With its Commission of Audit, the Abbott government has made the efficiency of the public service a priority. But nowhere in the terms of reference is any attempt to establish how efficient government activities currently are.

There is a very large difference between seeking to reform a highly inefficient government, where fundamental changes may be required, and reforming a very efficient government and refining existing activities.

Although it is difficult to precisely measure the efficiency of the activities of government, it’s clear Australia’s public sector is among the most efficient in the world. This might seem like a bold claim, but data from respected international organisations make a clear case that Australia performs very well compared to similar nations.

And this should not be a surprise given the kinds of expectations Australians have of their government. We tend to compare ourselves to the high-taxing nations of northern Europe when considering the performance of our public sector in areas such as health and education. And yet our taxation levels are far closer to low-taxing nations such as the United States and Korea. Australians expect northern European services on a US budget, and largely this is what they receive.

While there are some complexities in comparing the amount of revenue different countries gain from taxation, it is possible to get a clear picture of Australia’s relative level of taxation. Contrary to some common perceptions, Australia is a low-tax country. In 2010 we were the fifth lowest-taxing nation out of 34 in the Organisation for Economic Co-operation and Development.

The achievements of the different governments are harder to quantify, as international organisations have created different measures of various aspects of government performance. The World Bank has aggregated several of these measures to create an indicator for “government effectiveness“. It also has indicators of “regulatory quality”, “rule of law” and “control of corruption”; Australia ranks highly in all of these, and all could potentially be regarded as part of the outcomes of government.

Comparing Australia with the same set of OECD countries in the same year as the tax revenue comparison places us as the ninth most effective government in 2010.

Combining these two data sets we find that, among OECD nations, we are the only one to be in the top 10 most effective governments, but the bottom five lowest-taxing governments. This is strong evidence that we have a far more efficient government than most of our peer nations.

The follow scatter diagram illustrates this by plotting rank in effectiveness against reverse rank in taxation. The nations plotted closest to the top right hand corner are the most efficient …

OECD nations ranked by lowest taxing and highest effectiveness (2010)

Source: OECD revenue statistics 1965-2010: 2011 edition, 2011; and World Bank, Worldwide Governance Indicators, 2013

The precise position of different nations on the graph could be debated. The particular methodologies of the measures making up the government effectiveness indicator could be argued over, as could the methodology of the World Bank’s aggregation. Also, superannuation payments are not counted as a tax because they provide personal benefits to the contributor, and it could be argued that this boosts Australia’s apparent efficiency in one area of public services. This means the above graph is indicative, rather than precise.

However, the clear indication it gives is that Australia does well in technical efficiency terms, delivering high outcomes for low inputs.

*This is an edited extract of Bang For Our Bucks, part of the Centre for Policy Development’s False Economies series of reports

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Peter Fray
Peter Fray
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