Pain or promise looms under Costello’s Queensland plan

The Peter Costello-led Queensland Commission of Audit has unveiled what Costello describes as an economic blueprint for conservative governments, as a confluence across jurisdictions looms.

If implemented, the recently delivered Queensland Commission of Audit - dubbed the Costello Report - will represent the biggest shake-up of Queensland’s public sector since the election of the Wayne Goss government in 1989.

Headed by former Treasurer Peter Costello, assisted by two other Independent Commissioners, Dr Doug McTaggart (Chair of the Queensland Public Service Commission) and Professor Sandra Harding (Vice-Chancellor of James Cook University and recently elected Chair of Universities Australia), the final report was delivered to Treasurer Tim Nicholls last Thursday, with an executive summary released on Friday.

The Newman government has committed to release the full report along with its response to the Commission’s 155 recommendations within two months.

But at around 1000 pages long, the report will take some time to digest. Nicholls noted he was only several hundred pages into reading it himself – while Premier Campbell Newman’s admission he had only managed the executive summary drew criticism from the Labor Opposition.

Revisiting the start

Before considering the details of the Commission’s proposals for wide-ranging public sector reform, it is worth revisiting its genesis. Its establishment was one of the first actions of the Liberal-National Party (LNP) government after its landslide election victory in March 2012.

The Commission was given a broad Terms of Reference and in particular was asked to report on improving the state’s financial position and economy, improving service delivery and government-owned commercial enterprises.

The Commission’s Interim Report Commission’s Interim Report of last June recommended a two-stage “fiscal repair” strategy that aims to stabilise and reduce the state’s debt, restore its AAA credit rating and return the budget to a surplus by 2014-15.

The interim report provided the backdrop to the Newman government’s 2012/13 budget, which outlined $5.5 billion worth of cuts (including reducing the public service by up to 14,000 full time positions). The Costello Report marks the strategy’s second stage of paying down debt and restoring “Queensland’s financial strength”.

The Commission recommends reducing Queensland’s debt by A$25 billion to A$30 billion towards the twin goals of “providing the state with the strength to withstand adverse events such as further natural disasters or external shocks” and to regain its AAA credit rating.

Reducing the economic risk of natural disasters such as floods is a goal of the Audit Commission. AAP

Tough medicine

The prescription, if accepted – and that’s a big if - will be tough medicine for a community accustomed to low taxes, but relatively strong government intervention (counter-cyclical spending on public works has been a traditional feature).

Queensland is and has been historically from settlement, a public sector economy, with the report noting the government is both the largest employer and the largest single purchaser of goods and services in the State economy.

Partly this is a legacy of decentralisation, the need to maintain service provision in rural and regional areas, but clearly too it is an administrative tradition and a policy style. The Commission’s Report challenges fundamental tenets of that style. Whether it will be possible for Campbell Newman to withstand any backlash that might come from a public antipathetic by disposition towards privatisation; from regional communities concerned about access to services and local employment; but also from within - from parts of the former National Party, remains to be seen.

Campbell Newman has already applied deep cuts to the Queensland public service. AAP

Back to the future

The ideas contained in the report: driving productivity through marketisation and contestability; exposing a broad range of public services now delivered by governments “in-house” to the disciplines of competition; the sale of government-owned corporations (GOCs) and other assets to reduce risks and capital demands on public sector balance sheets, are not new.

They were core to the microeconomic reforms of the 1980s and 1990s that it is broadly agreed have underpinned Australia’s recent prosperity and relative resilience to global shocks.

Similar proposals were canvassed in both the 1996 Commission of Audit commissioned by the then Liberal/National Coalition government of Premier Rob Borbidge (who took office in minority government in February 1996) and the Commission of Audit that Costello himself presided over as Treasurer in the Howard government.

But politics in Queensland, the realities of minority government (Borbidge 1996-98; and Peter Beattie’s first term 1998-2001); and both here and in Canberra, the One Nation challenge, saw governments temper their reform ambitions in an effort to stem the politics of discontent. After the deep cuts of Costello’s early budgets, the revenue from the GST and the proceeds of the mining boom ushered in a decade of growth and fiscal expansion.

Times have changed – Commonwealth and state governments are fiscally and revenue constrained and global uncertainty remains a threat to our trade-exposed economy.

There is also rising unemployment, anxiety about further job losses and always in Queensland perceptions that rural and regional communities may not be getting a “fair share” - opening the potential for grievances to be exploited, as they were by One Nation and perhaps now by Katter’s Australia Party.

Fundamentally reforming the public service

Debt reduction on the scale proposed requires thorough-going analysis and creative thinking. Media reports have addressed recommendations about asset sales and the disposal of government owned corporations, so I won’t revisit those here.

I focus instead on two aspects of the report that risk being drowned out by the usual (and frankly, pretty tired) debates over privatisation and outsourcing.

After detailing a “disturbing” decline in productivity and the relatively high costs of public sector provision in Queensland compared to other states, the report identifies improving public sector productivity as the key focus for its recommendations. It wants fundamental reform to the public service to allow it “to be more flexible, responsive and cost-effective in supporting front-line service delivery”.

This is the area that contains some of the report’s most interesting, potentially innovative and controversial proposals.

Along with significant industrial relations changes, the Commission recommends establishing “a new broad-banded classification system for public servants to replace the current inflexible system” and “appointment of employees to a broad-banded level within the public service rather than to a specific position within an agency”.

Intended to encourage greater flexibility, capacity and mobility of the workforce in responding to changing priorities, these recommendations will challenge the siloed culture that characterises traditional bureaucracies.

Queensland wants reform of state-federal relations but has held back in the past. AAP

They also raise questions about specialist versus generalist skills in the public service, although it is important to note the Commission has as one of its key principles building public sector skills and capacities.

The report also also wants systemic reform to Commonwealth-State financial relations and clearer specification of roles and responsibilities between the different tiers of government. It is interesting to note a major opportunity for state-federal reform along these lines went begging in 1996, when the Howard government failed to implement a package of reforms endorsed by COAG in 1995.

While there is a broad and growing consensus about the need to fundamentally reform Australia’s federal system, if the Commission’s report is any guide, state governments clearly understand the critical importance of public sector productivity for future growth and competitiveness. Queensland has limited its involvement in national policy processes over the past 12 months, so a more assertive intergovernmental relations stance will be interesting to watch.

Blueprint for conservative governments

Peter Costello has said he hopes Queensland’s Commission of Audit will become a blueprint for Coalition governments around Australia.

The likely confluence of there being conservative governments in most jurisdictions by the end of 2013 presents an opportunity as unique as the one that presented for Labor when Kevin Rudd became Prime Minister in November 2007.

It remains to be seen whether there is real appetite for reform among politicians in Queensland and elsewhere. International experience suggests it is difficult to sustain governmental interest in public sector reform – the pressure of events overwhelms even the best of intentions.

Queensland’s public service has confounded the reform efforts of successive governments - most recently Anna Bligh - but the economic case for change is carefully outlined in the Costello Report.

Demographic, social and technological change, the parlous state of state revenues and Newman’s huge majority suggest the chance exists to adopt at least some of its recommendations.