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How the ANAO ended up costing taxpayers billions in lost revenue

As the government contemplates restoring indexation of fuel excise, Crikey’s former top bureaucrat explains what drove the Howard government to freeze it over a decade ago.

It was a normal morning in March 2001. I received a phone call from my former department, Transport, from my replacement. Where, he wanted to know, had I put the 1998 incoming government briefs? He wanted to know urgently. As in, extremely urgently. As in, NOW.

I’d co-ordinated the incoming government briefs for the 1998 election at Transport. I had no idea what had happened to them. I’d deleted the Labor ones from the system, as per protocol, after the Coalition won. I think. Maybe. I’d left paper copies with the secretary’s office. Of course, that was Allan Hawke, and he’d long since moved to Defence. I think I heard Hawke’s successor, Ken Matthews, pacing furiously in the background of the phone call. “Try the cupboards outside the secretary’s office,” I lamely offered.

Consternation. I was suddenly very relieved I’d left Transport.

I knew what the urgency was about. All hell had broken loose over fuel excise. The Howard government, badly trailing Labor in the polls, was being hammered over petrol prices, and was looking desperately for a solution. The immediate cause wasn’t so much petrol prices per se, which were indeed high, or the introduction of the GST, which had been offset by a reduction in excise, but a report by the Australian National Audit Office about the administration of the government’s roads spending. It would turn out to be the costliest ANAO report in history.

In looking at the highways program to check how well it was administered, the ANAO had stumbled upon something virtually forgotten at Transport: there was an old Hawke-era act, the Australian Land Transport Development Act 1988, which specified that a certain proportion of petrol and diesel excise, which was indexed twice a year, was to be paid into a trust fund and spent on roads. The government could lift or lower that proportion, but if they didn’t specify it, a default rate of 4.95 cents per litre applied.

Except, the Commonwealth hadn’t spent 4.95 cents per litre on roads for a very long time.

The problem with the ALTD Act was one of the core problems of “hypothecation”, which is the silly idea that tax revenue from a particular area is earmarked for specific spending. Motoring groups like to pretend that all fuel excise should be hypothecated to road building and that if it isn’t, motorists are somehow being ripped off — although they never specify which schools and hospitals should be shut to offset more roads spending, or which other taxes should be raised to pay for it.

But a big problem with hypothecation is that revenue from the fuel levy would go up and down depending on the economy, making it a bad funding source — if the economy slumped, the government might want to stimulate it with extra roads spending at the exact time there was less excise revenue. Moreover, governments need to commit funding for roads projects years in advance. So they’d long since abandoned the notion of spending whatever came in via the ALTD in favour of a guaranteed program of roads spending announced each budget, usually reflecting election promises. The ALTD fund was simply rolled into ordinary Commonwealth accounts.

That was why hell had broken loose. The government was taxing motorists and not even spending the money on roads!”

The ANAO, however, calculated that nearly $3 billion extra “should” have been spent on roads under the ALTD Act if the default 4.95 cents per litre rate had applied, because the last time the Commonwealth had varied the rate was in 1993-94.

It was rubbish: governments of both sides had abandoned that sort of approach years before. The ANAO even acknowledged in its report that roads funding “complied with current government payment practice”. But its officers refused to see reason and, in the face of pleas from Transport officials, insisted that, because the ALTD Act was still on the books, there’d been a $3 billion underspend on roads from fuel excise.

That was why hell had broken loose. The government was taxing motorists and not even spending the money on roads! For the media, this was a very, very red circus tent to a bull (Malcolm Farr yesterday gave an inside account of the fury from the media end). The government, from the prime minister down, panicked — thus the desperate call from my former department to find all the briefings that might have been prepared on the subject. There was even a story, possibly apocryphal, that the heads of the Roads Branch — one of the best, most decent public servants I ever met — had been hauled into cabinet to be personally dressed down by Howard.

But while Howard might have pushed the panic button, the button did the job. He cut excise and then ended indexation of it, and launched an inquiry into it. Along with some handouts to pensioners, it got his government off the floor. By midway through 2001, the Coalition was competitive again. Then along came Tampa, and 9/11, and the rest is history.

