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Shepherd’s old federalism the only new feature in Commission of Audit

ANALYSIS: The Commission of Audit’s recommendations for cost-savings are unsurprising — and mean. The poor, homeless, old and disadvantaged all come in for cuts, while the rich keep on keeping on.

Most of the National Commission of Audit’s proposals are unsurprising from a review team run by the Business Council of Australia: low-income earners, foreign aid recipients, students, carers, Newstart recipients, public servants and, eventually, future generations of pensioners, are all targeted. Challenged by The Australian’s David Crowe at his press conference on why the burden of his recommendations fell on low- and middle-income earners, commission chairman Tony Shepherd struggled to identify recommendations that would harm high-income earners.

And in a sort of grace note of malice, homelessness is proposed to be abandoned entirely as an issue of Commonwealth interest, while the review carefully proposes that savings from the paid parental leave levy be directed to funding nannies.

But what is surprising is the very back-to-the-future tone of the commission’s take on federalism. This isn’t your father’s “competitive federalism”, but your great-grandfather’s, harking back to a time before World War II when the states had income tax powers and much greater sovereignty. It’s an attempt to address the basic flaw of competitive federalism in Australia, that voters simply won’t let the Commonwealth withdraw from service provision politics while it has ultimate control of the purse strings — there will always be an imperative for a federal politician to intervene to fix a problem in health or education if they have a funding role. The instinct to Do Something runs deep in both voters and politicians.

The commission proposes to short-circuit that instinct by stripping the Commonwealth of a large block of its revenue, handing the states their own source of personal income tax, dramatically reducing Commonwealth grants and strictly limiting those that remain. The result would be a significantly curtailed capacity for the Commonwealth to Do Anything. In areas like education, the states would have a free hand to spend as little or as much as they wanted and run their education systems as they saw fit; in health, they would have to report much less on their existing funding.

Indeed, one of the minor themes of the report is an abandonment of reporting requirements — doubtless seen as irksome red tape by the business mind — in keys areas like health and education. This runs contrary to the centralising impulse of both sides of federal politics of recent decades, but in particular the focus of the Gillard government on constantly lifting reporting requirements on the states so that “customers” of state government services could see the quality of the services they were being provided via their local schools or hospitals, and respond accordingly.

Under the commission’s preferred model, there’d be no need for, say, parents to know how their local hospital was performing because competition between the states and political pressure would constantly pressure the states to provide the best possible services. At least, that’s the theory. Tony Shepherd wants to see a “level of competition” between states on income tax, presumably with the idea that more efficient states would prove more attractive to taxpayers.

The political reality is that it will never happen, not merely because federal politicians won’t want to lose that power, but states might not necessarily want that power either, although the revenue would be enormously attractive. But it’s an honest effort from one point of view to solve what is perceived as a major problem. Shepherd appears to have been motivated by serious concerns about the sustainability of current federal arrangements. “I see this as a very serious issue,” he said. “It’s a restriction on growth.”

Without that attempt to rebalance the federation, the overall report is much as one might have expected.

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  • 1
    Gregson Jeremy
    Posted Thursday, 1 May 2014 at 2:19 pm | Permalink

    The idea of competitive federalism seems to assume the population is free to move (at negligible cost) from state to state in response to government service levels. That’s such a massively wrong idea that I have to wonder - do they acknowledge it is a problem to be overcome, or just ignore it?

  • 2
    Graeski
    Posted Thursday, 1 May 2014 at 3:13 pm | Permalink

    The same tired old targets, the same tired old strategies. The only ones that don’t seem to have been targetted yet are single mothers - still, the budget’s not due for another couple of weeks, so who knows?

    What needs to be recognised is that the time of expansionary capitalism is coming to an end. The world is very much a finite place again.

    For millenia, stable human societies effectively limited the greed of the wealthy because they were closed systems. There may have been a huge gulf of inequality between the nobles and serfs but at the end of the day, the nobles needed the serfs to grow food and do the menial labour without which they (the nobles) could not survive so that, even though they could grab a very large part of the pie for themselves, they couldn’t afford to grab it all.

    Beginning with the imperial expansion of European powers into new continents three centuries ago, the idea of infinite individual wealth took hold, together with a philosophy of individualism that countries such as the US are still trying to retain. Two centuries ago, if you were pillaging the virgin natural resource wealth of the North or South Americas, Australia or Africa then it all did seem endless. As our own national anthem says, “For those who’ve come across the seas, We’ve boundless plains to share” (except if you’re a refugee in a boat, presumably).

