify.
43. Anecdotes: Queensland appeared to suffer a defects in its 'senior' Public Service. Some views of a range of responsible middle-rank Public Servants and external observers about the situation which applied in 1999 are recorded below. These anecdotes could not be checked due to a lack of resources, and have deliberately been made vague to avoid 'witch-hunts'. However similar opinions were very widespread and, if correct, they strongly suggest that the opposite of a professional Public Service is an amateur Public Service.
44. Public Service renewal: most of the difficulties affecting the Public Service arise from the operating environment - ie assessing performance in political terms rather than whether policies are likely to work in practice. Renewal primarily involves changing to a different operating regime, rather than changing the people. A proposal in relation to this, Renewal of Queensland's Public Service, is available.
45. Qualification: Comments here on finance issues need to be read in recognition that this is not an area in which the author has specialised, and that the issues are complex. Furthermore (despite improvements in recent years - such as those outlined in 'Labor off to a responsible start' (Robinson M., 'Courier Mail, 16/9/98) - financial statements are still not always easy to interpret without inside information. For example:
46. A Reputation for a sound financial position: was derived from a tradition of low taxes, fully funding employee entitlements (eg superannuation) and borrowing only for self financing infrastructure (ie the so-call 'Trilogy'). And, in his budget speech for the 2000-01 state budget, the Treasurer noted that rating agencies were still complimentary. For example, Fitch IBCA stated that 'Queensland's prudent fiscal management has placed it in a strong financial position'. Moody's Investor Services also concluded that financial management practices of the new government have left Queensland in a position of unparalleled strength amongst the Australian states.
47. The total state includes: (a) general government agencies (such as ministerial departments) (b) trading enterprises (GTEs) especially the electricity industry, port corporations and QRAIL and (c) financial enterprises (GFEs - such as the Queensland Investment Corporation and the Queensland Treasury Corporation).
48. See: Treasury Consolidated Financial Statement of Government of Queensland: Year Ended 30/6/99
49. Fitzgerald V. et al, Report of the Commission of Audit, June 1996: found that Queensland had $51.1bn net assets at 30/6/95 - the difference between $85.7bn assets and $34.6bn liabilities. This figure included the $17.1bn net worth of public trading enterprises (ie $25.4bn assets less $8.4bn liabilities) and the $1.4bn net worth of public financial enterprises (ie $32.4bn assets less $31.0bn liabilities). In terms of public assets the most significant trading enterprises were: QRAIL (holding assets worth $7.2bn); Queensland Transmission and Supply Corporation ($5.7bn); and AUSTA Energy ($2.7bn), the most significant financial enterprises were Queensland Treasury Corp (which acts as a central borrowing authority for other public agencies - $23.9); Suncorp ($6.3bn), QIDC ($2.8bn) and the Workers Compensation Board ($1.0bn). And the most significant departmental asset holdings were in Transport ($14.6bn); Education ($5.4bn); Lands ($4.8bn); DPI ($2.6bn); and Health ($2bn). The Commission noted that assets are assessed in written down replacement values - which in the case of electricity industry assets understated their realizable value as a business. The Commission also found that the operating position of the government was $0.3bn in deficit. 1995/96 expenditures of $11.5bn were projected to be funded from Commonwealth payments ($4.8bn); taxes fees and fines ($4.1bn); and other sources ($2.2bn). This deficit was projected to continue to worsen (by $0.2-$0.25bn pa) because of (a) reliance on federal funding which doesn't keep up with services growth, and (b) a narrow tax base. Thus changes to Queensland's methods of administration were advocated so as to deliver all services at maximum efficiency and to constantly improve efficiency. The suggested approach involved: starting with a strategic vision; recognising service delivery as the state's key responsibility; and demanding top performance from state service providers..