The cost, however, has been enormous. The conservative estimate, based on Treasury figures in 2001, is that non-indexation was costing $3 billion per annum in lost revenue in 2010-11, but there are other estimates of up to $6 billion a year. Whether full indexation would have survived all the way through until now isn’t clear — periodic petrol price panics sweep Australian politics, and prices would be a lot higher now if indexation had been in place over the last 13 years. But the restoration of indexation, apparently under consideration for Tuesday’s budget, will only see incremental increases in prices over time.

Some years ago I bumped into a former Transport colleague, a senior officer there when the whole thing had unfolded. Mention of the affair still got him seething. “It was a complete act of bastardry by the ANAO,” he said. And, as it turned out, a hideously expensive one.

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  • 1
    Yclept
    Posted Thursday, 8 May 2014 at 1:12 pm | Permalink

    Well Bernard, if hypothecation is so ridiculous then so are the calls for “user pays” and sending “price signals” whenever it is clear that people are losing their lives on badly maintained and sub-standard roads.

    The user pays principle only seems to apply when it suits.

    And nobody said that hospitals and education spending should be cut, more that governments of all colours should get their act together so that they can be funded out of general revenue because we always seem to have billions to waste on concentration camps on far flung islands.

  • 2
    Kfix
    Posted Thursday, 8 May 2014 at 1:51 pm | Permalink

    While I agree with Bernard that the policy outcome was poor, surely the fault lies with the government(s) that broke the law instead of changing it, rather than the ANAO that pointed out the breakage?

  • 3
    Simon Mansfield
    Posted Thursday, 8 May 2014 at 3:15 pm | Permalink

    Let’s face it - be it defense procurement, currency policy, climate science, education or just the time of day - BK is simply an expert on every area of government, industry and science. And consequently should be appointed El President for life - the money saved by doing away with such a messy concept as democracy would easily pay for a dedicated nursing home just for BK when he’s no longer a fit and proper person to be El President for Life.

  • 4
    Dolly
    Posted Thursday, 8 May 2014 at 6:18 pm | Permalink

    Both Bob and I agree too that you are a “know all”, albeit a good one, but never the less, a “know all”.

    We often lay awake at night pondering how you became so knowledgeable. BoB and I understand that all knowledge is recyclable but it does have a point of origin. Was that the public service?

    We both feel that you may have missed your opportunity on our smash hit ” Pick a Box”. If it ever comes around again make sure you either choose ” BP Comprox Box ” or the ” BP Zoom Box “.

    Bob always stuck the money behind them two.

    Hugs & Kisses now
    Dolly

  • 5
    CML
    Posted Thursday, 8 May 2014 at 6:50 pm | Permalink

    I think it is Bernard’s job to be a ‘know-all’. I’m sure he has told us before that he worked for the C/W public service, so if he has knowledge directly related to this story, why wouldn’t he tell us?
    Apart from that, it was always obvious that Howard stuffed up the fuel excise decision that his government took in 2001, for political reasons. And yes, successive Labor governments didn’t do anything about it, mainly because it is regressive. This levy/tax, if re-introduced, will unfairly affect the poor and low-income cohort of the community far more than those further up the pecking order. Bit like the GST really.
    So what else is new? Just another broken promise/l+e from the masters of deception!

  • 6
    Last Chance Cafe
    Posted Thursday, 8 May 2014 at 7:24 pm | Permalink

    CML

    I personally really liked this article. It gives us a snap-shot of the political workings between public servants and politicians. That’s something we would never get to see if BK had not shared his experience with us.

    But I don’t think Simon Mansfield or “Dolly” if that’s her real name, actually meant any harm. They were just hamming it up, jesting, horsing around. I am sure BK would not take offense at their comments either..LoL..he’s got thicker skin than that.

    Great article!

  • 7
    Drew Blue
    Posted Thursday, 8 May 2014 at 7:39 pm | Permalink

    I have learnt a lot from your articles Bernard, over the years. Your in depth research and investigative journalism is of a quality not matched in Oz. I know that’s big call but I am calling it.

