Did the government get value for money from the Commission of Audit? Chairman Tony Shepherd told a Senate inquiry today his five-volume report had cost around $750,000. If the government wanted an ideological wishlist of small government, it could have asked the Institute of Public Affairs to do it. John Roskam, Chris Berg and Co. could have knocked one together for a lot less than that.

As Crikey has reminded readers in the past, Shepherd’s time chairing Transfield Services was marked by a falling share price, rising losses, impaired asset write-downs because the company paid too much for those assets, a poorly timed share buyback and rising debt. Hardly the most inspiring example of corporate leadership, but good enough, apparently, to get the chairmanship of the Business Council and of the Commission of Audit.

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And unsurprisingly, what the government got was a trip through the mind of an old businessman. Much of the report read like an old Business Council speech by Shepherd. It targets young people — who’ll have to pay more for higher education and lose Newstart if they don’t move. It targets people on the minimum wage. It targets carers, who should receive more tightly focused assistance. It targets the disabled, because the National Disability Insurance Scheme must be delayed. It targets developing countries, which would get less aid from one of the world’s richest nations. It targets the homeless, who should be abandoned by the Commonwealth. The way it targets the young makes a mockery of growing inequalities between the generations — baby boomers get off very lightly. And people of Shepherd’s age and wealth escape, except if they’re pensioners without the retirement wealth that comes from being a high earner.

It’s also lazy. The recommendation for a GP visit co-payment appears based on Shepherd’s personal view that the average Australian visiting the doctor 11 times a year is too much (in fact, Australians go to the doctor half as often). Seven years after the Howard government established a whole-of-government approach to indigenous programs, all it can offer on indigenous spending is “consolidation”. It thinks families having multiple births don’t face extra costs. The recommendation to take more Newstart funding off recipients as they earn income takes no heed of the problem of effective marginal tax rates and their impact on participation. The expensive areas of intelligence and law enforcement appears to have been off-limits, with the Australian Security Intelligence Organisation, Australian Secret Intelligence Service and the Australian Federal Police receiving none of the forensic scrutiny applied elsewhere. Climate change apparently doesn’t exist, except in the form of agencies that need to be shuttered — never mind that more extreme weather will increase the cost of natural disasters for governments (which, the commission recommends, the Commonwealth provide less assistance to the states for) and reduce tax revenue (just ask former treasurer Wayne Swan).

Above all, there’s its take on “competitive federalism”, where the only vaguely original thought in the document has been directed at ways to take Australia back to a time before World War II. Business loves competitive federalism — up to a point. They love the idea of different jurisdictions competing to attract businesses with lower taxes (or, more frequently, tax loopholes and concessions). But they don’t love the multiplicity of regulatory environments that competitive federalism creates, because it costs them money. So on that score, the commission wants the best of both worlds — competitive federalism when it comes to tax, but national uniformity when it comes to regulation:

“The Commission’s Principles of Good Government emphasise that the States should be free to compete against each other, respecting regional differences. However, there are occasions, including transport regulation, where the national interest calls for a cooperative and national approach.”

And the American experience of competitive federalism is of a race to the bottom. States competed against each other in the 1990s and 2000s to cut corporate taxes to lure companies. This was sustainable while the Clinton era of prosperity lasted, but in the 2000s states begun running deficits and cutting spending to make up for the hundreds of billions in tax revenues they had given away. The financial crisis then dramatically worsened their problems, forcing yet more spending cuts that entrenched the ensuing recession. And the easiest areas for state governments to cut was education: many states in the United States are now paying teachers substantially less than they were paying them a decade ago.

Still, lower spending on health or education isn’t a problem for corporations, at least not until they work out their future workforce will be less skilled, or they can’t attract quality employees because they want decent schools and working hospitals for their kids.

Competitive federalism is also a way to guarantee that states with smaller populations become stuck in a vicious circle in which they can’t afford to fund high-quality services without higher taxes, which drive companies and skilled workers away, further reducing the tax base. The commission, by the way, proposes that the GST be distributed on a per capita basis, but with the Commonwealth making up the difference from its own revenue for smaller states adversely affected by per capita distribution — not merely a bad fiscal deal for the Commonwealth but a guaranteed way to cement the sort of blame-shifting that has bedeviled health services over the last decade, except extended across all government services.

There was no mention, alas, of the flipside of competitive federalism: how the competition regulator has found countless examples of anti-competitive conduct such as cartels and price fixing happening across Australian business — examples are far more egregious than anything the royal commission into the unions will find. And no serious discussion of tax avoidance by business — because that, of course, would stray outside the terms of reference (not that the commission wasn’t happy to do that on the minimum wage, or state personal income taxes).

As a consequence of these brain snaps from the boardroom, the many good ideas of the commission — adding the family home to the pension means test, slashing corporate welfare, genuinely ending duplication between different levels of government, more privatisation, cutting the relentless growth of middle management in the public service, opening pharmacies up to competition, hacking into the Family Tax Benefit system — are lost in a sea of ideological obsession. This document may actually make the task of fiscal reform harder. It certainly doesn’t make it easier.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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