50. See - Balough S. 'Beattie warns of spending correction in budget', Australian, 9/9/99). The rate of growth in general government recurrent plus capital spending had averaged < 5%pa in the early 1990s. It increased dramatically in 1995-96 and 1996-97 (by up to 11% pa), somewhat less rapidly in 1997-98 and 1998-99 (up about 8%pa) (Australian Bureau of Statistics, Government Financial Estimates - 1998-99, 5501.0). The latter was the Coalition Government's outgoing budget. However the claim that Queensland had been in budget difficulties was disputed by one observer because (while Premier Kennett in Victoria inherited a state which had more than $30bn in debts and had to borrow to pay interest), Queensland's debt repayments in 1998/99 exceeded its borrowings, and it had net financial assets of $14bn. However Queensland could not afford to go on spending as it had over the previous 4 years (Wood A. 'Accounts latitude conquers rectitude', Australian, 15/9/99)
51. Spending: the Beattie Government has maintained the high rate of spending established by previous governments - though general government spending increases in 1999-00 and 2000-01 were more modest than over the previous 4 years (ie about 5% pa). General indications of a high rate of spending were that:
And it can also be noted that employee expenses (which have limited downward flexibility) reportedly grew 13% in the Beattie Government's first year (Morley P., '$1bn man', SM, 26/6/00)
52. 'Strategic' Commitments: Specific large commitments were made presumably with a view to job creation and stimulating desired economic changes. For example:
The latter project appears to involve a (say) $4bn investment to produce 120 petajoules of energy pa equivalent to a 9m tonne per annum coal mine. Such a mine would cost about $500m and currently be unprofitable for any investor (personal communication). A multi-$bn subsidy (perhaps hidden in the price which government electricity GOCs might pay for gas or gas-generated power) may be rationalised by the potential use of gas as a feedstock for a politically-attractive chemical industry at Gladstone, and by the somewhat reduced greenhouse impact. Visible parts of this subsidy involved (a) an $150m incentive package offered to Comalco to commit to a (gas consuming) aluminium refinery at Gladstone (Robbins M. and Sproull R., 'Price stymies Comalco's role', Australian, 20/5/99) (b) a large subsidy in the form of cheap electricity rates that has been alleged to be involved in securing the Aldoga aluminium smelter (Wilson N., 'Full metal racket', Australian, 2/2/01 - quoting NSW authorities who had offered world competitive power rates to locate that plant at Lithgow); (c) requiring Energex to carry the very high sovereign risks associated with reliance on the gas pipeline without government indemnity - a situation which caused some Energex directors (those who were not subsequently re-appointed) to express concern (Owen R. 'State exposed to huge gas deal risk', Courier Mail, 31/7/99) [Some who were re-appointed, it is ironical to note, have apparently enjoyed large bonuses (Griffith C. 'Electricity chiefs line up for big bonuses', Courier Mail, 19/12/00)]. and (d) the delivery of gas into Townsville is to be subsidised and revenue assistance given for a private power station in the city (McCarthy J. 'State Govt steps up strategy to boost regional development', Courier Mail, 2001)
Regarding such 'strategic' spending, it is noted that about 90% of a state government's budget was traditionally seen to be pre-committed (eg for salaries). Thus 'new initiatives' tended to involve $10-20m commitments, rather than hundreds of million dollars. Furthermore (a) somewhat similar 'strategic' programs were mounted by Victoria's Cain Government in the 1980s by spending public sinking funds (ie those accumulated for replacement of capital items) (b) the 'strategic' programs were very popular with interest groups and the media for 5-6 years (c) Victoria's financial position eventually deteriorated badly (d) the strategic initiatives were economically unsuccessful due to the impossibility of 'picking winners'; and (e) Victoria experienced a substantially lower level of economic growth than others achieved at the same time (see Murray R and White, 'The Fall of the House of Cain, 1992). There are reasons to suspect that Queensland's attempt to follow the Cain Government's example with strategic spending might also have a similar unsatisfactory economic impact(34, 5).
53. Governments have relied financially on drawing down GOC's assets. For example:
Equity returns of $1.8bn and $2bn (in 1999-00 and 2000-01 respectively) were recorded as part of government gross revenue (State Budget 2000-01: Economic and Revenue Outlook, Budget Paper #3). However this amount was excluded in estimating GFS revenue (op cit) which is what is compared with ordinary spending to determine whether a surplus / deficit exists. None-the-less equity returns have been critical to maintaining a high rate of capital spending, supposedly to 'create jobs', without borrowing directly on the general government account.
It can also be noted that dividend payments from GOCs have been determined by Treasury - presumably with the needs of the state budget given more priority than the operating and capital needs of the GOCs. The percentage of GOC earnings which they have been able to retain to fund expansion has apparently been dramatically reduced - eg the dividend payout ratio in the electricity industry increased from about 20% before 1995 to 70-80% subsequently (Queensland Audit Office, Audit Report #3, 1998-99).