    But this “Try the cupboards outside the secretary’s office,” I lamely offered.”

    You knew damn well they were n’t there, did n’t you. Evil knows no bounds.

  • 8
    AR
    Posted Friday, 9 May 2014 at 7:09 am | Permalink

    Gonna make the carbon impost look miniscule, ain’t it? And the workers’ dormitories on the outskirts of the big cities who voted this lot in will be well pleased with their choice.

  • 9
    Drew Blue
    Posted Friday, 9 May 2014 at 10:12 am | Permalink

    @Yclept

    ” whenever it is clear that people are losing their lives on badly maintained and sub-standard roads.”

    Is it sub-standed roads and bad maintenance that causes people to lose their lives or just poor driving habits and lack of care and personal responsibility.

    I get suspicious of govts of any persuasion that have excess focus on roads spending.

    They do it because it’s visible and easy to grandstand, as opposed to the more abstract and less visible spending that’s essential but does n’t catch votes.

    If the road you travel has a few potholes, get over it and just slow down.

  • 10
    Andrew Blacker
    Posted Friday, 9 May 2014 at 11:07 am | Permalink

    Interesting point Drew. It’s usually Big Industry who benefits from any major highway extension and maintenance but according to govt propaganda it’s for community.

    I am not even a Lefty and I can see that.

  • 11
    Karen Tyman
    Posted Friday, 9 May 2014 at 11:19 am | Permalink

    @posters 9&10

    I remember reading an article in the West Australian newspaper a few years back on how the Boddington gold mine was paying the overtime of the WA Road Traffic Police to monitor the main roads in and out of Boddington, a town just south of Perth. Is that user pays?

  • 12
    FDFOTgado
    Posted Friday, 9 May 2014 at 11:41 am | Permalink

    @Drew, Karen & Andrew

    Lets not forget “Fuel Watch”. One of the greatest furphies ever inflicted on the Australian motoring public.

    The oil companies were up to their usual tricks exploiting the disparity of currency fluctuations and raising the price of fuel through the roof.

    Rudd’s token gesture, Fuel Watch. Did he really expect motorists to travel 30ks at a cost of $10.00 to save $1.00 down the road. Are people that stupid? I guess so.

  • 13
    Yclept
    Posted Friday, 9 May 2014 at 11:54 am | Permalink

    @Drew Blue

    Is it sub-standed roads and bad maintenance that causes people to lose their lives or just poor driving habits and lack of care and personal responsibility.”
    It’s both of those things. But if the powers that be are going to keep giving licenses to morons I expect something like Highway One to be a completely divided road to so I’m separated from fools who wish to kill me and my family. So now that you’ve told me to not drive at the speed limit, would you please tell each of those bad drivers to slow down as well please.

    @Andrew Blacker
    The community also benefits because they don’t have to sit behind B-doubles for hours which makes them take risks and causes more issues.

  • 14
    FDFOTgado
    Posted Friday, 9 May 2014 at 2:08 pm | Permalink

    @Karen Tyman

    If the mining companies wanna sling a few bucks to the coppers for extra road patrols outside of their normal schedule, then why not? Make the users pay.

    If I could afford it I would n’t hesitate to fling a few shekels plod’s way to sit on my front porch and protect me from all those poor rough sleepers, better known as the homeless, who through no fault of their own have finished up at my front door asking for $10.00. But I digress.

  • 15
    Karen Tyman
    Posted Friday, 9 May 2014 at 2:25 pm | Permalink

    @ Andrew & Yclept

    B-doubles? what even is it? Stay on topic please.

    @FDFOTgado

    I agree with you Re: Fuel Watch. Just another dud in the long conga line of incompetent rent-seeking and appeasing politicians. There never was a more blatant example of political window dressing. Rome burned while Kevin fiddled.

  • 16
    JohnB
    Posted Friday, 9 May 2014 at 8:29 pm | Permalink

    Let’s separate the discussions about road expenditure and taxation. If more money spent on roads is a good thing, then it will be found. The converse should also be true.

    Visiting the third largest city in China, I was impressed last night as I hurtled at legal 120kph on a 4-lane road in the dark and rain, in a taxi driven by a bloke with a mobile phone in his ear, by how well he was doing his job.

