Don't believe the Asian century hype

The Government's Asian century white paper finally reveals the conceptual poverty of the Asian Century idea.

Certainly, Asia will continue to grow prosperous and come to dominate the global economy.

But Ken Henry's white paper demonstrates that the concept of an ''Asian century'' offers almost nothing to guide Australian public policy in 2012.

Don't believe the hype.  The Asian century is not the stuff of wonky earnestness.  It is a political story.

A simple reorganisation greatly diminishes the whole project.  We can group the proposals — sorry, ''pathways'', a horrible word that the Government uses to conflate policies with goals — of the white paper into two categories.

The first category is things that are true no matter which continent dominates the next 100 years.  The white paper wants Australia to be one of the top ten richest countries by 2025.  Fair enough.  But this holds regardless of whether there will be an Asian century, or an American century, or a New Zealand century.  Most of the white paper is like this.

One sentence reads:  ''A world-class school system is essential to Australia's success in the Asian century''.  What do the last four words contribute?  The government will create ''a long-term national infrastructure strategy''.  It will establish a Tax Studies Institute.  There will be a National Plan for School Improvement.  We ought to expand our trade with the rest of the world.  The Asian century conceit adds nothing to these ideas.

The white paper even plugs Closing the Gap.  Ending Indigenous disadvantage is extremely important, but what on earth does it have to do with Asia?

In the second category are proposals specifically designed to deal with rising Asian economies.  There aren't many in this category.  And they're all pretty minor — even token.

Of these, increased Asian language teaching is the most significant.  I've criticised this idea in the past, and Benjamin Herscovitch from the Centre of Independent Studies has done so recently at length.  Yet even if more Asian language teaching was necessary, it's an oddly trivial hook for this ambitious white paper.  Is offering Chinese at more schools really the pivot on which our nation will turn?

The quality of proposals declines sharply from there.  The white paper says that one-third of board members of Australia's top companies should have deep knowledge of Asia.  This is a pretty gimmicky idea.  Anyway, why is intellectual composition of the boards of private firms any business of the Commonwealth government?

One welcome proposal is to boost the numbers of tourism and working visas from Asia (you could ask:  why not boost visas from everywhere?).  Yet in the mid-year budget just last week the government significantly raised the cost of visas for foreign workers.

Asian century boosters have always struggled to link their statement of the obvious (Asia is growing) to concrete proposals.  This white paper is most ambitious attempt yet.  If Ken Henry can't make it work, nobody can.  But it fails.

Apart from continuing to strive to be productive and educated and rich — good things whether our neighbours are rising or declining — it's not obvious that Australia needs to do anything special about the rise of Asia.

Indeed, that may be the point.

The white paper mostly just reiterates existing Gillard government policies.  Far from jolting us out of our complacency, the paper encourages it ... well, as long as we stick with Labor and its NBN and its schools plan and its carbon tax.

The Asian century paper is a political document.  It's a theme for the Government now that most of the Rudd-era ambitions have been squared away;  a fresh ''Labor vision'' for the party of Keating and Whitlam.  It doesn't have to be particularly coherent or convincing.  It just has to be plausible.

And, to be fair, it is.  The white paper exudes seriousness.  It is ridiculously Big Picture.  The Asian century is intellectually flattering:  everybody feels smarter when they talk about it.  In the last 48 hours almost every special interest in the country has claimed their pet issues are the key to surviving the new Eastern paradigm.

Given that the Asian century is above all a political idea, it seems significant that the Opposition has been caught off-foot.  First the Coalition welcomed it, said it lacked detail, then said it lacked funding.  By Monday Tony Abbott had described it as ''laughable, frankly''.  Then he moved on to Peter Slipper.

This is probably not wise.

The Asian century looks like Julia Gillard's election strategy.  It's a lot better than Moving Forward.  But like so many political visions, it's seems more profound than it is.  We should not confuse narrative for substance.

ADVERTISEMENT

Obama and Romney heeding McGovern's call to come home

''This hero of war,'' declared President Obama, ''became a champion of peace''.  According to Bill and Hillary Clinton:  ''We must continue to draw inspiration from his example and build the world he would fight for.''

Richard Nixon once told Henry Kissinger:  ''This fellow to the last was a prick'', but veteran Republican senator Bob Dole called him ''a true gentleman who was one of the finest public servants I had the privilege to know''.  Liberal Democratic hawks detested him, yet he was personal friends with his ideological foe, Barry Goldwater.

As these strong and conflicting reactions on the part of the mighty indicate, George McGovern was a very significant and controversial figure in American politics.

A national legislator for nearly a quarter century and a decorated bomber pilot who flew 35 combat missions against Hitler and the Nazis, he was a leading critic of America's policy of anti-communist containment.  He also gave opposition to the Vietnam War respectability within the American system as early as 1963.

Yet McGovern's death last week did not receive any press attention in Australia.  Nor did the Foreign Minister's office issue a media release, even though Bob Carr himself gave a gushing 20-minute tribute to novelist Gore Vidal on Lateline after his passing a few months ago.

This lack of local interest is odd.  For one thing, McGovern was the Gough Whitlam of American politics.  Both were standard-bearers of social democrats and left-wing radicals at a time of widespread cultural and social unrest.  Both championed far-reaching progressive reforms at home while opposing the Vietnam War and the isolation of Communist China years before the case for withdrawal and rapprochement became popular.  Both also suffered humiliating landslide election defeats (McGovern to Nixon in 1972, Whitlam to Malcolm Fraser in 1975 and 1977).

Moreover, although McGovern's foreign policy failed to appeal to Nixon's ''Silent Majority'', his message is resonating with Middle America four decades later.

His candidacy set the scene for the triumph of Democratic doves over the Cold Warriors in the mould of Harry Truman and John F. Kennedy.  That enabled Republicans to portray Democrats as being soft on national security for generations.