54. A Misleading Claim: "In 2000-01 equity return is expected to grow by 5.1% (ie from $1869m to $1965m) in line with general growth in departmental equity" (State Budget 2000-01: Economic and Revenue Outlook: Budget Paper #3). The implication, that equity return can continue to grow in line with departmental equity, is quite misleading - as it is generally only GTE assets which have any real cash value (see Notes 60 and 61).
55. GOC deficits increased from $1.6bn in 1998-99 to $3.4bn in 2000-01 - according to Opposition research (see Franklin M., 'Borbidge blasts failed budget', Courier Mail, 21/7/00) - a figure which the author can't confirm. [This suggests an increase in GOC borrowings and / or declining profitability. Also (a) the earnings of GOCs are have been declining(56), and (b) substantial GOC borrowing have not been used to finance new assets but rather to 'return government equity' for use capital spending in the state budget].
56. Operating results (ie revenue less expenses) of all Government Trading Enterprises (GTE) were estimated to fall by $452m in the two years to 2000-01 - a fall which was ascribed to the effect of increased competition especially in the electricity industry (State Budget 2000-01: Budget Overview, Budget Paper No 2). As a further illustration, Energex (a major electricity retailer recently reported a 33% profit fall due to competition and rising costs (McCarthy J. 'State in $150m power grab', Courier Mail, 20/11/00).
57. See: State Budget 2000-01: Budget Overview, Budget Paper No 2.
58. Only $250m of the decline in the net value of GTEs could the author trace to the outright sale of a trading enterprise (TAB). Other asset sales (eg Suncorp and a share in the Bank of Queensland) were of financial, rather than trading, enterprises - and the net value of financial enterprises was relatively slight anyway.
59. Writing-off assets: $1.8bn disappeared from the net value of GTEs due to the application of a new accounting standard(61) to State Water Boards (State Budget 2000-01: Budget Overview, Budget Paper No 2).
60. 'Strippable' assets: While government theoretically has $50-60bn in net assets, most of these are have no cashable value to supplement the budget (eg consider loss-making urban railways, bus-ways, roads, or national parks). Government trading enterprises are the major area where 'cashable' assets exist. Government financial enterprises (eg QIC and QTC) that have large assets also have commensurately large liabilities and very small net 'strippable' asset value to government.
61. Revolutionary revaluation of assets: A new accounting standard (AAS38/AASB1041) for Revaluation of Non-current Assets had been released and is to be implemented in Queensland (Auditor General's Report No5, 1999-00). The standard has a potentially revolutionary impact because it includes valuing some assets at a market value (so-called 'fair value' - ie what a buyer would pay) rather than on what it would cost to replace the asset (so called 'deprival' value ie a depreciated replacement value). The significance of this is that large costly assets (which many government agencies have) which produce little ongoing return would be substantially devalued under a 'fair value' standard. The AAS38 standard gives a choice as to whether 'fair value' or 'deprival value' is used for any class of assets. Current indications are that both Commonwealth and Queensland Treasuries are endeavouring to decide how the new standard should be applied (Auditor General's Report #6, 1999-2000). However the new standard (which is to be mandatory by 2002) will have a major impact because:
62. Cash deficit: Queensland's 1999-00 budget was initially in deficit on a cash accounting basis for the first time in 20 years. This deficit was projected to be $300m (with an accrual surplus of $21m). The cash deficit would have been worse except that $518m of 'lazy money' (ie likely under-expenditure) was taken into account (Balough S and Emerson S. 'Beattie sends state into red', Australian, 15/9/99). The Opposition claimed that Queensland had an underlying cash deficit of $1.6bn in 2000/01 (Courier Mail, 19/7/00) - a figure the author can not verify.