    He missed every huge truck with no tail lights. He drove around traffic bombarding him from right and left as they entered his lane, then cut off a dozen of his own and levelled the score.

    There were no horns, no whingeing, no collisions.

    The difference, as I have noted in China previously, is that they really try hard to miss each other. Compare and contrast: Australians typically drive oblivious of those around them, convinced that they “own the road” or that they have “rights to use of their lane”, neither of which is true where I am today.

    Chinese know that they are generally in smaller less crash-resistant vehicles than are Aussies, so they try hard to share the road, not to claim it as their own. Their car (or taxi) is a tool, not a missile or a weapon or an extension of their ego. It is a vitally important tool.

    Give an Aussie a perfect highway and there will still be accidents and deaths. Drive up the month-old Hunter Expressway between the end of the former F3 and Singleton’s outskirts and count the number of bent fence posts and signs - on a brand new, still perfect highway with controlled intersections all the way. China probably has more than its fair share of traffic mayhem, but the difference in traffic levels has to be experienced to be believed.

    So, bang on all you want about taxes. And about road safety. I’m convinced that the general lack of maturity of Australian drivers, including octogenarian roadhogs as much as green-P Rambos, is at the root of many of our highway problems.

    I know that this is true. In my younger days I was a very good example of the inconsiderate, arrogant, self-assured pigs of Australian drivers that I am talking about. Now, I am better, but still not great. I could not survive behind the steering wheel over here, where the average driver possesses real traffic skills that put Aussies in the shade.

  • 17
    Glenda Walsh
    Posted Sunday, 11 May 2014 at 12:15 pm | Permalink

    It’s true that motor vehicles, cars, are an extension of people’s egos and it’s peoples poor and selfish attitudes that contribute to road accidents.

    But is there a worse age bracket example than the 60-75 year olds for this?

    They sit in right-hand lanes doing 5ks under the speed limit displaying all the characteristics of self centredness and me,me,me. They take all day just to turn a corner and are impossibly slow when taking off from traffic lights. They might not have many accidents but how many do they cause due to the pent up frustration and anger suffered by other drivers due to their behavior?

    They seem to live in fear from road side speed cameras or the local hand held jobs and just always hover below the speed limit. Driver education please? It’s ok to do the speed limit.

  • 18
    Trevor Barker
    Posted Sunday, 11 May 2014 at 12:43 pm | Permalink

    @JohnB and Glenda Walsh

    Interesting. But I think what JohnB is getting at Re his Chinese driving experience is ” Traffic Flow” itself a metaphoric for life flow.

    Some describe their Asian driving experience as organized chaos. That can be a good thing because there exists purpose and function which reflects the Chinese philosophy to life.

    Western standards are different. We prefer to be controlled in both mind and body. Traffic lights for example, are a reminder that something or someone else is in control of our lives and keeping us safe. That’s our preferred mindset.

    A traffic light scenario breaks our flow and releases us from personal responsibility and passes it to something or someone else. In Asia, it’s the opposite.

    I have n’t done a very good job here of expressing what I mean so I better shut up and leave it at that.

  • 19
    Pat Malone
    Posted Sunday, 11 May 2014 at 1:03 pm | Permalink

    Is that right? Traffic congestion is all about mind control and mass surveillance.

    When we are couped up inside our cars in traffic jams and the like, our minds are open to MSM conduction through those babbling and blithering radio jocks and news bulletins.

    Blanket surveillance from CCTV cameras in these situations is at peak performance. Congested traffic suits this agenda.

    Have any of you posters ever been to Darwin in the NT or Kalgoorlie in WA?

    Take a look at the roads within the city centres. They are the widest roads in Australia but catering to so few in population. These roads were commonwealth funded as an experiment back in the 50’s and 60’s. But why? The road designs of the cities is completely out of whack for their intended purpose and population base.

    There is an alterior motive. Can anyone tell me what it is?

  • 20
    Craig
    Posted Sunday, 11 May 2014 at 1:24 pm | Permalink

    Would you lot please shut up! I am watching the football.

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