I was reading an article the other day that I can’t now find, by a pollster whose name I can’t remember (increasing age is like that). It dealt with Coalition strategist Mark Textor’s highly successful four part 2010 campaign theme for Tony Abbott: stop the boats, no big new taxes, end the deficit, stop the waste.
I’ve already said more than enough about the boats. But the success of Textor’s tax/deficit theme was quite remarkable given that Australia had (and still has) the lowest deficit of any western nation by a very long way, and is the lowest taxing western nation bar the US (and will still likely have that status even if the Gillard government succeeds in introducing a carbon tax and minerals resource rent tax as promised). Abbott’s success with those slogans was as much due to the ineffectiveness of Labor’s campaign as to Textor’s skills in reading and exploiting the zeitgeist.
However the waste issue is in another category. There really was significant waste, at least in the pink batts scheme, green loans and the Building the Education Revolution program (at least in NSW; it was pretty efficient and delivered value for money in the other States according to the Orgill Report), and it was an entirely legitimate election issue.
However, there were two aspects of these waste items worth highlighting:
- They were avowedly part of the Rudd government’s emergency response to the GFC and as such required that the money be spent quickly to stimulate the economy and avoid recession. Most economists agreed that some such schemes were necessary and that they actually worked. That’s the main reason why Australia still has the lowest debt in the western world, along with low unemployment. The need for speed arguably precluded or at least restricted normal government prudential safeguards against waste and mismanagement.
- At least with pink batts and BER, the Rudd government was forced to rely on State governments to manage the projects and provide regulatory oversight. The Commonwealth simply doesn’t have an extensive operational bureaucracy on the ground around Australia to allow it to manage these programs itself.
Of course, this is a classic manifestation of one of the central deficiencies of Australia’s evolved federal system: vertical fiscal imbalance(VFI). The Commonwealth raises most of the revenue but the States are directly responsible for most of the areas where it’s actually spent (leaving aside social security and defence) . The usual criticism of VFI is that it allows both levels of government to evade political responsibility by blaming each other. The Commonwealth blames the States for stuffing up Commonwealth-funded projects and the States blame the Commonwealth for not giving them enough money. However, in the case of BER and pink batts, the Commonwealth copped all of the public odium even though arguably the lion’s share of the blame should have been sheeted home to the States.
We can certainly make observations about the PR abilities of the Rudd/Gillard government to have allowed this situation to develop and seemingly be unable to shift public perceptions despite having a strong case. However that isn’t the point of this post. Instead I want to explore what can be done to repair this broken aspect of Australian federalism.
One obvious solution would be for the Commonwealth to agree to fiscal reform whereby the States are given an ongoing secure share of revenue sufficient to discharge their constitutional responsibilities for health, education and the like on an ongoing basis. However, it’s highly unlikely that any federal government of whatever political colour will ever do so. Howard’s agreement to cede all GST revenue to the States is as good as it’s ever likely to get for them in that respect.
Moreover, there are fairly persuasive reasons why the Commonwealth should remain the dominant revenue raiser in the federation, and find some other way to remedy the evil effects of VFI. First it’s more efficient and better for business to have a single dominant revenue raising authority and therefore a single tax system in most areas of activity throughout Australia. Secondly, Australia’s evolved system also works well in equity terms, with the Commonwealth Grants Commission system ensuring that all States and Territories are funded equitably to allow them to provide a similar level of government services to all Australians wherever they live.
Accordingly, the Commonwealth needs to find a way to ensure more reliably that :
- State-proposed infrastructure projects are best value-for-money;
- tender processes are competently and honestly handled (the imminent overdue demise of the NSW Labor government should make that task slightly less challenging at least in the short term); and
- construction itself is efficiently managed.
All the above should apply with any and all infrastructure projects involving significant amounts of Commonwealth money or financial risk, whether they’re Commonwealth or State government projects or Public-Private Partnerships.
The Rudd government actually established a Commonwealth authority to perform the first of those tasks in Infrastructure Australia. Its structure appears to be fairly closely based on that of the Productivity Commission, but it hasn’t to date carved out a role that would suggest it shares that body’s practical independence and methodological rigour, although in fairness it’s early days for IA. Like the PC Commissioners, the IA’s members are appointed for relatively short terms and its working staff are public servants and therefore not formally independent of government in any sense. However, the real problem with IA is that its functions only include evaluating the business case for new infrastructure when commissioned to do so by the Minister (see s5(2)(e) and 5(4) of the Infrastructure Australia Act 2008). Naturally the Minister doesn’t do so unless it’s politically expedient. As far as I know he didn’t do so in relation to any of the BER projects proposed by the States and Territories, although perhaps there wasn’t time given the urgency of getting money spent for stimulus purposes.
Nor has IA been asked to evaluate the business case in relation to the National Broadband Network as far as I know. Instead the Commonwealth commissioned private consulting firms McKinsey and KPMG to undertake an implementation study and relied on the NBN Co’s own business case document to justify its plan. That turned out to be enough to get the Greens and Independents on board, but you’d have to ask why they didn’t at least insist on an evaluation of that business case by the very semi-independent Commonwealth body established for precisely that purpose.
I’m fairly convinced that the NBN plan is nevertheless the right way to go despite Opposition and other arguments to the contrary. However, these questions of proper process and rigorous scrutiny of major government spending are critically important ones in themselves, even if they’re not “barbecue stoppers”. Maybe it would be a smart move for Tony Abbott and his advisers (Mark Textor, are you reading this?) to transcend the Coalition’s developing image of mindless obstructionism by proposing a positive legislative reform which empowers Infrastructure Australia without the Minister’s permission/direction to investigate the business case (and conduct full cost/benefit analyses) of all infrastructure projects involving Commonwealth expenditure or risk exposure of (say) more than $5 million. It would at least test whether Windsor, Oakeshott et al are politicians of principle or just poseurs with their eyes on the pork barrelling prize while they hold the balance of power.
I won’t be holding my breath though, because by doing so the Coalition would also be placing real embarrassment constraints on its own pork-barrelling freedom of action when it regains government. Still, John Howard had the guts to make the Reserve Bank formally independent of government control. Maybe Tony Abbott could muster similar intestinal fortitude.