Government Senators' Minority Report
Introduction
This Senate Select Committee Inquiry into State Government
Financial Management was a politically motivated inquiry from the outset.
The resolution to establish the Select Committee was moved
on the first full day of the sitting of the Senate following the election of
the Rudd Labor Government. At that time the Coalition parties still had an
absolute majority in the Senate. Yet at no stage in its previous twelve years
of Government, including after it achieved its absolute majority in the Senate
from 1 July 2005, did the then Federal Government ever move to establish an
inquiry into State Government Financial Management.
Clearly the Coalition parties did not consider it a
significant issue until after it lost office.
The Coalition Opposition also used its Senate majority to
establish, on the same day, two other Select Committees. Each of the Committees
had a majority of Coalition Senators with a Coalition chair. Yet between July
2005 and the 2007 federal election the previous Coalition Government did not
establish any Select Committees.
If the Coalition was truly concerned with these issues it
could have undertaken such inquiries whilst in Government.
Further, if the Coalition was serious either when in Government,
or now in Opposition it could have referred these issues to the appropriate
Senate Standing Committee which in this case would have been the Senate Standing
Committee on Finance and Public Administration. The fact that they did not do
so but established a special select Committee dominated by Coalition Senators
was political and hypocritical.
The Majority Report states at Paragraph 1.2 that:
Time pressures associated with the committee's hearing program
saw the date for reporting subsequently extended to 18 September 2008
It further
states that
The initial closing date for submissions was 19 March 2008, which was later extended to 30 April 2008 as a consequence of the
committee's reporting date being delayed.
The Government Senators do not accept these assertions or
excuses. It is noteworthy that only 18 submissions had been received by 19 March 2008. Further, only three State Opposition (ie Liberal) representatives had, at
that stage, responded to the Committee's invitations or advertisements seeking
submissions.
The only logical reason for the extension of time was to
allow coalition parties in other states time to get involved in what was
intended to be a political attack upon state Labor Governments. Much of the
majority report relies heavily on the submissions and evidence given by State
Opposition Leaders and Shadow Treasurers.
Commonwealth State Relations
The Government Senators do not support the core conclusions
and recommendations of the majority report.
The report represents an extension of the previous Coalition
Government’s failed approach to Commonwealth-State relations, an approach which
focused more on blame than finding solutions. The Government Senators consider
co-operative federalism and ending the blame game is the best way to deal with
the issues facing Australia.
Fundamentally, the report fails to reflect the reform agenda
underway through the Council of Australian Governments (COAG) which is
fundamentally changing the financial relationship between the States and
Commonwealth.
On 26 March 2008, COAG agreed to implement a new framework
for federal financial relations. The focus of the new framework is on improving
the quality and responsiveness of government services by reducing Commonwealth
prescriptions on service delivery by the States in conjunction with clearer
roles and responsibilities and outcomes‑based public
accountability.
The framework will centre on key changes.
First, the number of Specific Purpose Payments will be
reduced from more than 90 to five – in the areas of healthcare, early years
education and schools, vocational education, disabilities, and housing. This
represents a fundamental break this is with the past, with the number of
Specific Purpose Payments sitting at around 100 for decades now. This
rationalisation will reduce wastage at a time when we can no longer sustain the
excesses of the past.
Second, the Commonwealth will give the States the budget
flexibility they need to allocate resources where they will produce the best
results. The Commonwealth will move away from the prescription of the past, and
remove the input controls which inhibit State service delivery and priority
setting. Instead, the focus will be on the achievement of outcomes.
Third, the Commonwealth will provide the States with more
funding certainty. States will be better off financially, and will no longer be
plagued with the uncertainty of not knowing whether they will receive
Commonwealth payments. There will be no more five year agreements with 'take it
or leave it' offers when they expire. Instead, the new National Specific
Purpose Payments will be on-going agreements, reviewed periodically to ensure
the maintenance of funding adequacy.
Fourth, and central to the new framework, there will be
simpler, standardised and more transparent public performance reporting. The
new reporting framework will focus on the achievement of results, value for
money and timely provision of publicly available and comparable performance
information. Roles and responsibilities will be clarified and the performance
of each jurisdiction will be independently assessed by the COAG Reform Council.
Fifth, and central to the new financial framework
reforms, will be additional incentive payments to drive key economic and
social reforms. National Partnership Payments will reward those States which
best deliver the services and outcomes to their citizens, and not reward those
that don't.
Financial Reporting
Government Senators do not consider it appropriate for a
Senate Committee to make recommendations requiring the direct action of other
sovereign parliaments within the Commonwealth. As such we do not support
Recommendation 1, 2 or 3 in the report, that each state and territory enacts a
Charter of Budget Honesty. However, we do see merit in state and territory
government considering the benefits of implementing a Charter of Budget
Honesty.
Recommendation 2 on developing
new financial reporting requirements fails to recognise the work undertaken
through the Heads of Treasuries under the Uniform Presentation Framework (UPF).
The primary objective of the UPF
is to ensure that Commonwealth Government, State and Territory governments
provide a common 'core' of financial information in their budget papers.
The review of the impact of the
new accounting standard AASB 1049 Whole of Government and General Government
Sector Financial Reporting was undertaken by the UPF Committee, convened by
Heads of Treasuries for these tasks. The Committee comprised representatives
from Australian, State and Territory Treasuries and the Australian Department
of Finance and Deregulation. The Committee consulted with the Australian Bureau
of Statistics and the Commonwealth Grants Commission.
We note that the revised UPF was
released in April 2008. The revised UPF is to be implemented across all jurisdictions
prior to 2009–10 budgets.
Notwithstanding the significant
gains from the UPF, Government senators consider that more work could be done
to enhance the consistency of the presentation of budget information.
