Government and Administration

1. INTRODUCTION

This chapter examines matters of expenditure control and making efficient and effective use of taxpayers' money, with a brief look at Parliament and the public service.  See the Policy Management chapter for a discussion of the problems involved in putting policies into effect, and the Labour Market chapter for public service wage fixing.

The worst thing about "big government" is that although it performs worse than the private sector it prevents people leaving its domain in order to obtain better value for money elsewhere.  This is sometimes achieved by legislating a monopoly for the government supplier of services -- e.g. Telecom -- and sometimes by giving away the services and collecting taxes to meet the cost -- e.g. public hospitals.  Often, the methods are combined -- e.g. medical benefits under Medicare.

Efficiency matters, and never more than today.  The more government wastes, or spends on non-essential purposes, the less is available for necessary expenditure and the harder it is to frame responsible Budgets.  This is always true, regardless of one's opinions as to what is or is not essential.  Moreover, government's money comes from taxation, present or -- via deficit spending -- future:  in other words, from ordinary citizens. ⁽¹⁾  Whether one thinks of taxes as taken from taxpayers or given by them, taxpayers get very little effective say in how the money is spent, so there is a special obligation on government to use it carefully.

The questions that should be asked of all public spending are:

• Is this government activity the best possible use we can make of this billion (million, hundred thousand) dollars?
• Is it the best possible use anyone can make of it?  Would it be used better than by the taxpayers it will have to be taken from?
• Is it really something that only government can do?  Is it something that only government can ensure is done?  Or is it something that the private sector would do perfectly well if only government got out of the way?

The first two questions will be answered very differently by more or less paternalist or authoritarian people, but the final group of three is more objective.  We shall return to it in section 3.  Section 2 looks at the problem of controlling the overall level of public expenditure, section 3 at efficiency and waste in government activities, section 4 at Parliament, and section 5 at government departments.

2. CONTROLLING PUBLIC SPENDING

Government spending has accounted for an increasing share of national expenditure in all Western countries over time.  In recent years, people have become increasingly aware that it has economic and social costs beyond the simple fact that increased government spending means increased taxation;  in many cases the costs now exceed the benefits.  The major mechanisms for financing public expenditure, taxes and deficits, have expanded to the point where they reduce the rate of economic growth.  High taxes diminish incentives to engage in productive activity;  this is especially true of Australian personal income tax which imposes high marginal rates at relatively low income levels.  Budget deficits "crowd out" savings by diverting them from productive investment to state-financed consumption.  People have come to regard rising taxation as an unfair burden rather than as a fair price for government services, and they increasingly engage in tax avoidance and evasion.

The demand for lower taxes is not accompanied by a corresponding agreement to lower levels of public spending.  This is not surprising:  each voter can do best out of government if he gets the benefits of existing public services while avoiding (whether legally or otherwise) his share of the cost.  The problem of rising public expenditure is an aspect of the dilemma of politics pithily summarised by the French economist Bastiat, who viewed the state as "the great fictitious entity by which everyone seeks to live at the expense of everyone else".

This dilemma is sharpest in democracies, where citizen-voters are simultaneously taxpayers and consumers of public services.  All Western governments are attempting to reduce or contain public expenditure.  Mr Hawke's "trilogy" was one such attempt, designed in part to make it easier for his Government to resist groups lobbying for increased expenditure by enabling Ministers to say, in effect, "If we do what you want we will be breaking the trilogy, which was an election promise".  While it lasted, the trilogy had a useful effect in reducing people's expectations of government.  Similar promises, made before and renewed after the election, will help the new Government.

2.1 ONE PERCENT REAL REDUCTION IN SPENDING

The Government should make the following promises and keep repeating them so that it becomes very embarrassing to break them: Public spending reduced in real terms by one percent each year except for defence. Indexation of personal income tax thresholds. Honest elimination of the deficit within three years.

This is of course the same tactic as the Hawke "trilogy", although the three promises are going to be harder to keep.  The media will no doubt call them a trilogy.  So be it.  These three should be explained carefully and often along the following lines:

• "No real increase means what it says.  If we have to find more money for one thing, we will have to cut back on something else:  if you want us to increase spending somewhere, you will have to tell us how we can make the necessary saving elsewhere.  Our defences, however, are so run down that it will be necessary to increase spending on them.  Most of this increase will be achieved from cuts elsewhere, but some may represent increased spending.
• "Tax indexation is a great step towards honesty in Government.  We know you don't believe that we shall deliver on this promise:  but we will, and next election not only will you believe us, but the other parties will have to promise it too. ⁽²⁾
• "Honest elimination of the deficit is what we will achieve with responsible economic management.  Dishonest elimination of the deficit is done by shuffling as much expenditure as possible off the budget, either into quangoes or by imposing administrative or other burdens that should be born by government on the private sector."

