An audit that we don’t need

Tony Abbott has said he’d like an audit of government spending - but history suggests they are often ignored, or used to break election promises. AAP

In 1983, the Thatcher government in the UK was waging war with local government, which was with some success avoiding the pain of public sector restraint while revelling in the catchphrase “local socialism”.

In a clever and highly successful move, Minister Michael Heseltine formed an Audit Commission with a mission to review and cut spending by local government while simultaneously promoting the contracting out of local services.

The simple idea of an Audit Commission to drive neoliberal reform was later picked up by the newly elected Nick Greiner coalition government in NSW, and with great effect. Twenty five years on, Commissions of Audit continue to be the favoured policy tool of newly elected Conservative administrations in Australia.

However, they are not designed as an on-going public corporation charged with driving a reform agenda as was the case in the UK, but as a once-off governance device designed to authorise a major change of policy direction often at odds with what was promised during an election.

So popular has this become that all the states have been the subject of Commissions of Audit - while NSW, Victoria, Western Australia and Queensland have had two. They share in common a similar set of conclusions about the need for public sector austerity and push heavily the need for privatisations.

Not always listening

Prime minister elect, Tony Abbott, is about to launch the latest Commonwealth Commission of Audit, some 17 years after John Howard did likewise after winning office in 1996. Abbott has repeatedly said he will use this as a mechanism to review all aspects of Commonwealth spending and activity. “I’m very happy to have the Commission of Audit go through the whole of the administration, to tell us whether, in their opinion, they think things can be done better,” he told the ABC in early September.

While the Commissions of Audit have been very good at delivering sweeping recommendations, governments that worry about their longevity have not always listened. Sometimes their advice is heeded with great gusto, as has been the case in Queensland and NSW recently. But sometimes governments have looked the other way. The Victorian government never bothered to publish its most recent Commission of Audit, and the new Treasurer, Michael O’Brien, told The Australian he hadn’t even bothered to read it.

The last Commonwealth Commission of Audit was treated with similar contempt, with most of its recommendations being ignored.

Which way will Abbott go?

So what can we expect this time round under prime minister Abbott? The conservative press, not to mention the right wing blogosphere, are keen that the opportunity to cut and sell is not lost. This week The Australian ran a full page spread on largesse in the public service, quoting sick days as evidence of an easy life that could do with a bit of managerial stick, while in The Weekend Australian economics editor David Uren opined:

“The first task of the new government’s proposed commission of audit will be to establish that there is indeed a budget emergency. Unless this is accepted by the government as well as the broader public, there will be no stomach for the measures required to make a meaningful difference.”

On the other hand, the new PM has been much more guarded. When pressed during the final weeks of the election campaign, Abbott gave a commitment to keeping his election promises even if the budget turns out to be in worse shape than it appears. He said that his goal would be to return the budget to surplus over a ten year period, and that the bulk of the adjustment would come from a growing economy rather than cuts and privatisations beyond what had already been announced.

These are pretty strong commitments, which raise in turn the question: why bother to have a Commission of Audit at all? This is especially so when the long-term trends of the budget are taken into account and considered independently of a right wing framework that requires us to assume that spending is the problem.

When this is done a very different picture emerges. While Commonwealth spending hit a high during the years of the Rudd stimulus packages, it has subsequently fallen back to pre-GFC levels. As a share of GDP, Commonwealth payments this year will be below their level in 2000/01.

Our public sector debt and deficits are low by world standards and there is no economic need for them to return to zero. Nor is public service employment an issue. In its recent assessment of Value for Money in member countries, the OECD, not known for a left wing bias, concluded that:

“…Australia has very low employment in general government (including states and local government), in fact the lowest of all the Value for Money countries for which data is available. This is probably due to the large privatisation and outsourcing efforts of the last decades. This has led to a small government and large efficiency gains … Australia is an example for other … governments.”

Challenge is revenues, not deficits

The main challenge facing the Australian public sector is not expenditures, deficits or debts, but revenues. These have been on a downward trajectory for five years now, and that is despite being underpinned by one of the world’s fastest growing economies.

As the most recent federal budget papers show, between 2006/7 and 2010/11 revenues for all tiers of government shrank by almost five percentage points of GDP, or the equivalent of almost $70 billion per year. While they have staged a modest recovery since then, overall they remain in the doldrums with budgeted increases year after year failing to land where Treasuries (except WA) had hoped.

It is this problem with receipts that poses the biggest challenge to an Abbott government. It won the election on the back of promises that will reduce rather than raise revenues, including cutting the corporate tax rate, ending the carbon and mining taxes as well as overturning the decision by Labor to end a tax rort for leased vehicles.

However you look at it, the ducks are simply not lined up to enable Abbott to deploy a Commission of Audit in the way that those on the right would wish him to do. As The Australian’s David Uren had to concede, this “is not an easy argument to win… Australia is among the handful of countries with a AAA credit rating from the three global agencies (and) the nation’s creditors … are not showing the slightest concern”.

In an interesting historical twist, the David Cameron government in the UK announced earlier this year that it was disbanding its Commission of Audit, having decided it would do so when it won office three years ago. It had become a waste of public money, communities secretary Eric Pickles said at the time.

Tony Abbott might do well to reflect on this decision, so that he might free himself up to focus his attention on Australia’s real budget troubles, which fall heavily on the revenue rather than the expenditure side of the ledger.