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May 1, 2014

Commission of Audit proposes new/old era of state-led government

THE DETAILS: The Commission of Audit has been revealed, proposing a radical shake-up in government relations and responsibility while slicing benefits and assistance.


The Abbott government’s National Commission of Audit has recommended the abandonment of Australia’s post-war fiscal structure in favour of a decentralised state-based model of taxation and service delivery that would significantly reduce the Commonwealth’s role in national life. It also recommends targeting pensions, disability insurance, carers, higher education students, foreign aid and the homeless in order to deliver a more sustainable long-term budget.

Across 66 recommendations aimed at reducing government spending by $60 billion to $70 billion per year by 2023, the commission, chaired by business figure Tony Shepherd, has called for a massive reduction in Commonwealth programs and substantial reform and restructuring of the public service. But the most radical call is for a return to pre-war taxation arrangements in which the states would partially control income tax.


The commission has called for the devolution of services to the level closest to those receiving the services — a common enough argument — but has backed it up by calling on the Commonwealth to reduce the current personal income tax rate and replace the reduced rate with an equivalent “state surcharge” revenue from which would be hypothecated to the states. State governments would then have the power to increase or decrease the surcharge “as a means of injecting further competition into the federation”.

GST revenue would also be split between the states on a per capita basis, with smaller states receiving top-up grants from the Commonwealth to ensure they are not worse off. In return, the Commonwealth would then slash tied grants to the states, in effect freeing up the states to use tax revenue as they see fit. Natural disaster payments to the states would also be reduced to one-quarter to one-third of the cost of recovery, and Commonwealth payments to local government would cease.

Transfer and social assistance payments:

The commission calls for a major overhaul of Commonwealth welfare programs:

  • Slowing indexation of the age pension so that it falls to 28% of average weekly earnings over a 15-year period and then remains at that level thereafter;
  • Automatically adjusting the eligibility age to 77% of life expectancy from 2033, such that the pension age would reach 70 in the 2050s; the superannuation preservation age would adjust automatically to be five years under the pension age;
  • The family home, above a high value threshold, would be included in the pension means test for new pensioners, and tapering rates increased, from 2027;
  • Making the Commonwealth Seniors Health Card harder to quality for;
  • Slowing down the roll-out of the National Disability Insurance Scheme;
  • Cutting off Family Tax Benefit A at a significantly lower threshold — just under $100,000 a year compared to $110,000 now, and reducing the level of benefits for families with more than one child;
  • Abolishing Family Tax Benefit B and replacing it with a sole parent family supplement;
  • Forcing young unemployed people to relocate to “higher employment areas” and increasing the taper rate for additional income;
  • More tightly targeting the Disability Support Pension and setting it at the same level as the age pension at the same time;
  • Consolidating indigenous-specific programs and altering arrangements for overseeing indigenous program spending; and
  • Dumping homelessness programs, as they are a state responsibility, and confining the Commonwealth’s social housing role to rent assistance payments.


The recommendations on education are straightforward — the commission wants the Commonwealth out of education as much as possible and wants higher education students to pay much more:

  • States to have full responsibility for schools, with the Commonwealth’s role limited to providing pools of funding for public, Catholic systemic and private schools, and funding capped at 2017 per-student levels indexed by a combination of CPI and the Wage Price Index applying education;
  • States to have full responsibility or vocational education and training; all Commonwealth programs to be abolished;
  • “Significantly” reducing the size of the Commonwealth Department of Education; and
  • Students to pay a greater share of higher education costs — 55% from 41% now — and accelerating payments under the Higher Education Loan Program.


The commission is sceptical of the government’s “aspiration” to lift defence spending to 2% of GDP (which would worsen the budget by $11 billion in 2023 if achieved, according to Shepherd) and suggests funding be driven by the capability required to counter the strategic risks Australia faces:

  • Moving the Defence Materiel Organisation back into the Department of Defence and privatising the Defence Housing Authority;
  • Cutting the level of staff in the Department of Defence to 1998 levels;
  • Greater transparency and budget accountability for the Department of Defence;
  • But on intelligence — bizarrely, no discussion of any kind by the commission of Australia’s massive intelligence budget.