Today, in the wake of the financial crisis and costly wars in Iraq and Afghanistan, Americans are rediscovering the costs and limits of the use of force.  As the conservative columnist George Will has noted, McGovern's slogan ''Come home, America'' probably summarises the thinking of a slight majority of the American people.

And both Barack Obama and Mitt Romney know it.  Take last week's presidential debate on foreign policy.  During the 90-minute encounter, they sounded positively McGovern-esque, keen to pivot to domestic affairs while warning about getting bogged down in another Middle East quagmire.

The President said ''nation building'' begins at home on three occasions while Romney mentioned ''peace'' 12 times.  The Republican's insistence that ''we can't kill our way out of this mess'' sounded like one of those anti-war catchphrases at Woodstock.

Today, as Will observes, the US ''is near a semi-McGovern moment''.  Polling evidence shows that Americans are less interested in foreign policy than at any time since the 1930s.

Yet although Australians have been closely following this presidential race, we have failed to catch the emerging bipartisan consensus about America's place in the world.  While the US will remain the most formidable presence on the global stage for the foreseeable future, the days of a Pax Americana are fading fast.

Whereas in 2004 one presidential adviser declared ''We are an empire now, and when we act we create our own reality'', these days a presidential aide talks about America ''leading from behind''.  According to this new doctrine, the phrase reflects the reality that the US lacks the power to impose its will and leadership across a more plural world.

The response from left to right has been hostile:  the New York Times' Maureen Dowd lamented ''it sounds rather pathetic'' while Fox News' Charles Krauthammer complained it's ''not leading;  it's abdicating''.

But the argument is less foolish than the reaction it provoked.  The message is not that passivity is a foreign policy virtue.  It is that, depending on the circumstances and the nature of US interests, it is sometimes appropriate for Washington to pursue a more cautious and multilateral foreign policy.

That is a defensible, even sensible world view, especially at a time when the necessary economic resources for a policy of US global leadership are not available.

Next week's close election race reflects a highly polarised and deeply divided nation.  But there's one issue on which a broad consensus is developing:  the call to reorder US priorities in favour of domestic affairs and pursue a more prudent and discriminating world role.

As Romney said last week:  ''We don't want another Iraq, we don't want another Afghanistan''.  To the extent that such attitudes prevail, they reflect the spirit of George McGovern.

Destroy! Gillard Government goes all Dalek on charities

As Christmas approaches, many Australians will be planning to donate to charity.

Few would realise, however, the incredible damage the Gillard government is about to unleash on the sector with the advent of the Australian Charities and Not-for-Profits Commission (ACNC), expected at some point before the end of the year.

The ACNC will force charities to adhere to a raft of new tax and compliance requirements, dissuade people from becoming involved with charities and turn people off from donating.

There are 600,000 not-for-profit entities (NFPs) in Australia of which approximately 56,000 are charities.  In relative growth terms, the NFP sector is second only to mining.  Clearly, charities in Australia are big business.

In May 2011, the government announced $53.6m in funding for a ''one-stop-shop'' for the ''support and regulation'' of the NFP sector to replace the various arrangements in place in each state and territory and federally with the Australian Taxation Office.

It's admirable for the government to cut the red tape and make things easier for charities — but that's not what they're doing.

The ACNC will force many charities to submit ''Annual Information Statements'' for the first time.  They will have to give the government detailed information about their activities, operations and volunteers.  And more charities will be compelled to notify the ACNC if they make changes to their board of directors or amend their constitution.

The cost to charities of this will be huge.  The Baptist Ministries initially estimated that the ACNC would cost Baptist churches across Australia an extra $1 million on compliance.

So far only South Australia has announced that they will be amending their current arrangements to fit in with the ACNC.  Far from creating a one stop shop, all the ACNC has done is whack another layer of regulation on charities.

The ACNC will also ramp up the penalties for when things go wrong.  Australians currently donate $14.6 billion in volunteer time every year to charities.  The ACNC legislation proposes that volunteer board members could be held personally liable in cases of management malpractice and will introduce exorbitant fines as penalties.

Indeed, the potential penalties faced by volunteer board members of charities is greater than a director of a normal business in many cases.

These measures won't stop people from doing the wrong thing.  They will simply discourage people from becoming involved in charities in the first place.

And the ACNC will force charities to submit increased levels of information about their donors which can be made publicly available at the discretion of the Commissioner.

Whilst the level of detail of information required is yet to be made public, the fact that individuals may well be forcibly identified to the government and publicly ''outed'' against their will only serve to prevent many from giving at all.

Of course, it's also a gross violation of a person's right to privacy for details about their private donations to be handed over to the government.

Apart from the damage the ACNC will do to charities, and the bungling over the issue of getting the states and territories on board, the government's communication with the sector over the proposals has been appalling.

To take one example, the government will be increasing taxation to the earnings of NFPs that are deemed to be ''non-altruistic''.  It is yet to be communicated to charities what is considered non-altruistic and what is not.  To make matters worse, this increased taxation will be applied retrospectively.  As in, right now.

Indeed, the sector is currently in the farcical situation of operating under a taxation framework that is yet to be finalised and certainly yet to be communicated.

The ACNC is one of the worst examples of government involving itself where it is not needed or wanted.  Far from making things easier for charities, the ACNC will make things harder and more expensive.  Charities should be left to get on with serving those in need, not the government.

ADVERTISEMENT

BA humbug, Mr Swan

Only someone with an arts degree would try the sort of stunts Wayne Swan has attempted.

The Treasurer, with his Bachelor of Arts (Hons) from the University of Queensland, has decided that tax increases are to be officially called ''budget savings''.

