National Commission of Audit Releases Review of the Activities of the Commonwealth Government
The National Commission of Audit released its report on the scope for efficiency and productivity improvements across all areas of Commonwealth expenditure.
The report, the result of the first full scale review for 18 years, found:
- Over the past 40 years government spending, adjusted for inflation, has increased from around $6,000 per person per year to over $15,000 per person today.
- Under the Commission’s ‘business as usual’ fiscal scenario Australia faces 16 consecutive years of budget deficits with net debt rising from $190 billion today to $440 billion by 2023-24.
- One of the major reasons is that Commonwealth spending will increase by $280 billion over the next ten years with 70 per cent of this increase coming from the 15 largest programs.
- Spending on most of these programs will increase faster than the growth in the economy and faster than the Commonwealth receives taxes. Aged pension, aged care, health, education, child care and paid parental leave, overseas aid and disability are the fastest growing programs.
Commission chair, Tony Shepherd AO, said today that without change the budget deficits will place a significant burden on future generations to bring the budget under control.
“The Commission recognises the unfairness of saddling today’s children with our debts. With an ageing population there will be fewer people of working age to look after the retired. They should not inherit our debt as well as the burden of looking after us” Mr Shepherd said.
“If we don’t fix the budget, Australia will have little or no buffer to meet future economic and financial shocks. History has shown that a strong budget is an essential foundation for a strong economy.
“The choices are to continue to believe in luck and hope that we can achieve past record levels of growth and productivity or hope that the global economy will recover or some other miracle will save the day.
“Or, we can accept the evidence. We can make the decision to move carefully, incrementally and fairly to put our fiscal policy back on its traditional sustainable path while our economy is still in reasonable shape. This will strengthen our fiscal position and give us the flexibility and reserves to future proof the economy” he said.
Mr Shepherd said the Terms of Reference for the National Commission of Audit were precise, sensible and achievable: return the budget to a sustainable surplus of 1 per cent of GDP by 2023-24.
The Commission makes 86 recommendations – 64 in its Phase 1 Report which deal predominantly with improving the sustainability of the nation’s finances and a further 22 recommendations in its Phase 2 Report which mostly address public sector performance and accountability as well as infrastructure.
The recommendations offer savings estimated at $60 to $70 billion per year within ten years. On top of this with the reduction of debt there will be a significant annual saving in interest.
The Commission has not proposed a programme of austerity. The proposed reforms can be implemented gradually and in a way that does not harm the economy.
The approach it took to examining programmes was to ensure that expenditure is targeted to those who cannot look after themselves. Where possible, the commission recommendations are aimed at minimising the immediate impacts on Australians by providing time for adjustment.
Mr Shepherd says the Commission was not asked to examine the revenue side of the budget.
“We assumed that taxation revenue would return over time to 24 per cent of GDP which was the average for the period from 2000 to the GFC.”
This assumption makes an allowance for bracket creep to be returned. If this doesn’t occur, the Commission estimates that a person on average earnings who currently faces a marginal tax rate of 32.5 per cent will be taxed at a 37 per cent marginal tax rate by 2023-24.
The Commission has recommended 24 per cent of GDP as a reasonable long term cap on the size of Government while recognising that at times it may be exceeded.
The current tax share of GDP should increase as the economy grows, however, the Commission was conscious that a deliberate increase in taxation at this time may damage the economic recovery.
The Commission reviewed and recommended rationalisation of many of the 900 Commonwealth bodies. Similarly on grants programmes it recommended far tighter controls and monitoring and assessment of outcomes.
The Commission was concerned with the absence of proper program evaluation on Commonwealth programmes. It has recommended a system of rigorous independent evaluation with a focus on ensuring spending programmes are actually meeting their objectives.
The Commission was asked to examine Commonwealth/State relations. It has made recommendations to reform the Federation and to devolve as much as possible to the States which is the level of government closest to the people.
It has also recommended the elimination of costly and ineffective duplication and a reduction in the significant administrative burden the Commonwealth imposes on the States through hundreds of COAG agreements. The States should be sovereign in their own right if Australia is to return to the Federation and Constitution which have served the country so well.
The Commission believes the vertical and horizontal fiscal imbalances within the Federation are a major impediment to growth and prosperity. The Commission has recommended that the States have direct access to a portion of income tax generated in their economy and this be offset by a reduction in tied grants. It has recommended pro rata distribution of GST with top ups to the supported States.
The Commission’s Report was commissioned by the Government and as the elected government it is their right and obligation to choose the reform path. However, the Commission believes that doing nothing is not an option.
Governments should not make promises that cannot be afforded over the long-term. Households understand they must live within their means. Governments must do so too.
The Commission is grateful to the hundreds of people who made submissions and who met with us. From NGO's, unions, business, the States and Territories.
“There is a common purpose” Mr Shepherd said. “We must all re-assess our expectations of government for the overall good. National interest and not special interest must prevail.”
The Commissioners extend their appreciation to the Commission secretariat led by Peter Crone. The dedication and professionalism of the Secretariat is a credit to the Commonwealth Public Service.