63. Commonwealth Funding: Traditionally the less populous states (which included Queensland) received above average payments under Grants Commission arrangements to compensate them for higher services' costs. Concern was first expressed in 1998 about the possibility of losing $0.4bn in revenue on the adoption of national tax reform (because $5.5bn in taxes would be surrendered to gain $5.1bn in payments under the new system ('Tax reform will hurt us: Beattie', Sun Herald, 16/8/98). Now however it is predicated that by 2000-01 Queensland will have joined the populous southern states in receiving below average payments. The transition in Queensland's status has been hastened (but not caused) by tax reform. (Aitkens D. 'Singing the southern blues', Courier mail, 19/7/2000 - which quoted the Treasurer's 2000 budget speech). In 1992-93 Queensland received 107% of its population share of Commonwealth payments to the states - yet in 2000-01 it was only expected to receive its population share (State Budget 2000-01: Budget Overview, Budget Paper #2). It can also be noted that Sydney (Australia's most populous and globally significant economic region) is beginning to press a case for increased public resources at the expense of other regions - while Victoria's Treasurer is expressing a similar view (see Allen L., 'Beggars beware - Sydney wants more', and Field N., 'Ramshackle grant deal under fire' respectively, Financial Review, 2/2/00);
64. Impact of the Goods and Services Tax: Queensland's fiscal prospects were seen to be pretty sunny over the next couple of years - as GST revenue is paid to the states. GST revenue will compensate for lost state taxes (mainly financial institutions duties - FID) and, as Queensland never had a FID, the GST means a major boost to state finances. The Commonwealth can not deny this gain to Queensland without explicitly discriminating against the state. (Robinson Marc, 'Responsibility to the fore on small surplus', Courier Mail, 19/7/00)
65. Hospital system: Plans were reportedly formulated (but not approved by government) for privatisation of Queensland's public hospital system because of an 'unsalvageable funding crisis' (Ware M., 'State's free hospitals under siege', Courier Mail, 23/8/99).
66. Smaller entities: The Queensland Audit Office (QAO) has expressed concern about the viability of various smaller government enterprises (eg Queensland Meat and Livestock Authority; two subsidiaries of CITEC; QBuild; Island Industries Board; Queensland Fish Management Authority - which had a large gap between estimated and actual revenue; Lang Park Trust; a DCILGP subsidiary (Queensland Motorsport); Law Society Legal Practioners Fidelity Guarantee). QAO specifically highlighted this general point in a report dated 31/1/00.
67. What was worrying the Treasurer? In July 2000 'there was an embarrassing leak of a memo prepared by a Hamill staffer, a week before (the budget) was delivered, which spoke of ways to talk up the budget and gloss over its deficiencies. Yesterday ... the Treasurer conducted his Budget press conference like a man condemned' (Olsson K. 'Magic missing from man in grey suit', Courier Mail, 19/7/00). The Treasurer, it may be noted, was presumably better informed than anyone else about emerging financial issues like those mentioned in this paper.
68. Avoiding Ethical Dilemmas: If the financial 'can of worms' hypothesised here turns out exist, then this author would not want to be Treasurer, and (a) be forced to defend the party line by publicly pretending that everything is fine (b) have to struggle to make Queensland's 'nationalised industries' profitable (ie GOCs etc operating in a political environment) especially those in the electricity sector (c) be forced to explain that equity return is NOT a sustainable source of funding(54) (d) have to convince unenthusiastic colleagues that many public assets can not be used to achieve political goals and some have to be privatised and (e) be obliged to justify either substantially reduced public spending or rapidly increasing taxes to service public sector borrowing.
69. Queensland's strategy: has long been to encourage growth of both population and industry on the basis of low taxes(46). Furthermore emphasis has also tended to be given naively to government finance (ie its revenue and assets) as the key indicator of 'economic strength', rather than gross state product (ie how much business and the community earns). Because state governments' narrow revenue sources tended to depend on economic 'turnover' rather than on value-added, tactics to maximise state revenue did not result in the development of a productive modern economy or high community incomes (and Queensland's per capita incomes have always tended to be about 15% below the national average). However a poorly paid community and an industrial structure enticed by low taxes will tend to lack the means to sustain higher levels of taxation. [[They will also tend to contribute to Queensland's poor status as a financial centre - because of the limited local savings available to be re-cycled into investments. It was recently argued that Queensland's public sector has taken a much greater role in capital formation than elsewhere in Australia - because of the lack of local private capital (Knox M., 'Backing bigger budget deficits could boost jobs', Courier Mail, 20/10/00)]].
70. Queensland's 'no debt' policy (and a practice of funding social infrastructure from revenue) has been said to have left inferior public infrastructure in many areas (Robinson Marc, 'Responsibility to the fore on small surplus', CM, 19/7/00)
71. Regional balance? Observers have questioned why some 2/3 of Queensland's public works spending is devoted to regional areas, while 2/3 of the population reside in the SE metropolitan regions - and the latter appears most likely to provide the strongest prospects for jobs' growth ('Brickbat for budget', City News, 20/7/00).