Implementation of the policies proposed throughout this volume, and avoidance of big new spending programmes, should enable a Government to deliver on these promises, and put it in a position to win the next election.

3. EFFICIENCY AND WASTE

Debate about "small government", privatisation, and so on tends to confuse two separate issues.  The first is the question of the "size" of government -- where the dividing line should be drawn between private and public, individual and collective, market and planning, etc.  The second consists of more technical questions along the lines:  given that x is properly in the sphere of government, what is the most efficient means of achieving it (bearing in mind the social, economic and political constraints).  Differing political beliefs should not prevent substantial agreement here.

Most people believe that government wastes a great deal of taxpayers' money, and that action should be taken to stop this.  Every now and then, a government mounts an efficiency drive.  Almost invariably, the savings are small and temporary.  If we accept that very few public-sector employees deliberately squander the nation's resources or sabotage reasonable economy measures, we must conclude that if elimination of public-sector waste were a straightforward task it would have been accomplished long ago.

In fact it is difficult even to achieve a useful definition of public-sector waste.  Particular examples are often reported (for instance, the Victorian police force was said last year to have had enough handcuffs in store to last over 200 years at current rates of consumption) but do not much help in arriving at general principles.  It is true that in almost every case in which a public-sector organisation can be fairly compared with one in the private sector, the public-sector organisation turns out to be the less cost-efficient and the less responsive to public demand.  This alone does not warrant the conclusion that waste exists which "better management" would eliminate.  Two matters are relevant:  first, the special procedures required in handling public funds and employees;  and second, the incentives facing managers and workers in different kinds of organisation.

3.1 TAXPAYERS' MONEY IS SPECIAL

Public-sector accounting, procurement and other money-handling procedures have developed over centuries primarily to ensure that public funds are spent only as authorised by Parliament and that they are properly accounted for.  The requirement for Parliamentary appropriation developed out of the long conflict between Parliament and Crown;  but also important is the duty to account properly for the revenue raised by compulsion from taxpayers.  The private sector is voluntary, the public sector largely compulsory.  This gives government duties both to use the money carefully and to account for it properly.

Similarly, public service employment and management practices inevitably differ from private-sector ones.  Competition among private-sector firms, and the possibility of transfer of ownership, both exert pressure in favour of efficient management and personnel selection and mean that the harm done by incompetence and nepotism is limited.  In the public sector, however, the real point of accountability (a government's losing office) is so remote from the daily business of management that elaborately formalised management and personnel procedures are necessary to help minimise nepotism and corruption and generally to maintain the impartiality of administration.  The procedures are not entirely effective, but they are one of the things that distinguish liberal democracies from banana republics.

The special management procedures necessary in the public service constitute a significant administrative overhead.  They mean that even when the public service is working efficiently according to its own lights, it will be at a disadvantage compared with the private sector.

3.2 OTHER SOURCES OF PUBLIC-SECTOR INEFFICIENCY

There is now ample evidence that government and its enterprises and agencies on the whole produce services and goods less efficiently than the private sector, and that they are much less responsive to public demand.  There is also a growing understanding of the reasons for this.  It is not necessary to assume that public servants are less conscientious, competent and hard-working than other people;  it is only necessary to examine the incentives facing workers and managers in bureaucracies and especially in the public service. ⁽³⁾

The basic assumption of economics is that most people, most of the time, are motivated largely by self-interest.  This does not mean just a desire for money:  everyone has his or her own priorities.  Public choice theory and the economics of bureaucracy take as a starting point the assumption that on the whole politicians and public servants are no different in this respect from anyone else:  so a politician's actions are likely to be affected by a desire for re-election or a Ministry, or a bureaucrat's by a desire for a higher grading, more subordinates, a bigger office.  These rewards are often linked tenuously if at all to the public interest in which governments, oppositions and public servants are supposed to act.  Of course politicians and public servants are not entirely motivated by selfish considerations;  but many often behave as if partly motivated by them, and systems of government must be designed to take this human frailty into account.