Government Senators' Recommendation 1
Government Senators recommend that the Commonwealth
Government work through COAG with the States to enhance consistency in the
presentation of budget information, to allow greater transparency and
comparability of State and Commonwealth financial information.
Fiscal Management
Government Senators consider
that sound fiscal policy is crucial to good government and agree that it does
not happen by governments taking politically expedient decisions in election
years.[1]
Government Senators note that
the previous Coalition Government announced new policies with a budgetary
impact on average three times more in election years than non-election years
and that this did not represent good fiscal management (see Figure 1).
Figure 1—Effect of New
Policies across the Forward Estimates under the Coalition Government
(1996–2007)
![](/~/media/wopapub/senate/committee/sgfm_ctte/report/d01_1_gif.ashx)
Source:
Various Budget Papers[2]
Government Senators also note
that the former Coalition Government was the highest taxing Government in Australia’s
history (see Figure 2).
Figure 2—Australian
Government General Government Sector Taxation Receipts as a percentage of GDP
![](/~/media/wopapub/senate/committee/sgfm_ctte/report/d01_2_gif.ashx)
Source:
2008–09 Budget Paper 1.
Government Business Enterprises
In most jurisdictions, GBEs are responsible for the
provision of key infrastructure projects in energy, water, rail and ports. Most
of these projects result in the construction of assets with long economic
lives. These assets are not netted off the debt which is carried to fund these
projects in the calculation of net debt. These projects usually have
stable cash flow which would allow the corporation to hold lower financial
assets to meet financial liabilities.
The growth in GBE net debt in recent years reflects growing
infrastructure expenditure to meet increasing demand, address limited supply
issues or replace exhausted infrastructure.
Infrastructure Investment
The majority report is critical
of the failure by the states to invest in infrastructure during the 1990's and
after.
Whilst it is unarguable that
State Government's are now seeking to invest heavily in vital infrastructure,
and undertaking significant borrowings to do so, the criticism by the Coalition
is disingenuous.
During these years the
prevailing economic orthodoxy, as promoted by the Federal Government, was to
budget for surpluses and reduce government debt. As the following table shows,
the Howard Government had large budget surpluses in nearly every year from 1999
onwards. Further, the actual surplus in most years exceeded the predicted
surplus by $5 billion or more (see Table 1).
Table 1—Federal Budget
Operating Balance 1999–00 to 2007–08
Budget year
|
Budget
($ billion)
|
Outcome
($ billion)
|
Difference
($ billion)
|
Difference (%)
|
1999–00
|
5.7
|
12.2
|
6.5
|
114
|
2000–01
|
3.2
|
4.7
|
1.5
|
47
|
2001–02
|
-2.1
|
|
-2.0
|
95
|
2002–03
|
-0.6
|
5.8
|
6.4
|
-1067
|
2003–04
|
0.3
|
5.6
|
5.3
|
1767
|
2004–05
|
0.9
|
10.9
|
10.0
|
1111
|
2005–06
|
8.4
|
15.8
|
7.4
|
88
|
2006–07
|
12.0
|
13.9
|
1.9
|
16
|
2007–08
|
11.2
|
23.3
|
12.1
|
108
|
Source: Parliamentary
Library.[3]
The previous Federal Government
spent very little on new infrastructure. It is hard to think of any major
Howard Government infrastructure project other than the Alice Springs to Darwin
Rail link and the replacement Nuclear Reactor.
Government Senators consider
that Recommendation 5 is redundant and does not take into account the work programme
of Infrastructure Australia and the establishment of the Building Australia
Fund.
Infrastructure Australia brings
together all three tiers of government and the private sector to advise
on Australia’s future infrastructure needs.
Infrastructure Australia's immediate tasks
are to:
- develop best practice, nationally consistent PPP guidelines to
make it easier and cheaper for the private industry to partner with government
and invest in nation building infrastructure.
- undertake a National Infrastructure Audit by the end of
the year.
- deliver to COAG in March 2009 a
national infrastructure priority list.[4]
Infrastructure Australia's advice will
guide the government's decisions on allocations from the $20 billion Building
Australia Fund the Rudd government announced in the 2008–09 Budget.
Other Recommendations
Government Senators note that
the Henry Review is currently undertaking a root and branch review of Australia's
tax system, including taxation collected by the States. Government Senators
consider that Recommendation 6 pre-empts the Review and as such does not support
its inclusion in this report.
Government Senators do not support Recommendation 7 of the
majority report which proposes the introduction of State income taxes. Government
senators consider that such a move would result in a more complex, less
efficient and effective income tax system and is likely to lead to Australian
families paying higher taxation.
Government Senators consider
that Recommendation 8 is redundant given the COAG reform agenda which is
currently underway. After careful consideration, the March 2008 meeting of COAG
agreed to move away from the prescriptive and cumbersome input controls of the
past which inhibit State service delivery and priority setting. Instead, COAG
agreed that the new framework will focus on the achievement of outcomes.
Government Senators note that during twelve years in office, the previous
Coalition Government raised no objections to the mechanisms and powers of the
Australian Loan Council. Furthermore, the Australian Loan Council’s role has
recently been enhanced through its role in advising the Government on whether
the combined spending envelope of both Commonwealth and the States can be
delivered in prevailing economic conditions without putting at risk the
Government's inflation targets.
Government Senators note that of
total payments to the States in 2008–09 of $33.1 billion for specific
purposes, $2.5 billion (8 per cent) is provided as financial support
for local governments. Government Senators note that Heads of
Treasuries have been considering the implications of COAG's financial
framework reforms for local government, and as such consider Recommendation 11
is redundant.
Norfolk Island
Government Senators support the recommendations of the majority
report regarding Norfolk Island.
Senator Michael Forshaw Senator
Helen Polley
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