72. Accrual Accounting: has been adopted. This was recommended by (a) Public Sector Accounts Standards Board in 1995 and (b) Queensland's Commission of Audit in 1996. The latter argued accrual accounts had the advantage of allowing management in terms of net worth - rather than in terms of cash flows (ie in terms of a 'stock' rather than a 'flow'). Key differences from traditional 'cash' accounting involved: (a) being more comprehensive - rather than neglecting activities outside general government and trust funds (b) taking account of asset depreciation (c) distinguishing clearly between capital and current funds - so asset sales can not be used to finance recurrent spending (d) disclosing out-of-year transactions (e) preventing artificial accounts by moving items off budget. Expected effects included (a) revealing (and thus potentially releasing for use) the value of under-utilized public assets (b) enabling government to be more 'business-like' in its methods and thus (hopefully) to respond to the impact of competition and corporatisation / commercialisation of its business undertakings;
73. How 'underutilised' public assets were accessed: the Beattie Government reportedly engaged consultants to suggest the debt which various GOCs should have (McCarthy J. 'Ports hollow log targeted', and 'State in $150m power grab', Courier Mail 30/6/00 and 2-/11/00 respectively). This was presumably intended to promote competitive neutrality with private operators - as required under National Competition Policy. GOCs were then required to take on more borrowings, and to pay surplus funds to Treasury as a return of government equity. This also provided a 'clever' way to draw upon government's equity to support higher levels of state spending.
74. High public spending was popular with business: see Robbins M. 'Industry reaction positive, Australian, 15/9/99 and Brannerly L. 'Business plaudits for capital works spin-offs', Courier Mail, 19/7/00). The short-term effect on order books may have been considered - without looking at the effect on public assets.
75. Financial hazards in the balance sheets of GTEs: The perceived option of relying on equity return from GTEs is not only unsustainable because the amount of equity is limited, but also because:
Such a prudent limit exists even though GTEs basically borrow against government guarantee rather than against their own assets. This is because of the risk of catastrophic failure if lenders have relied on such guarantees and suddenly realise that the individual projects are performing poorly, and that a guarantor is overcommitted overall. The Asian financial crisis ensures that sophisticated investors will now consider such issues - while the adoption of a new accounting standard for assessing asset values will highlight declines in the market value of GTE assets as their revenues fall(61). The effect is likely to be complex but significant because:
The extent to which GTEs balance sheets might need to be bolstered by new public funding depends on information that is not publically available. However, irrespective of short term outcomes, long term results are likely to be much worse as the institutional form in which GTEs are operating has serious limitations(76).
76. Government Business Enterprises (GBEs): Corporatisation was introduced for GOCs (initially) to provide financial returns to government and (later) to comply with National Competition Policy requirements for competitive neutrality to boost economic productivity. At the same time similar principles were extended to other GBEs which are part of government agencies rather than separate corporations. GBEs are subject to political accountability (ie assessed in terms of the desires of interest groups - including producer groups). Thus it is physically impossible for any GBE to ever be 'competitively neutral' with entities which are market focussed (ie concerned primarily with what customers who pay the bills want). All analyses to date have been 'politically correct', and have dangerously ignored the impact of interest-group politics on the ability of GBEs to avoid financial losses in the face of competition. Several persons have highlighted to the present author that:
Thus GBEs are now in a position equivalent to that of nationalised industries (ie they are subject to both political influences and competition). Historically such entities tend worldwide to produce financial losses because of (a) conflicts between (often informal) political demands and the focus on market demand which is required for commercial success and (b) the effect of interest-group politics on their management skills and orientation.
77. Conflicts: Government has been seeking to encourage a gas pipeline from New Guinea, yet this is a competitor to its GTEs' new power stations. If it approves the power stations, the pipeline becomes unviable, yet if it supports the pipeline its GTEs (and the state budget) will endure large losses (McCarthy J. 'No doubt government has energy to privatise', Courier Mail, 30/5/00).
78. Privatisation: has been supported in Queensland (eg for TAB, Suncorp) mainly due to the need for capital to meet competitive challenge (McCarthy J. 'No doubt government has energy to privatise', Courier Mail, 30/5/00).
79. See Knox M. 'Backing bigger budget deficits could boost jobs', Courier Mail, 20/10/00); and Greber J., Courier Mail, 19/7/00.