3.2.1 The Chimera of Public-Sector Efficiency

All large organisations tend to have trouble keeping the incentives facing their workers and managers in line with the organisation's interests, and thus ensuring that whatever they do is done efficiently.  Private-sector organisations, however, have two advantages.  The first is private ownership.  Private ownership means that there are identifiable people whose fortunes are identifiably affected by the fortunes of the organisation, and who either manage it themselves or are in a position to control or sack the managers.  This provides an incentive to keep the organisation profitable.  Private ownership usually also means that an organisation that is sufficiently badly run or unlucky faces the sanction of bankruptcy. ⁽⁴⁾  The second advantage usually, but not always, enjoyed by the private sector is competition.  If an organisation is the sole producer of some good or service, several things follow:  it is not easy to measure its efficiency because there is nothing to compare it with;  it has little incentive to improve efficiency;  and it is in a position to over-charge for its products and capture what economists call monopoly rents.  If on the other hand there are competing producers, each has a yardstick to measure its performance, and none can long charge more than the other for the same products without losing its market:  so all have an incentive to produce more efficiently, to increase profitability, and to produce what the market wants, to increase sales.

Both competition and private ownership are necessary for efficiency.  A privately-owned monopoly is almost as likely as a government-owned one to be inefficient and to over-price its products.  A practical difference is that monopoly rents in government organisations are captured entirely by workers and managers (as improved pay and conditions, light workload, etc.), while in private monopolies the owners (shareholders etc.) can also benefit.  Likewise, without the threat of bankruptcy, competition loses much of its influence on efficiency:  if two organisations are selling the same products in the same market, and one has to make a profit over time while the other, government-owned, can run at a loss without risking its survival, it is likely that the privately-owned one will produce more efficiently.

The problem of efficiency in the public sector is made more difficult by the fact that so much of the output of the public sector is provided to consumers free or at a price that bears little relationship to the cost of production.  This state of affairs is of course only made possible by freedom from competition and/or the threat of going broke.

The extent to which public-service organisations can be insulated from consumer demand is illustrated by the way many consumers prefer to pay for the private-sector equivalent as well as paying in taxes for the "free" service.  Private schools, for instance, compete successfully with government schools for part of the market, as do book exchanges with public libraries.

3.2.2 Efficient Use of Taxpayers' Money

We now return to the third of the questions presented in section 1, and the need to distinguish between:

• Things government need not be involved in at all;
• Things that only government can ensure are done;  and
• Things that only government can do.

The first point should be obvious:  if government does things less efficiently than the private sector, then the less government does and the more the private sector does, the better use is made overall of scarce resources.

The next point to make is the difference between doing things and ensuring they are done.  The distinction is crucial.  It is the difference between means and ends.  For example:  only government can ensure that streets are lit and rubbish collected, but this does not mean that the people who install and maintain the lights and collect the rubbish must be public servants.  The ends can also be achieved by getting competing private-sector firms to tender to provide the services at government expense, or even by imposing a legal duty on owners or occupiers of property to light adjacent streets and dispose of rubbish in a prescribed manner.  The first approach requires large bodies of electricians, dustmen, etc. on the public payroll, providing part of a bundle of services paid for out of rates and other taxes.  The second approach involves much smaller numbers on the public payroll (administrators, inspectors), and competitively-priced services to make up the bundle.  The third approach unbundles the services and allows property-owners a choice between do-it-yourself and buying the obligatory services in a competitive market, but probably requires more inspectors and perhaps more judges and clerks of courts to enforce it.  The difference between the first, traditional approach and the others is that the actual business of putting up street lamps, emptying dustbins and so on is done by people working in the private sector and facing private-sector incentives for cost-saving and efficiency.

Another example:  only government can enforce compulsory schooling;  only government can levy the taxes to support "free" compulsory schooling;  but there is no need for government to build schools and employ teachers.  This can be done by the private sector, with the government-private interface handled by any of a number of mechanisms including the voucher recommended in the Education chapter.

3.2.3 The Government-Private Interface

Most government activities sooner or later involve buying from or selling to the private sector:  construction, purchasing, welfare payments, Medicare, etc.  The interface between public and private sectors can be a source of special problems.  In the private sector, sloppy accounting, wasteful purchasing, secret commissions and so on hurt only the firms concerned and their owners.  In the public sector, the same things hurt all taxpayers.  Taxpayers' money is special, because people cannot opt out of paying taxes.

