Should we do away with the states?

THE former Prime Minister Mr Bob Hawke's suggestion that changes to the Australian Constitution should include abolition of the states reflects a common community view that we have too many politicians and unnecessary duplication, and that, if we were starting again, we would not have state governments, but a Federal Government and a series of regional governments.  Implicit in this view, though not always stated, is that local governments would also be subsumed into new regional governments, perhaps totalling 20.

While such a development is unlikely, some facts may help us make judgments about the present situation.

The figures in the accompanying chart suggest that, as the Commonwealth spends not much more than the states, but employs far fewer people, it may be more efficient.  However, the lower Commonwealth employment mainly reflects its responsibilities for social security benefits, whose payment requires fewer staff than do labor-intensive services such as health, education and police, which state governments deliver.  Local government, however, accounts for a relatively small proportion of total government spending (six per cent) and its share of total government employment (nine per cent) is quite a bit higher.

There are marked differences between the three levels of government in the proportions of total spending absorbed by general administration (which includes the cost of politicians and parliaments as well as bureaucrats who are not providing specific services).  Only 4.7 per cent of state spending goes on general administration, but it makes up 8.4 cent of Commonwealth spending and no less than 13.1 per cent of local government expenditure.

These figures are not conclusive, but they suggest that the economic case for trimming government by abolishing state governments is not strong.

They also suggest that, with 900 councils throughout Australia which have relatively limited responsibilities, we are considerably over-governed at the local government level.

My analysis of local government in Victoria shows that there is the potential to save ratepayers about $500-$600 million a year by halving the number of councils and introducing other reforms.  Larger councils, of course, have the potential to provide stronger local government.

There are three key points to keep in mind in this debate.  First, there is enormous scope within the existing government structure to reduce the burden of taxes by improving the efficiency with which existing services are delivered and by concentrating welfare assistance more on those in genuine need.  My research showed scope to cut Commonwealth spending by $9 billion, for instance.

Second, the abolition of state governments would not get rid of the need to deliver education, health or other services at various regional centres.  That would require regional administrations with provision for some form of elected political representation.

Replacing eight state governments with (say) 20 elected regional governments, would not save money unless existing local governments were largely eliminated.  But that could be done now.

Third, a move to a two-tier system of government would not in itself remove the problem of duplication between the Commonwealth and whatever regional level of government existed.  Exactly the same issues would arise as to which level of government should have the final say on matters such as the environment and Aboriginal affairs, not to mention education, health and other mainstream services.

The existing duplication between the Commonwealth and state governments is considerable, but it probably does not involve large additional expenditure on administration.  It could be eliminated if agreement over appropriate responsibilities and national uniformity could be reached at the political level.  That, however, illustrates the problem!  There will always be those who think that government services can best be determined from Canberra and provided on a uniform basis around Australia.  Equally, there will always be those who prefer to have the capacity to vary services according to assessed regional preferences and needs, and who fear having too much power concentrated in Canberra.

The solution is not to proceed down the dead-end path of debating the existing tiers of government, but to institute new methods of operation which allow services to be provided in a more competitive environment, as is now being done increasingly overseas.  Whatever the level, the most urgent need is to change the government's focus from service delivery to an enabling function which provides funds for, and regulation of, such services.

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Why Government needs to be rolled back

TO UNDERSTAND Victoria's problems and how to overcome them, we need to understand why we got into the present mess.  My work on Project Victoria for big business associations has given some insights into this.  One came from re-reading Victoria.  The Next Step, which the Cain Government issued in 1984.

The essence of that long-term strategy was for the State Government to intervene in the economy to encourage businesses to take advantage of the state's competitive strengths.

This approach was widely regarded at the time as a basis for "sensible" co-operation between, in particular, business and government.

However, the strategy gave Victoria probably the most interventionist Government ever, leading to levels of spending and borrowing in private and public sectors that were unsustainable.

We are now "working off" the resultant debt and damage to business and community confidence.

But the key question is whether the main lesson from the experience of the 1980s has been learnt;  that is, the need to minimise Government intervention in the state's economy and to roll back the role that government plays generally.

While it is too early to give a definitive answer to this complex question, there are some encouraging signs.

First, the Kennett Government has started a program of wide-ranging reforms in the structure and role of government that holds considerable promise.  If carried through to its logical conclusion, this program could allow Victoria to take advantage of one of its most important competitive strengths.  This strength is that, being compact, accessible and (by Australian standards) densely populated, Victoria could deliver Government services at a lower cost per head than any other state.

We have not been using this potential because, during the 1980s, the union movement "captured" the operation of the public sector.

This led to considerable over-staffing and restrictive work practices in the operation of a wide range of Government services, as well as adding to the capital costs of Government business enterprises.

The unwinding of these apparently entrenched union positions in the public sector is an enormous task in its own right.

But its realisation is important not only because of the need to cut the costs of Government services and, in the process, overcome the debt problem.

It is important also because, if successful, it will signal a change of "culture", a movement away from a society based on allegiances formed by groups as a protection against perceived threats from other groups to one based more on recognising the mutual benefits of encouraging the individual to fulfil his or her potential.  If realised, this will provide an enormous boost to initiative and confidence.

Such a change of culture is important if Victoria is to respond to the challenge posed by the inevitable relative decline in manufacturing.

Tariffs or no tariffs, manufacturing is being progressively displaced by service industries as a source of jobs growth in "developed" economies.

US manufacturing will provide only 12 per cent of jobs by 2000 (now about 17 per cent):  here, the proportion may well be less.

Such structural changes make it vital that Victoria becomes a more competitive place for the private investment needed to provide alternative sources of growth.

However, we will not attract this investment until the Government (whatever its political complexion) has demonstrated that it, not the union movement, can determine the conditions under which people are employed.

The labor market needs to be able to operate competitively and largely free of regulation other than to prevent union "monopolisation" and to provide certain minimum standards.

The second encouraging development is the way in which the Opposition has reacted to the measures taken by the Government.  In replying to the 6 April mini-Budget, the shadow treasurer, Mr Baker, rightly focused on Victoria's wealth as one of its strengths and he did not oppose the measures announced to eliminate the current-account deficit in the budget.

If the new Labor leadership can convince most members to give priority to the creation of wealth, the state will be a good way towards overcoming its problems.

The third encouraging development is the growing acceptance of international benchmarking.  The realisation that, if our share of national output is not to continue to slide, business and government must operate on an internationally competitive basis is an important advance.

This can be achieved, as is demonstrated by the success of our artists, writers, sportsmen, singers and playwrights, when competing at the individual level.

It is at the group level that the culture has to change -- and it will if the Kennett Government is encouraged to roll back government to the point where it is truly the umpire and is not trying to kick goals itself.

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