80. Lower taxes: Germany also is expected to reduce taxes (Gottleibsen R. 'Germany, US foresee greater prosperity in lower taxes', Australian, 5/2/01)
81. Tax constraint on borrowing: In 1998-99 the total operating revenue of Queensland Government as a consolidated entity was $21475m (from Commonwealth $8040m, Sales of Goods and Services $5983m, Taxes Fees and Fines $4007m, Investment Income $2358m, Royalties $525m and Other) (Consolidated Financial Statement of the Government of Queensland - Year Ended 30/6/99). As a consolidated entity, total state debts (including government securities) were $23,115m (op cit). Assuming interest rates were 6.5%, total interest costs would have been $1.5bn - about 7% of overall operating revenue - and this would be offset by earnings on some $25bn in investments. Thus overall debt service costs are not a constraint on borrowing. However the effect on taxes would be a constraint because (a) the costs of debt service would need to be met from current income (b) this would need to result in increased taxation (or reduced spending) if other recurrent spending is not 'fiddled' into the capital account (c) a 10% rise in taxes might be about the politically tolerable limit and (d) only a small fraction of Queensland's revenue (about 23%) can be varied by government policy (as Commonwealth Grants, Sales of Goods and Services and Investment Income are externally determined). The amount that could be borrowed with a 10% rise in taxes, and without cutting spending, might be only (about) $7.5bn
82. How much debt could Queensland have? Ignoring the large effect such borrowing would have on tax rates, Queensland might perhaps contemplate net interest costs of (say) 30% of revenue. Thus on $21475m income(81) the total net debts of Queensland Government as a consolidated entity could be (say) $99bn (at 6.5% interest rates). However for that part of government's revenue which is 'commercial' (ie that from Sales of Goods and Services - $6.4bn and from Investments $2.8bn) the prudent debt / revenue ratio would be much lower - because such earnings are less secure. For a company a 1:1 ratio between debts and shareholder equity would be reasonable(75) and a 1:1 ratio between shareholder's equity and revenue would be fairly high. [For example Coles Myer has annual revenues of $20bn with shareholder funds of only $3.5bn - because retail has a very high turnover / profit ratio]. Thus the prudent debt for the $8.3bn of commercial revenue might be a like amount (ie some $30bn less than if the same revenue were secure). Using the highly simplified model referred to in Note 75, a debt to revenue ratio of 1.5:1 emerged.
83. Large losses have been incurred by investors in deregulated electricity markets eg by those firms which purchased privatised entities in Victoria (Potter B. 'heat's on as power supply remains shaky in two states', Financial Reviews, 13-14/1/01) - due to distorted competition; and in California - due to the effect of transitional rules governing the electricity market (Buffini F. 'California overload', Financial Review, 13-14/1/01). Thus finance may be more difficult to obtain - and more costly. It has clearly proven harder than expected to design rules which enable an electricity market to operate effectively (or at the very least to manage the de-regulation transition).
84. Other challenging issues include:
85. What the community wants: Talk-back radio responses indicate that Queenslanders are concerned mainly with very practical issues (eg law and order, health and education), rather than with political game-playing (Strutt S. 'Bread and butter issues matter most', Financial Review, 24/1/01). [[However Queensland's political system has been incapable of understanding and / or communicating the fact that achieving those 'bread and butter' goals is not a simple matter and must be based on more than political rhetoric and the 'bread and butter' programs themselves]].
86. Avoiding the hard issues: The politicians have not been willing to confront those who have suffered from economic change. All parties in the 20001 election campaign have failed to address difficult issues. They say they are talking about the big issues of health, education, jobs and law and order, but is that enough? (Franklin M. 'Time to deliver', Courier Mail, 10/2/01).
87. ALP election campaign had modest proposals - including: 15,000 new jobs (Australian (A), 25/1/01); dam, bigger port (Courier Mail (CM), 25/1/01); more police (CM, 26/1/01); no anti-crime auction (A, 26/1/01); get-tough on juvenile offenders (SM, 28/1/01); fixing up schools (CM, 30/1/01); police flying squads (CM, 2/2/01); carer's allowances (CM, 5/2/01); school traineeships (CM, 7/2/01); help for forgotten jobless (CM, 8/2/01); jobs, nursing home upgrades, and reduced hospital waiting lists (Financial Review, 8/2/01); Gold Coast rail study (CM, 9/2/01); reduced hospital waiting lists (CM, 12/2/01); dental health care (CM, 14/2/01).