The much-admired French literary theorists Jacques Derrida and Michel Foucault would have been proud of the country's Treasurer.  For Derrida and Foucault the meaning of a word is entirely subjective, so it is irrelevant that 99 per cent of adult speakers of the English language in Australia understand ''budget savings'' and ''higher taxes'' as two entirely different things.

As anyone who has studied English literature at a university would know, Swan's own personal definition of ''budget savings'' is no less valid than anyone else's definition of ''budget savings''.

Only someone with an arts degree would implement something like the mining tax that has wrecked Australia's international reputation as a stable investment destination yet hasn't raised a cent of revenue.

And only someone with an arts degree and who has no experience of business would establish a ''Business Tax Working Group'' that had on it a representative of the Australian Council of Trade Unions.  It's no wonder it broke up in acrimony on Wednesday.

This story of Wayne Swan is typical of the contribution that arts graduates have been making to this country since the 1960s.  The editors of the Macquarie Dictionary  are probably arts graduates, too.  Only people who were once arts students would change the accepted definition of ''misogyny'' to suit the political purposes of a Labor prime minister.

Most arts and humanities courses as taught in Australia's universities these days are a waste of the students' time and a waste of taxpayer funds.  The Marxist-inspired theories of knowledge, language and learning that together go under the name of ''critical theory'' have infected every aspect of the humanities.  Students now endure deciphering sentences like this one from Derrida:  ''But because me and myself, as you no doubt are well aware ... are going to die, my relation — and yours too — to the event of this text ... is that of a structurally posthumous necessity.''

On average arts graduates earn less than other university graduates and have less chance of finding a job.  Last year 76 per cent of all university graduates with a bachelor degree who wanted a full-time job had found one within four months of finishing their course.  The comparable figure for arts graduates was 64 per cent.

Students are turning their backs on the humanities as they realise what they're being taught doesn't broaden their minds and doesn't prepare them for employment.  A law degree is now what an arts degree once was.  At least law requires students to write coherent sentences.  Thirty years ago Australia had 12 law schools.  Now it has 30.  Not all of this growth in law can be attributed, though, to the decline in the quality of arts degrees.  Once upon a time if a young person wanted to change the world, they aspired to be a democratically elected politician.  Today to change the world you become a lawyer.

In response to dropping enrolments, universities across the country are cutting subjects and staff in arts faculties.  In Melbourne's The Age  last week, the cuts to arts faculties were described as a threat to the health of our democracy.  If arts faculties were doing what they once did, namely introducing students to the greatest thinking of Western civilisation, such criticism might be valid.  But that's not what they do any more.  Now arts faculties teach about structurally posthumous necessities.

The health of Australian democracy should not be measured by the number of students enrolled in gender studies.

In his An Enquiry Concerning Human Understanding  published in 1748, David Hume described the work of a certain species of philosopher.  What he said could apply to the academics in the humanities in Australia in 2012.

''Though their speculations seem abstract, and even unintelligible to common readers, they aim at the approbation of the learned and the wise;  and think themselves sufficiently compensated for the labour of their whole lives, if they can discover some hidden truths, which may contribute to the instruction of posterity.''

The pity is that the majority who teach humanities at Australian universities are a long way from discovering any hidden truths or making a contribution to the instruction of posterity.

Instead arts faculties produce treasurers like Wayne Swan.

ADVERTISEMENT

Good mail on privatisation

The Gillard government has urged states to sell their electricity assets, but at the same time has left privatisation of its own assets off the reform table.

While the general public impression may be that all the federal government's ''family silver'' has been sold off, the privatisation lull since the early 2000s has meant some entities which would be more efficiently operated in private hands remain firmly under government control.

One of the remaining candidates for privatisation is Australia Post.

In similar fashion to government postal services in other countries, Australia Post is being squeezed in regard to both the revenue and cost aspects of its operations.

Technological developments such as the internet and mobile phones have meant that the use of letters as a mode of communication has waned significantly, eating away at a traditional source of revenue for Australia Post.

The latest figures show that Australia Post has lost about $91 million through the exclusive ''reserve service'' requirement imposed by the government to deliver letters within Australia and from overseas to Australian addresses.

The organisation is also labour intensive, which is not altogether surprising given another regulatory requirement by government that it physically provides weekday deliveries to most Australians, and maintains 4,000 odd postal outlets including a mandatory share in rural and regional areas.

But with its highly unionised workforce prone to strike action opportunities to use labour-saving technologies, such as vending machines for standard letters or Express Post envelopes, have not been fully exploited.

Australia Post appears to be holding its own in the competitive market for parcel deliveries, thanks to a boom in online retailing not of its own making, however its responses to the fall in letters have starkly illustrated that it remains an inefficient, unresponsive government entity.

Very soon Australia Post will party like it's 1996 because it will launch, wait for it, a ''Digital Mailbox'' service in which people receive email, pay bills and store documents in one online location.

Even those with a cursory knowledge of the internet know that Hotmail (which was launched in 1996), banks, telephone companies and other private concerns already provide such services, raising questions about the inherent wisdom of a government-owned entity duplicating that which already exists.

There has also been speculation in recent years that Australia Post wish to move more deeply into the financial services arena, a field in which governments in the past have had poor management records.

Australia is grouped together with a small cohort of countries that have engaged in partial liberalisation of postal services during the 1980s and 1990s.

In 1989 the Hawke government enacted the Australian Postal Corporation Act, which ''corporatised'' Australia Post entailing that the organisation would be subject to general taxation and regulatory requirements similar to those facing private sector businesses.

The objective of corporation was to improve Australia Post's efficiency by enforcing it to act ''as if'' it were a private entity whilst remaining under government ownership, with the Communications Minister being Australia Post's sole ''shareholder''.

The Act, and subsequent legislative developments, reduced the degree of exclusive monopoly rights held by Australia Post in the distribution of heavy-weight letters and parcels helping to enhance the growth of private courier services.