    The trouble is that this sort of social model of wealth is inherently unstable, unless you can keep on adding new continents for plundering. Problem is, we’ve pretty much run out of those.

    Unfortunately, conservative political parties both here and overseas are still trying to hang on to the idea of infinite accumulation of wealth. As a result, they keep on shooting at the same old targets, because confronted by limited resourcing the only other option is to take more from the poor.

    We don’t need socialism: that’s been tried and failed. We do need to find some way of putting the brakes on the endlessly greedy though - one that doesn’t involve bashing the weak.

    And before anyone accuses me of it, I’m not advocating a return to serfdom.

  • 3
    Sam Spackman
    Posted Thursday, 1 May 2014 at 3:27 pm | Permalink

    Who in their right mind would want to give ‘more’ money and power to the Newmans, Napthines and Ranns of the world!

  • 4
    Liam Smith
    Posted Thursday, 1 May 2014 at 4:58 pm | Permalink

    So dodge a bullet and hand it all over to the States, along with the funding they’re crying out for??

    Cool - So we can expect to drop Federal government’s salaries because they aren’t doing as much any more? Whats that? No? Oh… Right…

    So each State is going to go and do it’s own thing again? Wasn’t the whole purpose of federation and the productivity gains of the 80’s and 90’s to unify how things are done in Australia for health and education?

    How about it goes the other way and we excise the State governments? Federal at a local level. Whole reduction in management, overheads, corruption and policitian’s bullshit.

  • 5
    Tyger Tyger
    Posted Thursday, 1 May 2014 at 5:42 pm | Permalink

    Graeski @2: Well said. The question is how to re-balance individual freedoms with the environmental, resource-finite reality. And it’s not just a problem for conservatives. Most “Labour”-based Social Democratic parties support the idea of endless growth also, the difference being they want a relatively fairer distribution of the wealth thus garnered. Whoever gets the cash, both approaches are equally unsustainable.

  • 6
    Jackson Harding
    Posted Thursday, 1 May 2014 at 6:16 pm | Permalink

    The whole Commission of Audit ignores one of the most fundmental principles of government and politics. Politicians, and the mandarins that implement their policies, measure their own self worth and importance almost entirely by the size of their trainset. Any effort to reduce the size of the Commonwealth public service and the span of services will be be met with trenchant and trucculent opposition by Canberra’ legion of Sir Humphrey Appleby’s.

    The states will react differently. They have resisted passing parts of their empires to the Commonwealth for years, for exactly the same reason - no dimunition of train sets is allowed, even if we can’t afford it all. The bigger states (NSW, Vic and probably Qld) will jump at the chance to expand their empires. SA, Tas and the territories will baulk, while it would be nice to have more toys to play with they understand all too well that they can barely afford what they have at present and the increase in revenue on offer won’t compensate them enough as they don’t have the economies of scale to do so. The Great Western Quarry is a special case, it probably can afford it and so will be inclined to accept it, unless they actually do realize over there that once the last ship sails for China they’ll be poor as church mice again.

    Message to Antonius Imperator: the word you are looking for is spelt O-N-C-E-R

  • 7
    CML
    Posted Friday, 2 May 2014 at 1:43 am | Permalink

    I am amused by the assertion of a few commentators here, that all will be well if we just abolish the states and let the federal government run the show.
    The question is: How do you propose to do this? My understanding of what happened in 1901, is that the States formed the Commonwealth, NOT the other way around. I don’t think the commonwealth has the power to ‘remove’ the states, but if the states all decided to abandon (secede) from the commonwealth, it would cease to exist!
    Be very careful what you wish for!!

  • 8
    MJPC
    Posted Friday, 2 May 2014 at 7:34 am | Permalink

    Graeski@2; You have covered it succinctly. The GFC I believe was the catalyst to the poor and middle classes in the developed world that greed is not good (for most).
    Those in the US particularly took a hit with the subprime market. I believe this has led to a stink about the right side of politics (although in Australia the body politic believed the lies of the Abbott roadshow). Alas, there needs to be something harsher for social conscience to achieve fairness and equity and show the big end of town for what it is.

  • 9
    Jackson Harding
    Posted Friday, 2 May 2014 at 9:51 am | Permalink

    @CML Abolishing the States would take a referendum to introduce a radiclly different Constitution, with large rewrites of multiple sections required.

    Not sure what would happen in those states that voted no, assuming we got a majority of voters in a majority of states.

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