88. Coalition alternative: As in 1995 it appeared that the Coalition intended appointing Director's General with some experience in which it had confidence ('Coalition to swing axe', Courier Mail, 17/1/01), and getting back-to-basics by emphasising bread-and-butter public service issues. Policy proposals included: a rail tunnel under the Brisbane river (Sunday Mail, 10/9/00); 3 Brisbane river bridges (Courier Mail (CM), 11/9/00); water projects, regional call centres and tree clearing reform (CM, 6/11/00); new department of marine affairs (CM, 15/1/01); low taxes, no brothels (CM, 18/1/01); greater central government coordination (CM, 19/1/00); air-conditioner classrooms (CM, 23/1/01); smaller classes, law and order (CM, 25/1/01); more police (CM, 26/1/01); get-tough on juvenile offenders (SM, 28/1/01); multiculturalism, protection for teachers disciplining unruly students, and funding for victims of institutional abuse (CM, 27/1/01); reduced waiting times for surgery (CM, 29/1/01); national park funding (CM, 30/1/01); more economic development officers, promotion of e-commerce, separate economic and trade ministry, $1bn for water infrastructure (CM, 31/1/01); and mandatory jail sentences (CM, 1/2/01); more power for victims of crime, revealing costs of attracting industry (CM, 6/2/01); tax system overhaul - with reduced taxes, tough law and order and drugs policies (Financial Review (FR), 9/2/01); eliminate politically correct syllabus (CM, 9/2/01);$1.3bn for Brisbane transport; end of sugar industry reforms (CM, 14/2/01); continuing and expanding Smart State (FR, 15/2/01).
89. What happened after 1995 was that (a) the Coalition, elected unexpectedly, had no serious policy agenda (Franklin M., 'A long hot summer', Courier mail, 2/12/00 - quoting Rob Borbidge) - thus 6-12 months of embarrassing inaction were consumed in endless 'studies' (b) Public Service effectiveness was low - and the methods used were not heading towards reversing problems associated with the loss of the relevant knowledge skill base in the Senior Executive Service (c) constipated machinery of government (eg Cabinet and budget processes) was not given the enema that was desperately needed and (d) the strategic responses to massive changes emerging from outside was weak because most emphasis was placed on bread-and-butter government service delivery and (e) many regions failed to cope with their challenges and political instability (initially in the guise of the One Nation phenomenon) grew from discontent to organised opposition.
90. Challenges were more difficult: In particular the problems pervading the Public Service appeared to be even more severe, and serious financial constraints seemed to be emerging - neither of which were mentioned in published policies, which simply consisted of various promises. Opposition election promises (costing $1bn+) were criticised by the Government whose promises cost only $100m+ (Franklin M., 'Nats spending under fire", Courier Mail, 29/1/01). The Opposition claimed its promises are fundable (op cit) - a view which gained academic support (Stanford J. 'Spending spree appears to add up for coalition', Courier Mail, 31/1/01). However neither Government nor Opposition promises were very credible, in view of:
91. 'Managing change much easier said than done' (Charlton P. Courier Mail, 19/2/01). 'For Peter Beattie the easy part is over. Getting elected on the back of widespread discontent at economic reform, competition policy and the whole raft issues thrown up by globalisation. Actually doing something about those issues .. is another'. National Party leader, Rob Borbidge conceded that globalization could not be stopped. He then repeated 'We can't stop globalization. What we have to do is manage it ... We have been lousy managers of change' [This, it may be noted was point which the author, and others in the then professional Public Service, had tried to convey about 12-15 years earlier].
92. Governments are now being expected to get it right: For example (a) 'What Queenslanders crave most out of this election is honest, inclusive and reliable government. They do not want media stunts', (Courier Mail, editorial, 16/2/01) and (b) 'Now will politicians do something, rather than just say they are listening. Labor must stop commiserating and outline policies that will affect change. The government has got to act, and not give excuses as to why they can't' (Seiffert J., letter to The Australian, 19/2/01). However despite expectations such as those outlined in Note 1 (which were not taken into account in the election campaign and reveal a growing perception of difficulties facing the community), the new Government has indicated a desire to do no more than promised during the election campaign (Franklin M. ‘Beattie swears by election promises’, Courier Mail, 23/2/01).