This means that the interface between sectors must be as public and competitive as possible.  The principle is analogous to justice being done and seen to be done.  Exceptions must be made where national security is concerned (some defence contracts and most of those involving the intelligence agencies) but those should be all.  The general rule must be that public money should be spent publicly.  Some of the possible mechanisms:

• The welfare system can be used to give poor consumers enough money to buy the goods or services considered necessary, from unsubsidised, competing private-sector suppliers.
• Vouchers also give consumers purchasing power but in a market restricted to certain products or suppliers.
• Open, competitive tenders to supply goods or services to consumers at a subsidised price (even "free").
• Open, competitive tenders to supply goods or services to government.

The Government should examine the whole of Commonwealth public- sector activity, including Commonwealth funding of State activities. The question should be:  What is government doing that could better be done by competitive private-sector suppliers, if necessary with some form of subsidy to protect the needy? The job should be given to a Minister with a specially-created miniature Department of Administrative Reform, and the sole task of minimising the size of the necessarily inefficient public service by transferring as much as possible to the private sector.  The Minister should have cabinet rank to ensure that he is always heard as well as the spending Ministers.

3.2.4 Privatisation

Carrying out this policy will necessarily involve "privatisation" and "marketisation" of much present government activity and parts of government organisations.  This should be seen as a way to make better use of scarce resources (a goal acceptable to all people of good will) rather than as a dogmatic, ideological affair.

Overseas experience has shown that there are many ways in which public enterprises can be moved into the private sector, and that the choice must be made pragmatically to suit the circumstances of each enterprise. ⁽⁵⁾  This is particularly important in relation to the privatisation of monopolies.  Traditional economic theory suggests that natural monopolies cannot both achieve optimal use of resources and make a profit;  this is a major reason for public ownership of alleged natural monopolies such as Telecom and electricity commissions.  The modern theories of public choice and the economics of bureaucracy mentioned above, however, suggest that the efficiency losses from public ownership often outweigh the gains from optimal pricing.  This is certainly the case with Telecom and the electricity commissions, whose pricing is for a variety of reasons far from optimal. ⁽⁶⁾

There are specific recommendations in other chapters for transferring some government-owned organisations to the private sector:  see Communications, Primary Industry and Transport.

3.2.5 Competition and Public Enterprises

The comprehensive examination of government activity will take a long time.  If the Minister's recommendations are useful they will be attacked by vested interests (mainly bureaucrats and public-sector unions) and it is unrealistic to expect that all will survive to be implemented.  Interim action is desirable to expose the commercial activities of the public sector to effective competition.  Many government enterprises have statutory monopolies of part or all their areas of activity:  examples are Australia Post's monopoly of letter-carrying and the Wheat Board's monopoly power to acquire the wheat crop.  Where governments have not actually awarded monopolies they have often been unable to resist the temptation to favour the government enterprise over private-sector competitors.  Even where this has not happened, government-owned enterprises are seldom if ever allowed to go bankrupt:  this can give them a significant advantage over private-sector competitors in borrowing money and in some other transactions.

The Government should identify those public enterprises whose activities are principally commercial and, as soon as possible, bring them within the scope of the Trade Practices Act.

3.2.6 Miscellaneous Proposals

There are numerous proposals in other chapters which will result in short or long term expenditure reductions.  This section contains a number which do not fit conveniently elsewhere.

Aboriginal Affairs

The Department of Aboriginal Affairs is very expensive to administer for what it achieves, and there is some danger of its becoming a sheltered workshop for part-Aboriginal public servants.  Health, education and welfare programmes to assist Aborigines are likely to be better administered by the appropriate specialist departments.  Many "projects" funded by DAA have been very slackly administered and have wasted millions without significant lasting benefit to those they were meant to help.  Responsibility for such projects should be transferred to the Department of Finance, and future projects should be run on commercial lines with any subsidy by means of partial government guarantee of bank loans.  Residual functions of DAA should be transferred to Immigration and Ethnic Affairs.

Abolish the Department of Aboriginal Affairs, transferring its useful functions to other Commonwealth and State Departments.

Veterans' Affairs

The number of veterans is diminishing as Second World War servicemen grow old and die, but Parkinson's Law suggests that the number of Veterans' Affairs employees will nevertheless increase unless drastic action is taken.  Administration of veterans' pensions should be integrated with ordinary social security pensions, although entitlements should remain as they are, except for new applicants for war widows' pensions.  It makes no sense to describe a woman as a war widow if her husband lived a normal life-span and died thirty or forty years after his military service;  the legislation should be amended to put the onus of proof firmly on the applicant in such cases.