These measures were steps in the right direction, however other countries have proceeded further down the road of postal services liberalisation.

In countries such as Germany, Malaysia and the Netherlands the government post offices have been either partially or completely privatised, mainly through the public offerings of shares.

The monopolistic rights accorded to government post operators to carry letters have also been abolished entirely in several countries, including Germany, New Zealand and Sweden.

Australia should follow the path of the postal reform pathbreakers to improve the efficiency of the presently government-owned postal carrier, and deepen postal and courier services markets.

At the very least Australia Post should be fully privatised, and could be expected to perform effectively as a private operator given that it has existed for almost a quarter-century on the ''training wheels'' of corporatisation.

What of the community service obligations applicable to the carriage of letters and physical services accessibility?

One option could be that the government sell off the rights to a bidding company to deliver the CSO arrangements for a fixed term on a least cost basis.

However in a country characterised by ever-increasing access to internet services, such as email and online bill paying facilities, and greater private sector competition there is a case to further liberalise the regulatory requirements entailed under the CSO.

About a decade ago the Howard government proposed that private companies could charge market rates for the delivery of letters weighing between 50 and 250 grams, a reform not implemented due to political considerations.

The government's ''no privatisation'' stance is lamentable, as it deprives consumers of the potential benefits provided by the realisation of private sector efficiencies.

And in the short term to not privatise government assets also deprives the government of financing options to plug its yawning budget deficit gap.

But with the radical innovations witnessed in communications markets over the last two decades, no sound rationale remains for the government provision of increasingly antiquated letter and small parcel postal services.

There is still some lucrative low hanging fruit of prospective privatisation ripe to pick;  it is time for the government to pick it.

ADVERTISEMENT

The puritanical public health movement

For eight weeks in 2011, four public health researchers — three from the Cancer Council, one from the University of Western Australia — watched 792 music videos aired on Australian television.  They recorded all the mentions of alcohol, tobacco or illegal drugs.

The results were published in the journal Alcohol and Alcoholism in September this year.  About one-third of the music videos referenced drugs.  The vast majority of those references were to alcohol.

Here the full horror is unveiled:  ''references to alcohol generally associated it with fun and humour''.  Only 7 per cent of the music videos that referred to booze presented alcohol in a neutral or negative light.

The paper argued music videos mentioning alcohol positively should be classified differently and regulated out of the morning timeslot.

But more broadly, the implicit claim of this research is there is something wrong with our culture:  not just ''the culture of drinking'', but culture in general.

Society associates alcohol consumption with fun, humour and celebration.  According to the researchers, that association is ''insidious''.  One might add:  pretty accurate.

This minor paper tells us a lot about the spreading ambition of public health activism.

The modern field of public health started with campaigns against ignorance.  Educational programs were designed to inform the citizenry of the health consequences of their choices.  The messages were simple.  Smoking is bad for you.  Keep fit.  Eat more vegetables.

Such benign information provision is a thing of the past.  Now public health is a great social project.  It desires nothing more than a complete rewiring of our preferences and a rewiring of the culture which it assumes formed them.

It's not just that the study of public health is deeply paternalistic and patronising.  Nanny state accusations have pursued the field for decades.  And no wonder:  the Rudd government's Preventative Health Taskforce even recommended the Government regulate the portion size of restaurant food.

But nanny state doesn't quite capture it.  Public health is an imperial discipline, dragging in everything from cultural studies to urban planning.  And it does so all in the service of an increasingly ambitious program to reshape society and prioritise health above all other moral values.

Take the most fashionable adjective in public health right now:  ''obesogenic''.  This pseudo-medical term describes an environment — usually physical, but sometimes social and cultural — which encourages over-eating and under-exercising.

Under the obesogenic flag, public health activists seek to colonise debates over housing sprawl, economic policy, public transport, childcare, house size, telecommuting, infrastructure spending, consumerism, and sustainability.  Even law and order has been dragged into the public health domain:  high crime rates mean parents don't let their child walk to school which means those children get fat.

Here public health becomes less a medical concern and more an umbrella social critique.  As one book, Obesogenic Environments, puts it, obesity is first and foremost a social problem.  Certain obesity-encouraging practices have become culturally embedded.  We eat out more.  We drive instead of walk.  It is the self-appointed task of public health activists to change those embedded practices;  that is, ''promote healthier choices''.  Town planning has to change.  Tax policy has to change.  Infrastructure spending has to be reprioritised.  Our preferences have to be redirected.

With its grand social crusade, the public health movement has come full circle.

Temperance activists in the late nineteenth and twentieth century talked as much about social practices as alcohol consumption.  The major American temperance lobby was called the Anti-Saloon League.  Saloons weren't just bad because they were where the drinking happened.  They kept men away from their families, and encouraged other sinful behaviour.

In Australia temperance activists lashed out at everything.  In 1896 the South Australian politician King O'Malley described barmaids as ''the polished fangs of the stagger-juice rattlesnake ... angels of mercy luring men to their own destruction''.  Several states banned barmaids.  One major avenue for female employment — and the economic independence it brought — was closed.  Poor old barmaids were merely collateral damage for the monomaniacs obsessed with stamping out booze.

In the same way, today's public health movement is willing to jettison many other values in its quest to rewire society.

The hard-won conveniences of modern life — cars, restaurants — are obstacles to a better world.  Popular culture is ''insidious'', simply because it reflects our own beliefs back at us.  Choosing what we eat and drink is not a right, it is a prison.

Public health is groping towards a full-blown political philosophy.  Sure, it speaks the language of medicine.  But it is more ambitious and vague than that modest field.  The paper on music videos is a ham-fisted attempt to give cultural studies a scientific patina.

Like the puritans of the past, the public health movement is flailing against a society and economy it believes is deeply unwell.