While the commission wants the burden of healthcare shifted to the states, it recognises this is a more complex task than in education. Instead, its priority is imposing more user charges in health in order to deter overuse:

  • Punitive taxation for high income earners who don’t take out expanded, more flexible private health insurance, with no access to the private health insurance rebate;
  • All patients to make Medicare co-payments of $15 up to 15 visits a year and $7.50 thereafter, with lower rates for concession card holders;
  • State governments should impose emergency department co-payments for non-emergency treatment to deter avoidance of the GP co-payment;
  • Capping Commonwealth hospitals funding and reducing reporting requirements on hospitals;
  • Cap the Pharmaceutical Benefits Scheme, increase co-payments and deregulate the pharmacy sector;
  • Aged care reforms currently in train are supported, but implementing the full suite of Productivity Commission recommendations in this area; and
  • Means-testing carer payments and targeting them only at carers whose ability to work has been limited, and setting them (eventually) at the same level as the age pension.

Industry and employment:

Having proposed that the axe be taken to individual welfare, the commission couldn’t avoid proposing a similar approach to corporate welfare. But it also wants Australia’s lowest wage earners to have their remuneration held down until it reaches 44% of average weekly earnings.

  • Limiting industry assistance to “areas of genuine market failure” and transitional assistance for “genuine structural change”, including closing 22 existing programs (the remaining automotive industry assistance schemes included) costing around $5 billion, and curbing anti-dumping provisions;
  • Abolishing export assistance by closing the Export Finance and Industry Corporation, closing the Export Market Development program, ending tourism grants and cutting back Tourism Australian and Austrade funding;
  • Consolidating and reducing research and development funding;
  • Less independence for the CSIRO “to ensure that resources are being directed at areas of greatest priority”;
  • Curbing the growth in the minimum wage until it is 44% of AWE in 10 years;
  • Capping the paid parental leave scheme at average weekly earnings (but not means-testing it) and redirecting savings to childcare assistance, which the commission believes was more important to female participation than the PPL; and
  • Ending Farm Finance Concessional Loans.

Foreign affairs and immigration:

  • Abandoning the current bipartisan policy of linking foreign aid with Gross National Income and only indexing current levels of foreign aid, and reducing it if fiscal needs require it;
  • Outsourcing visa processing; and
  • Reducing costs of detaining asylum seekers to 2011-13 levels, plus “renegotiating contracts and better targeting of services”.


  • Benchmarking the ABC and SBS against commercial broadcasters to inform decisions to cut funding.

Public service:

  • Abolishing 35 agencies, a list headed by the Australian Public Service Commission (to be folded into the Department of Employment); most casualties though are small advisory boards;
  • Merge or consolidate over 60 other bodies: the biggest is the merger of Customs and Immigration, and 22 health bodies should be considered for merger or consolidation;
  • Privatise Australian Hearing Services, Snowy Hydro Ltd, Defence Housing Australia, ASC, consider privatising Australia Post in the medium-term;
  • Outsource the Department of Human Services payments system;
  • Public service departments to shift away from middle-management heavy structures;
  • Public servants to be required to be “highly productive”;
  • Departments to provide corporate/HR services to small agencies in their portfolios; and
  • A more coherent and systematic alignment of key performance indicators, reporting requirements and program evaluation.


  • Commonwealth should only invest  in projects “that provide broad economic or social benefits beyond commercial returns but cannot be completely funded in the short-term by user charges and would not otherwise go ahead”; and
  • “Over time”, move to road-user charging “for all vehicles to the maximum extent possible”.



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25 thoughts on “Commission of Audit proposes new/old era of state-led government

  1. Sharilynn Gerchow

    Great. Any mention made of a reduction in the renumeration and conditions of federal politicians as their responsibilities are slashed?…. *crickets*

  2. Amark

    pension starting at 77% of life expectancy
    minimum wage 44% of AWE
    students to pay 55%

    Where do these numbers come from? Are they just made up or is their some reasoning behind it?

  3. IkaInk

    Amark – I believe they’ve been carefully calculated to create a scumbag underclass that can be exploited en mass without instantly leading to riots in the streets.

    In good news for Generation Z, if this is followed the pension age will actually drop by the time they’re aging, as they’re expected to live shorter lives than Generation Y.

    What does deregulating the Pharmaceutical sector mean? Drug companies unshackled from the burden of medical regulations?