Abolish the Department of Veterans' Affairs, transferring its functions to the Departments of Health, Social Security, and Defence.

Sport, Recreation and the Arts

Government funding of sport, recreation and the arts is a luxury and should be first to go in hard times -- in addition to moral questions about whether taxpayers should be compelled to support the advantaged (talented athletes, writers, artists) as well as the disadvantaged.  Much expenditure under the heading "ethnic affairs" does not benefit clearly disadvantaged people but subsidises purely cultural activity.  This too should be reduced.  The Government's first responsibility is to people as individuals (taxpayers, poor people, sick people), not to "ethnic", occupational or recreational groups.

The Bicentennial Authority is also a luxury.  Mandate policies and their successors can give the nation cause for a bigger and better national centenary celebration in 2001.

Reduce funding to sport, recreation, the arts and the Bicentennial Authority.

4. PARLIAMENT

Parliament presents the Government with a dilemma.  A reforming government ought to want a strong and effective Parliament as one of its memorials;  but a weak and compliant Parliament will present fewer obstacles to reform.  Legislation should pass slowly through Parliament to allow ample time for scrutiny;  but this delays reform and wastes the valuable "honeymoon period", and also allows time for opposing vested interests to mobilise.

4.1 THE HOUSE OF REPRESENTATIVES

C. Northcote Parkinson postulated that an organisation's acquisition of adequate, purpose-built premises generally coincides with its final decline into impotence and irrelevance.  The Australian House of Representatives may confirm this hypothesis in 1988.  The House is now hardly more than a token check on the Executive.  What is called debate is seldom anything of the kind:  except perhaps in matters involving sex (abortion, family law etc.) it is almost unheard of for a Member to sit through a debate and then cast his vote according to the merits of the arguments presented.  Backbenchers are not encouraged to scrutinise legislation;  anyway, it is not humanly possible to absorb and appreciate the details of all the laws and regulations on which MPs are expected to vote.  Even very complex bills with far-reaching and unforeseeable consequences are regularly pushed through within days or hours of introduction.  Any real debate takes place in the privacy of party room or caucus.  In these forums, secrecy and pressure of time mean that even though members are freer to speak their minds they have less chance to examine proposed legislation in any detail.

Ministers are increasingly treating the House with contempt.  This is partly the natural response of very busy people to the puerile waste of time that is most debate, and partly (as when a Minister leaves the chamber while his opposition counterpart is discussing his handling of his portfolio) an uglier sign of where the power now lies.  It is no longer exceptional for Ministers to spoil Question Time with inordinately long and rambling answers, in order to minimise their exposure to questioning from the Opposition or from their own backbench.

The prospects for improvement are slender:  any increase in the power of the House to check and scrutinise the Executive tends naturally to be unwelcome to the government which is the Executive and in practice controls the House.  It would take a tactical alliance of both backbenches to force change on an unwilling government, and very few backbenchers appear sufficiently discontented.  Nevertheless, the state of the House should be causing concern even to the Ministers who benefit from it.  If half the Parliament is moribund, what are the long-term chances for Australian democracy?  Various reform proposals exist, but public debate on them is barely beginning. ⁽⁷⁾

Meanwhile, there are various ways the Government can restore some power and dignity to the House of Representatives.  Any such action will involve a converse reduction in Ministerial and executive power, and will be bitterly opposed by some Ministers and senior public servants.  Reforming Ministers should grit their teeth and try to secure the adoption of all or some of the changes in the box below.  The work of parliamentary committees shows that backbenchers can do much more than vote "just as their leaders tell 'em to", ⁽⁸⁾ but the committees are a poor substitute for a dynamic and effective lower house.

These procedural changes apart, the greatest service the Government can do for the House is to reduce the volume and complexity of legislation.  Implementation of the Mandate to Govern programme will unfortunately involve a substantial volume of reforming and repealing legislation in the first term, but most of this is conceptually straightforward.  In later years, as government functions are reduced and self-regulating systems are developed in many areas, the amount of legislation should decrease to that of decades ago.