ADVERTISEMENT

Timing is everything: making sense of Swan's corporate tax shake-up

One of the more contentious issues in the 2012-13 Mid-Year Economic and Fiscal Outlook (MYEFO) is a tax-timing change.  Corporate income tax will be paid monthly instead of quarterly for very large corporations (with $1 billion or greater in annual turnover) after January 2014, and then phased in for smaller corporations (with annual turnover greater than $20 million).

The important point to remember is that this change has no impact on the 2012-13 budget outcome.  The question is whether this is a reform well worth undertaking anyway.

The government is very careful to tell us that ''this measure is estimated to raise $8.3 billion on an underlying cash basis over four years''.  That may sound like a lot of money, but the government expects to raise about $317 billion in corporate income tax over the same four-year period.  The next thing to note is that this is a cash-basis analysis.  The corporate sector will not pay any more money to the government;  it will just pay some money earlier and not later.

This matters because the government faces timing problems.  $5.5 billion of the $8.3 billion gets paid in 2013-14, pushing the budget into surplus for that year.  That is if everything else goes to plan.  That the 2013-14 budget is a surplus only due to a timing change indicates trouble.  Revenue from this reform declines quite rapidly after that — timing issues are always about swings and roundabouts.  In that sense, this is a very cynical reform as it shores up the 2013-14 budget — coincidentally, also an election year.

The cost to the private sector will be two-fold.  First, the increased compliance costs associated with remitting money to the government will increase.  Rather than paying once every three months, corporates will have to pay every month.  The government has undertaken to consult with the business community prior to implementation, but will have to lift its game after the Resource Super Profits Tax experience.

The second cost is the opportunity cost of paying early.  That money could either be invested or used for working capital purposes.  In other words, the government will be draining $5.5 billion from the corporate sector in 2014 — more precisely the first half of 2014.  The overall effect of reducing working capital by that amount isn't clear to me, but that money will have to be found elsewhere and financed at the corporate cost of capital, rather than at the current risk-free rate.  For the economy as a whole, cheap finance will be replaced by more expensive finance and the additional cost will be borne by workers, consumers, and shareholders.

Over time, the government won't get any more money from this reform, but it will impose some cost on the economy.  That doesn't necessarily make it a bad reform.  Yet the MYEFO doesn't make the case that this is a good reform either.  All we are told is that some other countries do this too (Canada and Sweden, for example), and it will more closely align income tax payments to income, as income is earned daily while tax is paid quarterly.

It is understandable that the government would like to receive its money sooner rather than later — but at what cost?

It is not clear that there are too many economic benefits to monthly tax payments — a budget surplus on the back of a timing fiddle is a budget in trouble — while there are costs associated with this change.  Right now, there isn't enough detail or analysis to support this reform — it is up the government to make a case.  The important trade-off relates to the effective tax subsidy corporations enjoy relative to the compliance and tax-collection costs business has to bear.  When the government can provide information as to that trade-off only then will we have enough information as to the merits, or otherwise, of this reform.

ADVERTISEMENT

Stay tuned for the red underpants theory of bad TV

Occasionally, usually by accident (sometimes if they think nobody is listening) politicians say what they really believe.

''I have unfettered legal power,'' Communications Minister Stephen Conroy told an obscure conference in New York in September.  ''If I say to everyone in this room, 'If you want to bid in our spectrum auction you'd better wear red underpants on your head', I've got some news for you.  You'll be wearing them on your head.''

Conroy was clearly having a bit of fun.  But he's right.  He has complete, arbitrary and absolute control over who broadcasts on the airwaves and the circumstances in which they broadcast, and that control has been disastrous for television consumers.

Let's call this the ''red underpants'' theory of why Australian TV is so bad.  Australia seems to have completely missed the great television renaissance.  In the US and Britain, audiences are being treated to some of the most brilliant high-quality television the world has ever seen — think of everything from Mad Men to Breaking Bad to The Thick of It.

But Australian commercial TV is languishing.  The networks are producing nothing comparable to what's being made overseas.  Their biggest problem is how quickly they can show foreign programs before everybody downloads them.  This week Channel Ten announced both a full-year loss and voluntary redundancies.  Channel Nine is buried in debt and flirting with receivership.

It's easy to feel sympathy for those whose livelihoods are threatened.  It's hard to feel sympathy for the networks.  The television broadcasting industry is probably Australia's last, greatest vestige of crony capitalism.

Mr Conroy's unfettered red underpants power — and that of the communications ministers who've gone before him — has been used to protect broadcasters from competition, lock out new technologies and entrench tired business models.

Basic economics tells us that when you deliberately limit competition you lower quality.  Basic politics tells us when governments and corporations get into bed, consumers lose.

Broadcasting was a protected industry from day one.  In 1905 the Commonwealth government took absolute control over the airwaves with the Wireless Telegraphy Act.  The government had delayed passing the legislation for a few years.  It was worried that the new wireless technology would be a competitive threat to the existing telegraph cable companies.

From then on, anybody who wanted to broadcast had to apply to the government for permission.

Throughout the 20th century, politicians forged close relationships with media moguls.  Each scratched the other's back.  Politicians who played ball were treated kindly by the broadcasters.  In return, governments kept away competition and protected advertising revenue.  As one broadcasting regulator said in the 1970s, all decisions about the airwaves were ''very substantially influenced by political considerations''.

The number of radio and television stations has been strictly limited.  It is extraordinary that in 2012 we still do not have a fourth television network.

New technologies were deliberately held back.  The US had FM radio in the 1940s.  There were experiments with FM transmission in Australia in 1947.  But AM broadcasters didn't want the competition.  The government only licensed FM stations in 1974.

