‘There is nothing more difficult to carry out, more doubtful of success, nor dangerous to handle, than to initiate a new order of things. For the reformer has enemies in all who profit from the old order, and only lukewarm defenders in those who would benefit from the new’.
Thus wrote Niccolo Machievelli, in what Productivity Commission Chairman Gary Banks recently described as his ‘famous little instruction manual for Heads of State in Renaissance Italy’(aka The Prince).
I don’t know whether Premier Lara Giddings has read it. But it’s a neat summary of what she is up against in seeking to tackle, as she has set out to do in yesterday’s Mid-Year Financial Report, what that Report bluntly lays out as the unsustainable position of the State Budget.
The Report makes clear that, on present indications, the Government won’t meet any of the more important fiscal strategy objectives which it set for itself in last year’s Budget (in which it claimed that it would meet all but one of them).
That’s not entirely the current, or previous, Government’s fault. What the Reserve Bank describes (and welcomes) as the ‘new frugalism’ of Australian consumers has cut the revenue which the Commonwealth Government gets from the GST, and then distributes to the States and Territories in accordance with the recommendations of the Commonwealth Grants Commission. This hurt Tasmania more than other States, because (under the Grants Commission formula) Tasmania gets a larger share of the GST pie than its share of Australia’s population would otherwise entitle us.
Tasmania’s slice of that pie has been cut by another $195 million over the current and next three financial years, bringing to $800 million Tasmanian’s cumulative GST revenue shortfall since the onset of the global financial crisis.
The Government’s budgetary difficulties also reflect the deteriorating condition of the Tasmanian economy. Tasmania’s economy grew by only 0.4% in 2009-10 (less than one-fifth of the national average); and State Treasury’s forecasts have been slashed from 2¼% to 1¼% for the current financial year, and from 2¾% to 1¼% for 2011-12. By contrast, Federal Treasury expects the Australian economy to grow by 3¼% this financial year, and by 3¾% next year. Tasmania is missing out on the key drivers of growth in the national economy – resources-related exports and investment – while many of the traditional pillars of the Tasmanian economy, such as agriculture and manufacturing, are being adversely affected by the high value of the Australian dollar which is one of the side-effects of the national resources boom.
But there’s another, more fundamental and more entrenched problem, which (as the Mid-Year Report tacitly admits), successive Tasmanian Governments have exacerbated in recent years. That’s the inefficiency with which government services are delivered in this State.
Australian Bureau of Statistics figures show that in the 2009-10 financial year, the State and local governments spent just under $10,100 providing services of one sort or another to each of Tasmania’s 506,000 or so residents. That’s 6% more than the per capita average for all State and Territory governments, and 14% more than Victoria, which is Australia’s ‘best practice’ State government in this regard. State and local government spending (other than on capital works) absorbed 22% of Tasmania’s gross State product in 2009-10, almost 5½ percentage points more than the all-State and Territory average.
Tasmania’s relatively small population, and the fact that it’s more widely dispersed than that of any other State, no doubt accounts for a bit of that difference.
But it’s impossible to believe that any of it is due to Tasmanians getting a broader range of, or better, services from their State government than people living in mainland States, or to public sector employees getting higher pay than their counterparts on the mainland. Rather, most of it is almost certainly due to inefficiency and over-staffing in government departments and agencies. As the Mid-Year Report acknowledges, there are now over 25,000 people on the State government payroll – that’s almost one in every nine employed Tasmanians, and an increase of some 24% since 1999-2000.
The Report lays it out unambiguously: ‘it is neither feasible nor realistic to achieve the level of savings necessary without addressing [ie, cutting] public sector employment’. And (although the Report doesn’t say this), health and welfare, education and ‘public order and safety’ account for seven out of every ten dollars of State government expenses, it’s neither feasible nor realistic to achieve the level of savings required without looking for savings in those areas.
Looking for savings in those areas doesn’t inevitably mean reductions in services in them, if the Government can find ways of delivering them at lower cost, with fewer people. And to achieve that, it will have to confront head-on the widespread perception that there is some kind of linear positive correlation between the quality of a particular service and the number of people employed in providing it. That may be true in some areas, like nursing (although even there, it’s likely that at beyond some point it cease to be true); but it is certainly not the case in others, including schooling and policing.
In seeking these savings it’s important that the Government doesn’t do what I’ve seen happen all too often in the private sector, as well as in government – that is, mandating across-the-board percentage reductions in employment in all agencies. That inevitably results in decisions as to who stays and who goes being taken by the lowest level of management capable of taking them; and unavoidably to a deterioration in service quality. Nor should the Government rely wholly or largely on voluntary redundancies: if it does, the best people will go, while those who stay will be those who see little prospect of finding a job anywhere else.
It’s perhaps worth noting that even if the Government does achieve its target of $200 million in annual expenditure savings (the equivalent of 2,300 full-time public sector jobs) by 2014-15, that would still leave Tasmanian government spending about 2% higher per capita than the all-State and Territory average, and almost 10% above Victorian best practice. So the $200 million target, bold as it is, should be seen as a minimum requirement.
In her time as Health Minister Lara Giddings has shown that she is willing and able to go out and sell ‘hard decisions’ to a skeptical public, including those directly affected by them. So we can only wish her the best as she embarks on the toughest task of her political career to date.
Saul Eslake is a Program Director with the Grattan Institute, a Melbourne-based public policy ‘think-tank’.
Mercury Saturday:
TASMANIA is likely to have 10 more politicians costing an extra $12 million a year within three years, despite the financial crisis confronting the state.
Premier and Treasurer Lara Giddings said yesterday she still supported plans to add 10 new politicians to the ranks of State Parliament at the next election, despite the additional cost to the state’s strained Budget. The move would expand the House of Assembly back to its original size of 35 members by 2014.
Her stance infuriated unions, who said it was “lunacy” as many Tasmanians faced losing their jobs.
Ms Giddings also defended her two predecessors, former premier David Bartlett and ex-treasurer Michael Aird, from accusations of reckless overspending.
The Premier revealed on Thursday the state’s finances were in deep trouble, with a crisis looming that could send Tasmania back into $1.5 billion of debt without immediate action. She warned of a Budget black hole of $270 million a year that might force 2300 public servant sackings to drastically reduce government spending.
But the Premier yesterday dodged questions about whether Mr Bartlett and Mr Aird had mismanaged Tasmania’s public finances.
She said the global financial crisis was to blame, not the Labor Government.
Ms Giddings said Mr Bartlett and Mr Aird had spent taxpayers’ money “appropriately” with the information they had available to them about forecast GST payments to Tasmania from Canberra.
But the Liberal Opposition has pointed the finger at six consecutive blown budgets, $876 million of overspending in the past eight years and $1 billion of state savings squandered.
Opposition Leader Will Hodgman said yesterday it proved the Labor Government was guilty of gross financial mismanagement.