The Government should make as many as possible of the following changes, amending Standing Orders as appropriate: Require a two-thirds majority at divisions to suspend Standing Orders, making the decision one for the House rather than the Government. Provide for 28 days (not 28 sitting days) to elapse between first reading (introduction) of a Bill and second reading (debate).  This gives time for interested Members and citizens to study the legislation.  (If the House believes the legislation is sufficiently urgent, it will be able to suspend standing orders). Limit the length of oral answers to questions without notice (two minutes?) and increase the scope for supplementary questions;  alternatively, adopt the Westminster system, with few questions without notice but many oral supplementary questions based on questions upon notice. Follow Ministerial statements to the House with a time for oral questions and answers about the statement, as at Westminster.

4.2 THE SENATE

The Senate, which has rather different traditions and has not in recent years been controlled by either major party, is in many ways the more vigorous and effective of the two Houses, and often acts as a genuine house of review.  This sometimes makes life hard for governments but is good for democracy.

The Senate's ultimate weapon, the power to refuse Supply, is an important part of the constitutional nature of Australian democracy -- constitutional not in the sense of having a written Constitution, but in the more fundamental sense of having limits to the power even of a popularly-elected government, and dividing power among several institutions each with a different kind of legitimacy (Crown, Executive Council, Senate, Representatives, High Court, and of course voters).  The purpose of this division is to preclude the possibility of the "tyranny of the majority", to prevent any single government making irreversible, fundamental changes in a short time.

It should never be forgotten that the natural consequence of a refusal of Supply is a general election at which the Australian people have the opportunity to judge both the government rejected by the Senate and the act of rejection itself.  The Constitution does not, however, require that the Senate face the voters at the same time (although it is usually possible to have a half-Senate election);  there seems a good case for a constitutional amendment to require a double dissolution after a refusal of Supply.

4.3 PARLIAMENTARY DEPARTMENTS

The effectiveness of parliamentarians in scrutinising government activity is greatly affected by the quality of the support available to them from organisations such as the Parliamentary Library, and committee secretariats.  The Government should not starve these organisations of funds.

4.3.1 EPAC

One thing lacking in Australia is an authoritative, independent economic forecasting and policy institute.  The Economic Planning and Advisory Council (EPAC) showed signs of becoming such a body but its lack of independence was demonstrated by the way in which the Hawke Government suppressed uncongenial findings.  Kasper points out the extent to which macroeconomic concerns are being ignored in the current debate, and the inadequacy of the macroeconomic information publicly available. ⁽⁹⁾  He proposes a "prominent economic advisory institution" whose primary role would be "to offer annual short- and medium-term forecasts and to offer economic advice openly and in competition with other sources, like Treasury".

The Government should convert EPAC into a truly independent source of economic policy expertise by legislating to make it a parliamentary department answerable to the Speaker and the President of the Senate and requiring all its output to be tabled in Parliament (and hence made public) within seven sitting days of completion.

The legislation should broadly follow Kasper's proposals, including the enactment of national macroeconomic objectives to form a yardstick by which the new EPAC can assess performance and policies.  Kasper specifies the objectives as:

• Price-level stability;
• External equilibrium (i.e. avoidance of rapid and unexpected moves of the exchange rate);
• High employment of the labour force;
• A demand expansion close to the growth of the productive potential (in other words, a steady utilisation of the supply potential);  and
• A growth rate of the supply potential that is commensurate with Australian resources and social conditions.

The new EPAC should have five part-time members appointed for staggered, fixed terms.  All should be economists.  One should have ties with business and another with the union movement (but they should not be business or union representatives).  It should have a full-time secretariat of five to seven professional economists, with appropriate office support and computing power.  Its cost should be offset, or more than offset, by reducing staff and funding in the many departments and advisory agencies which now make their own, often inadequate, macroeconomic surveys and forecasts.  A common source of macroeconomic advice would assist coordination of policies.

This is not to claim that economists can tell the future.  In principle, never mind in practice, an economic forecast can never achieve even the status of a weather forecast:  if an economic forecast is believed, it will affect people's decisions which will in turn affect the economy and invalidate the forecast;  on the other hand, the fact that people will stay away from the beach if rain is forecast does not affect the likelihood of rain.  So economic forecasters cannot say "Such and such will happen", only "Such and such is likely if other things stay the same".

5. GOVERNMENT DEPARTMENTS

It is common for departments to be created or wound up and for agencies or functions to be transferred from department to department.  This is one of the ways in which Prime Ministers match jobs to the always scarce ministerial talent at their disposal.  Very few people have the combination of skills that make the best Ministers, ⁽¹⁰⁾ and not many of them are in Parliament.