The delayed introduction of pay television was just as scandalous.  There were several proposals to offer Australians pay TV services in the 1970s, but it wasn't until the early 1990s the government relented.  Even then it banned pay-TV advertising for the first few years — just to keep existing free-to-air broadcasters happy.  Free-to-air television is still protected by laws that give it first dibs on the best sporting content.  Don't imagine this is done for the public's benefit.

When the government finally got around to introducing digital television — a technology that allows the broadcast of dozens more channels on the same limited spectrum — the spectrum was offered exclusively to the three existing commercial networks.  This is effectively a gift of hundreds of millions of dollars to a broadcasting cartel.

In 1959, Nobel Prize winning economist Ronald Coase proposed a way to get politics out of the airwaves.  Treat radio spectrum like property, he argued, and let broadcasters use and trade their property as they see fit.

Because a government with unfettered power to force people to wear underpants on their head also has unfettered power to make deals with its media mates against the interests of the public.

ADVERTISEMENT

Regulations that worked in 1901 do not work now

On this day in 1781 the British army in North America surrendered to George Washington at Yorktown.

Six years later an independent United States adopted the world's first modern constitution, on which Australia's 1901 Constitution was modelled.

Government regulation and taxation were the reasons behind the American colonial revolt.

Even though the taxes levied by Britain were low, the slogan ''no taxation without representation'' was persuasive.

Constitutional restraints on government — even democratic governments — are there to impede regulatory measures or tax grabs that favour some constituents at the expense of others.

But the restraints on government are not working.

In 1901 the Commonwealth spent 3 per cent of national income.

Today it taxes and spends a whopping quarter of the income that firms and individuals earn.

The Gillard Government's roll call of new and expanded taxes includes:

CARBON taxes, renewable energy requirements and spending on unbankable green schemes costing over $15 billion a year, plus a $10 billion Clean Energy Fund.

NEW taxes on mining, our most vibrant sector, now the highest in the world.

THE National Broadband Network, in which Australia is, uniquely throughout the world, reintroducing a monopoly government owned telecommunications system.

WATER buybacks in the Murray Darling that will needlessly reduce agricultural productivity.

Other big new taxpayer-slugging programs will lift schools spending, bring in a new dental care system, and raise wages for those presently on low pay in the social services sector.

On top of this spending are intensified regulatory measures.  The Commonwealth Government in 1901 had 258 pages of regulatory Acts.

Today it has more than 100,000 pages.  The Rudd/Gillard Government has introduced 20,000 regulations and regulatory changes to expand its controls over businesses and individuals.

Among the most significant are expanded environmental regulatory measures that impose high costs and project-killing delays, especially on mining and agriculture.  Recently we have seen bans on high productivity fishing trawlers.

Regulations also prevent firms from replacing unproductive employees.

That impediment on businesses apparently does not apply to the trade union movement, which is sacking supernumerary staff to focus its spending on re-electing the Gillard Government.

Regulation constraining union activity is the one area where we have seen a reduction.

The ''tough cop on the beat'' that Julia Gillard promised would replace the Australian Building and Construction Commission has proved inadequate to combat appalling conduct by picketers.

Unions are using aggressive picketing in the campaign to force firms like Grollo to hire shop steward agitators — a double whammy that makes firms pay for their own destruction.

It is an astonishing tribute to business that, in spite of government, most firms survive and some even prosper.

However, the Government's overbearing growth and support of illegitimate union activity is adding costs and suppressing opportunities for business enterprises — the only creators of sustainable jobs.

The various constitutional restraints on government that were put in place at the time of Federation have clearly failed.

Government as a regulator and spender just keeps on getting bigger.

Stagnation will be the result unless measures are taken to arrest this growth.

ADVERTISEMENT

Razor cuts, not paper cuts: A framework for rightsizing commonwealth government employment

EXECUTIVE SUMMARY

• Existing policy positions by the federal Labor government and Coalition parties to reduce public sector employment amount to nominal paper cuts, not meaningful razor cuts.
• The policies, as they currently stand, will have an insignificant effect on the overall size of commonwealth employment.
• The Labor government's budget announcement to cut about 3,100 positions this financial year is lower than the average annual level of resignations from the APS in recent years, and is not substantially greater than the number of age-related retirements.
• The Coalition's 2010 election promise of 12,000 voluntary redundancies over two years is of a similar magnitude to existing levels of natural attrition from the APS.
• That the Gillard government has ruled out any further public service employment reductions, beyond those indicated in the May 2012 Budget, to meet its significant budget shortfall is irresponsible public policy.
• There are a number of reasons why fiscally prudent and economically responsible governments should seek to reduce public sector employment to those levels consistent with performing the core roles and activities of government.
• Public sector employment is financed by distortionary taxes reducing private sector activities;  public sector employment tends to draw highly skilled labour away from private sector enterprises;  public-policy bureaucrats advise and administer taxes and regulations which compromise economic growth, whereas service delivery public employees tend to provide higher-cost, lower-efficiency services compared with their private sector counterparts.
• This paper suggests an alternative framework of public sector employment reductions, ensuring that the subsequent roles and activities of government and the resulting labour requirements are consistent with hampering economic development to the least extent possible.
• A number of commonwealth government entities could be abolished, privatised, or transferred to state governments, with results for public sector employment reductions in most cases greatly exceeding those presented by the two major parties.
• For example, privatising the ABC, Australia Post, Medibank Private and SBS alone would transfer 44,200 employees to the private sector — an amount 15 times greater than the Gillard government's proposed 3,100 APS staff reductions for this financial year.

---

INTRODUCTION

In recent years a highly partisan debate has emerged concerning the feasibility of reducing the numbers of Australian Public Service (APS) personnel, as part of broader fiscal consolidation efforts at the commonwealth government level.

During the 2010 election campaign the Liberal Nationals Coalition announced a freeze on public sector recruitment, which amounted to a reduction in public service numbers by 12,000 employees over a two-year period through natural attrition.