  4. Hugh Saddington

    Nothing about reducing corporate welfare payments such as the fuel rebate (~$6n+), massive incentives on fossil fuel projects, etc, what a surprise.

    How about reducing the excessively generous Parliamentary Pensions or raising their qualifying age for payment to the same age as everyone else?

    Hit the individual hard but leave the perks for the pollies and corporates..

  5. Amark

    Nothing about negative gearing either

  6. Brightside

    How much did we pay for this again?

  7. Noelene Turton

    I they wanted to cut expendature, rather tha making hte states more powerful and compete against each other, cut the states and have a central system, not duplication of services/ We should ahve a single education system, a syngle police force, a single transpor sustem. We should be a country not a collection of countries like the EU.

  8. Carbon Footprint

    Perhaps we could cede all law making functions to US Congress. Pretty well all these ideas are American.

  9. JohnB


    Not a single police force. That silly idea will be seen for what it is by any resident of NSW, where the fuzz are already unaccountable.

    Policing should become much more localised, not less.

  10. billie

    The changes to the superannuation preservation age will reduce the attractiveness of superannuation. It will still be used as a vehicle to transfer wealth between generations by high wealth individuals

    1. SMSF will lose attractiveness for people who need their super pension to live on

    2. Rental property will be a more attractive investment as you can live off the rentals when you are too old to work full time or too ugly to get another job

    3. any retrictions on negative gearing?

  11. Scott

    A lot of good stuff in here. I like the income tax changes so that states can try to attract workers/companies to their states…good for those states that struggle like Tasmania and South Australia.
    The removal of duplicate functions between states and the Feds is excellent…centralisation always looks attractive, but in a country like Australia with large differences between the states, the closer you are to the action, the better decision you can make.

  12. Sharkie

    I’m surprised there isn’t a section stating that anyone unemployed for more than two years will be eaten by a mining billionaire.

  13. Jason Hall

    Agree that if these are the best advisors the gov’t has, we’re in a lot of trouble – Liberals are supposed to be about “growing the pie bigger for all” seems no-one has a clue how to do this anymore, on either side of politics “Regarding commentary on the so called “fuel rebate” – isn’t this just road tax being returned to fuel users who don’t use the roads?

  14. Tyger Tyger

    Cuts, cuts, cuts – mostly to be borne by those least able to afford it and guaranteed to result in a deepening of the divide between rich and poor. And, as pointed out in other posts here, no more than a token effort to rein in industry subsidies, particularly to the most polluting industries. When are we ever going to be grown up enough to talk about revenue?

    As for the new/old federalsim, just bite the bullet and abolish the states and penny-ante local government and have two tiers of government – federal and regional.
    The states as they stand make no sense geographically. Look at the communities along the Murray – areas with similar economic bases and requirements spread over two and even three states. Or WA. What on earth do the Kimberley, Perth and the South-West have in common? And yes, fund the regions properly by whatever means, though for mine health and education should be federal responsibilities.

    ‘Consolidating and reducing research and development funding’ and ‘Less independence for the CSIRO “to ensure that resources are being directed at areas of greatest priority”‘ is yet more anti-scientific, short-term nonsense. Who decides the “areas of greatest priority”? The government of the day? Spare me! They’re all bloody lawyers! What would they know?

    Credit where it’s due, I agree 100% that defence spending should “be driven by the capability required to counter the strategic risks Australia faces”, rather than some arbitrary percentage of revenue.

  15. James Brown

    Why in a computer age are we talking about thresholds? In system design such abrupt non-linearities are well known as producing undesired behaviours. A threshold in home value for pension purposes will result in manipulations to keep values below any threshold.

    One can easily devise a “continuous” mathematical function, which has negligible impact at low household values and rapid growth at higher values. There would be no threshold and no benefit in keeping values below any specific value.

  16. Itsarort

    Given that many experienced economists agree that the budget is no where near as bad as Hockey makes out, it seems logical that the projections made by the NCA are probably inaccurate and exponentially absurd at the extremes. So, is there no one with any clout and respect in the community that can refute the hyperbole from these extremists?

  17. paddy

    The saddest part of today’s “May Day massacre”, was watching Bill Shorten make Simon Crean look inspirational.

    If Labor can’t kick the living crap out of Abbott and his merry band of thugs over this CoA pile of garbage, then we really *are* all stuffed.