The task of allocating portfolios is complicated in Australia by section 64 of the Constitution, which appears to allow no more than one Minister per department.  This forces compromise between large departments covering whole policy areas, which are too much for any one Minister to master, or smaller, more manageable departments which mean that most Ministers cannot see the national wood for their departmental trees.  The British system seems preferable:  large, functionally coherent departments (e.g. the Department of Health and Social Security, which also does most of the work of our Department of Veterans' Affairs) controlled by one Cabinet Minister and several junior Ministers.  The senior, relieved of day-to-day administration, can take a broad view of national affairs;  the juniors operate in small enough areas to permit moderately effective political control.

5.1 LONG-TERM DEPARTMENTAL STRUCTURE

In the long term, a constitutional amendment to permit senior and junior Ministers in large departments would improve administration and make traditional principles of ministerial responsibility more practicable (a junior Minister has more chance of knowing what his part of the department is up to, and his departure is likely to represent a smaller loss of prestige and talent to the government).

A suitable structure might then include a small number of "super-departments":  perhaps Treasury and Finance;  Health, Education and Welfare (including Aborigines, migrants and veterans);  Industry, Commerce, Transport, Communications and Employment;  Home Affairs (States, Territories, police, security, immigration, etc.);  Foreign Affairs;  and Defence.

The Government should work towards an amendment of Section 64 of the Constitution to permit the appointment of junior or assistant Ministers to Commonwealth Departments.

5.2 SHORT-TERM ARRANGEMENTS

There are three ways in which the effective, if not official, area of political responsibility of a senior Minister can be reduced within the constraints of the Constitution.  Precedents exist for the first two.

• Other MPs can be appointed to assist them as "parliamentary secretaries" or the like.  They cannot take constitutional or administrative responsibility, and cannot be paid more than their expenses, ⁽¹¹⁾ but can reduce the workload.  It is not clear whether they would be able to answer questions in Parliament.
• Ministers with small departments can be sworn in as "Minister for x and Minister assisting the Minister for y".
• Miniature departments with negligible official functions can be created to enable one Minister to devote his full time to assisting another.  No direct precedent seems to exist for this, although the 1970s Department of Special Trade Representations and -- in its early days -- the Department of the Special Minister of State were mini-departments with only a handful of staff.  The Department of the Special Minister of State was created to allow for a Minister effectively without portfolio and therefore with the time to consider wider problems.  Since then, it has expanded ⁽¹²⁾ and acquired a number of functions and agencies and makes work for its Minister;  but the original precedent was a good one.

The Government should adopt any or all of the above strategies to reduce the day-to-day administrative work of senior members of the ministry, so that there are several Ministers with personal and political clout who are able to take a medium-to-long view of the general interest, rather than a short-term view of a sectional interest.

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ENDNOTES

1.  The Tax Reform chapter explains how a tax nominally levied on one kind of taxpayer has effects throughout the economy.

2.  See the Tax Reform chapter.

3.  The importance of the economics of bureaucracy and public choice theory was recognised in the award of the 1986 Nobel Prize for Economics to James Buchanan, one of its founders.  Relevant discussions are contained in The Economics of Bureaucracy and Statutory Authorities, Sydney, Centre for Independent Studies, 1983, and R.J. Wood, Privatisation:  Lessons from Public Utilities, 1986.

4.  Exceptions occur when the organisation is able to persuade government that its bankruptcy will cause vote-losing unemployment and that it must be bailed out.

5.  See M. Pine, Privatization in Theory and Practice, London, Adam Smith Institute, 1984 (Sydney, Centre 2000, 1985).

6.  See Hartley, op. cit. and R.J. Wood, The Telecom Monopoly:  Natural or Artificial?, 1991.

7.  Proposals for parliamentary reform and expenditure control are examined by Michael James in Parliament and the Public Interest, AFPP, 1985.  See also M. James (ed.) The Constitutional Challenge, Sydney, Centre for Independent Studies, 1982.

8.  lolanthe.

9.  W. Kasper, "The Case for an Independent Council of Economic Advisors", Review, 1987.

10.  The qualities required of a Minister are discussed in the Policy Management chapter.

11.  J.R. Odgers, Australian Senate Practice, 5th edn, Canberra, AGPS, 1977, pp 614-5.

12.  As predicted by Parkinson's Law.