Despite indications by the former Prime Minister Kevin Rudd prior to the 2007 election to apply a "meat axe" to the administrative structures of the commonwealth public sector, the Labor government and the Community and Public Sector Union (CPSU) has since opposed any proposals to reduce APS numbers at least through deliberate policy design.  Further, they have depicted the Coalition's proposals as "draconian" in that they will supposedly affect the provision of services to the general public.

The purpose of this paper is to assess the efficacy of alternative proposals to reduce commonwealth public sector employment.

The next section will profile the evolution of the APS, including growth in the numbers of people employed by the commonwealth and its staffing composition.  This is followed by an intellectual assessment of the case to streamline public sector employment, or at least restrain employment by government at a parsimonious level.

Next, existing policy approaches to reduce commonwealth government employment offered by the two major political parties will be examined, as will an alternative approach relying upon the assessment of appropriate functions and constitutional responsibilities of the commonwealth.

In conclusion the main thesis of this paper is that there is scope to substantially reduce the size of the commonwealth government APS, as part of a generalised program of fiscal consolidation.

---

A PROFILE OF THE COMMONWEALTH GOVERNMENT PUBLIC SERVICE

Who is a commonwealth public servant?

Since its humble beginnings in 1901, in which Sir Robert Garran (Secretary, Attorney-General's Department, and parliamentary draftsman) was for six or so months the sole public servant employed by the commonwealth, the commonwealth public sector has assumed an increasing array of roles, responsibilities and functions.  These include the maintenance of the machinery of commonwealth government, delivering policy advice to Ministers, administering regulations, taxation and expenditure programs, and providing certain public services to, or on behalf of, the Australian population.

While public sector workers employed by the commonwealth are engaged in numerous activities, and the numbers of workers unquestionably large in aggregate number, there are numerous legislative definitions as to what actually constitutes a commonwealth public sector worker.

The Public Service Act 1999 (PSA) specifies the terms and conditions of employment applicable to the largest single bloc of commonwealth government employees, i.e. those employed by the core departments, executive agencies and statutory agencies comprising the APS.  In turn, the APS consists of agency heads (for example, a Secretary of a department) and non-agency head employees (including within the Senior Executive Service) engaged on an ongoing or non-ongoing basis.

The employment of staff by the commonwealth is not limited to the PSA, with employees of various other statutory agencies and other bodies employed under entity-specific or function-specific legislation.  For example, defence force personnel are employed under the Defence Act 1903 and Reserve Bank employees are employed under the Reserve Bank Act 1959, while members of parliament staff are employed under the Members of Parliament (Staff) Act 1984 (MoPS).

The provisions of the Constitution also enable the government to directly appoint personnel.  According to Section 67, "until the Parliament otherwise provides, the appointment and removal of all other officers of the Executive Government of the Commonwealth shall be vested in the Governor-General in Council, unless the appointment is delegated by the Governor-General in Council or by a law of the Commonwealth to some other authority."

Until 1903 this provision represented the sole means by which commonwealth public servants were appointed, but has been rarely used since.  In June 2011, the government controversially appointed former Treasury Secretary Ken Henry as a part-time Special Advisor under Section 67 of the Constitution and outside the provisions of the PSA.

How many commonwealth public servants are there?

In addition to the varied legal definition as to who constitutes an employee of the commonwealth government, there exist numerous statistical sources with different methodologies used to estimate the size of commonwealth public sector employment.

Figure 1 provides a time series of civilian commonwealth public sector employment from 1901. ⁽¹⁾  While the data are derived from various sources, they are relatively consistent in that they capture staff numbers working under the PSA as well as under legislation pertaining to employment within commonwealth government trading enterprises.

Figure 1:  Commonwealth government civilian employment, 1901 to 2011

Head count of commonwealth total public sector employment, excluding defence force personnel and employees based overseas.

Source:  Alan Barnard, Noel G Butlin and Jonathon J Pincus, 1977, "Public and Private Sector Employment in Australia, 1901-1974", Australian Economic Review 10 (1):  43-52;  R A Foster, 1996, Australian Economic Statistics:  1949-1950 to 1994-95, Occasional Paper No. 8, RBA, Sydney;  Australian Bureau of Statistics, Wage and Salary Earners, Public Sector, Australia, cat. no. 6248.0.55.001;  Australian Bureau of Statistics, Employment and Earnings, Public Sector, Australia, cat. no. 6248.0.55.002.

During the first two decades of Federation the commonwealth government gradually increased its level of employment, including as a consequence of the gradual transfer of former colonial public servants to the commonwealth.  New government departments were established during this period, including the Prime Minister's (1911), Health (1921) and Commerce (1925), ⁽²⁾ with implications for future changes in the economically and socially interventionist roles undertaken by the commonwealth government.

As a part of its policy response to the Great Depression, the commonwealth government reduced its aggregate employment from about 53,900 in 1929 to about 47,700 in 1931.  This reduction in employment was a component of a broader plan agreed to by commonwealth and state governments to reduce government expenditures by 20 per cent (excluding some welfare payments), which had been subsequently credited as an important ingredient in Australia's relatively fast transition to economic recovery compared with other advanced countries.

The Depression-era trend of public sector employment reductions were reversed a decade later, with the total number of people employed by the commonwealth government increasing significantly from about 70,000 employees in 1939 to 192,000 in 1945.

This growth trend was due, in no small part, to the establishment of new departments and functions (including price and labour controls) specifically associated with the war effort, or created in response to perceived national post-war priorities such as post-war reconstruction, national development and social services, and the consequent hiring of additional personnel that such changes in public administration entailed.