  18. Graeski

    Really – as there any part of this outcome that is in any way a surprise? The whole sorry exercise was rigged from the start. It’s a bit like asking a panel of fundamentalist Christians to determine whether or not there’s any truth in the New Testament, and about as likely to generate any deviation from orthodoxy.

    What qualifications did any member of the panel have to make any of the recommendations that it has, other than unswerving commitment to free markets and Right-wing ideology?

    The whole thing turns democracy into nothing but a sham.

  19. R. Ambrose Raven

    Commonwealth-State Financial Relations is increasingly the reverse of “dual” federalism, in which states have specific policy areas plus the revenue to fund them. Naturally that would mean the States sharing the Commonwealth revenue base. Another option – broadening or increasing the GST – would increase rather than reallocate existing taxes, but is popular with the filthy rich because it effectively transfers tax-raising onto the less rich.

    However, there is nothing for us but cost in the Commission of Audit’s cunning suggestion of the devolution of services to the level closest to the recipients, funded by the Commonwealth hypothecating part of its tax receipts to a “state surcharge”.

    Hockey’s ideologically friendly Commission soothes us that “State governments would then have the power to increase or decrease the surcharge as a means of injecting further competition into the federation”.

    But, but, the Commission’s reactionary anti-social agenda is quite open. Exactly as with Howard’s structuring of the GST, the net effect – the intention! – is in fact to further reduce State financial capacities.

    Calling on the Commonwealth to reduce the current personal income tax rate means that overall less funding will be available than now! Company tax is excluded. As with cross-subsidisation, or the commoditisation of housing, all responsibilities could then be offloaded onto the States. Nor would there be any cross-subsidisation or equalisation of services between the States. National schemes such as the NBN or NDIS would certainly be less likely.

    Similarly, the Commission of Audit suggests that “natural disaster payments to the states would also be reduced to one-quarter to one-third of the cost of recovery, and Commonwealth payments to local government would cease.” While a journalist will enthuse that “In return, the Commonwealth would then slash tied grants to the states, in effect freeing up the states to use tax revenue as they see fit”, a sensible person would recognise that hypothecation – as with the GST rate – is restricted to that permitted by the Commonwealth.

    Contrast these evil and narrow schemes with Gillard Labor’s NDIS and Gonski improvements.

  20. paul holland

    Like the 44% thing. Why. In Japanese the sound 4 sounds like pain, is that why?
    Looking at the list of supporters of the Business Counci in Australia many of the members are international conglomerates. Mr Shephard’s contributors aren’t really Australian, they just have interests in the country, their interests. Seems like an un-Australian attack on the individual to me.

  21. Jim McDonald

    The report is nothing less than a class-based, fact-poor ideological manifesto designed to undermine social justice. For foreign tea party foundations see http://www.teaparty-platform.com/

  22. Aton

    Clearly the commissioners all have negatively geared investment properties.

  23. Tyger Tyger

    Forgive my ignorance, R. Ambrose Raven @19 – I’m no economist! But I always thought the GST was one of the fairer taxes as it’s difficult to avoid and the more you spend, the more you pay. Provided a rise and broadening was accompanied by other reforms, including compensatory rises in welfare payments, changes to income-tax rates (including a rise in the tax-free threshold) and the removal of certain taxes as envisaged before The Democrats intervened, how exactly would it transfer tax-raising on to the less rich?

  24. Aidan Stanger

    Tyger Tyger @23
    That’s what they used to think when they introduced it (though even then it was a lot less fair than income tax). But since then it’s turned out to be quite easy to dodge by buying stuff from overseas.

  25. Tyger Tyger

    Aidan @24:

    “…recent data from the National Australia Bank… [shows that] based on the history of its online transactions to October 2013, a low threshold of $25 on imported goods would still only produce GST revenue of $309 million a year.”


    Which doesn’t take in to consideration the cost of collecting that $309 mil. So the $1000 threshold for overseas purchases is hardly a game-breaker. It clearly doesn’t apply to major purchases, many of the exempt basics like food and most services. The rorts available to the rich to avoid other forms of tax are legion. I’m yet to be convinced a simplified tax system including the compensatory features I mentioned above, wedded to a comprehensive GST at a higher rate, wouldn’t be fairer.


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