The significant war-time upsurge in the numbers of commonwealth public sector workers can also be attributed to the centralisation of powers from the states to the commonwealth.  Some 2,800 state income tax employees from NSW, Victoria, Queensland, South Australia and Tasmania were transferred to the Australian Taxation Office, while state public servants administering unemployment and labour market programs were transferred to the Commonwealth Employment Service.

During the year immediately following World War II the total numbers of civilian commonwealth government employees declined by about 22 per cent, including as war-time regulatory controls over the economy and society were relaxed, however aggregate commonwealth employment once again increased slightly during the late 1940s.

As part of the 1950-51 "Wool Boom" anti-inflationary budget, the Menzies government reduced PSA employment by some 14,200 people.  This included specific reductions for the Departments of National Development and Labour and National Service, and a general staff reduction (excluding Defence) elsewhere of five per cent. ⁽³⁾  Since that period and through the 1960s, however, the commonwealth public sector continued its inexorable increase in employment.

During the Whitlam era, public sector employment increased by about 52,400 people to a total of 398,700 in 1975.  Many of these changes were induced by an expansion in the size and scope of commonwealth government expenditure functions including, but not limited to, the areas of welfare and social services, tertiary education, infrastructure, regional policy and local government.

Barring a temporary reduction in aggregate employment in 1977, and despite instigating a Royal Commission into commonwealth public administration, the employment increases instigated by Whitlam were largely left untouched by the Fraser government.

During the first two terms of the Hawke-Keating government public sector employment continued to expand, and significantly so during the 1980s, as a consequence of the continued expansion in the scope of government functions including in the areas of environmental policy and economic and social regulations.

In an effort to reduce commonwealth public sector debt and induce greater efficiencies concerning the provision of services, the Hawke and Keating Labor governments undertook asset sales in financial services, telecommunications, and air and rail transport from the late 1980s until the mid-1990s.  As a consequence of the privatisation policy there was a substantial reduction in the number of workers classified by commonwealth public sector employees.

Faced with a significant structural budget deficit and high levels of public sector indebtedness bequeathed by its predecessor, the Howard government sought to rein in the commonwealth government's expenditure commitments.

Key elements of the Howard strategy included the continuation of a program of privatisation, most prominently with respect to Telstra, as well as reducing APS size including through the outsourcing of government activities (including all functions undertaken by the Department of Administrative Services) to the private sector.  As a consequence of the Howard government's policies, total commonwealth public sector employment fell from about 354,800 in 1996 to a low of 243,600 in 2003.

However, these reductions in public sector employment at the commonwealth level have not been sustained.  Over the last few years of the Howard government, and during the two terms of the Rudd-Gillard governments to date, the total number of employees engaged by the commonwealth has increased to about 251,400 people in 2011.

Commonwealth public sector employment trends in absolute terms since 1901 are broadly mirrored in terms of employment as a share of both total and working age (15-64 years) populations (Figure 2).  Since the late 1980s there has been a significant reduction in the ratios of commonwealth employees to total population and the working age population, reversing the trend increases of previous decades.

Figure 2:  Commonwealth government civilian employment as a share of total population and working age population, 1901 to 2011

Head count of commonwealth total public sector employment, excluding defence force personnel and employees based overseas.

Source:  Alan Barnard, Noel G Butlin and Jonathon J Pincus, 1977, "Public and Private Sector Employment in Australia, 1901-1974", Australian Economic Review 10 (1):  43-52;  R A Foster, 1996, Australian Economic Statistics:  1949-1950 to 1994-95, Occasional Paper No. 8, RBA, Sydney;  Australian Bureau of Statistics, Wage and Salary Earners, Public Sector, Australia, cat. no. 6248.0.55.001;  Australian Bureau of Statistics, Employment and Earnings, Public Sector, Australia, cat. no. 6248.0.55.002.

Alternative statistical sources provide information on shorter term commonwealth public sector employment trends with varying degrees of coverage (Figure 3).

The Australian Public Service Commission (APSC) provides head count statistics on commonwealth employees covered by the PSA, while statistics available in the government's annual budget papers provide details of average staffing levels (effectively full-time equivalents) of staff in the general government sector (including statutory authorities).  The ABS data entails a head count employment levels of all entities that report to parliament, including those covered under the Commonwealth Authorities and Companies Act 1997.  The APSC and ABS data exclude information on defence force personnel trends. ⁽⁴⁾

Figure 3:  Commonwealth government employment, 1990 to 2013

ABS provides head count data on employment of all commonwealth government entities reporting to parliament, excluding defence force personnel and employees based overseas.  APSC provides head count statistics on employees covered by the Public Service Act, excluding defence force personnel.  Budget paper statistics provide average staffing level data on general government sector employment, including defence force personnel.

Source:  Australian Bureau of Statistics, Wage and Salary Earners, Public Sector, Australia, cat. no. 6248.0.55.001;  Australian Bureau of Statistics, Employment and Earnings, Public Sector, Australia, cat. no. 6248.0.55.002;  Australian Public Service Commission, APS Statistical Bulletin, various years;  Commonwealth of Australia, Budget Papers, various years.

Each of the three data series indicate that, since 2001, commonwealth public sector employment has grown on an average annual basis in the order of 3.3 and 3.4 per cent, whereas the ABS indicates a much more modest increase of 0.1 per cent per annum.

One reason for the smaller growth rate recorded by the ABS statistics is that its broad coverage of employment captures the effects of Howard-era reductions in public sector employment, which mainly affected entities outside of the APS.

In other words, the APSC and budget paper data implies that the employment reductions during the 1990s and early 2000s reform era affected PSA or general government sector employees to a much smaller extent than it did total commonwealth government employees as a whole, especially those working within government trading enterprises.

The budget papers also provide estimates of average staffing levels in the commonwealth general government sector for the coming financial year.  As will be discussed in further detail below, the proposed reductions in general government sector staffing by the Gillard government for 2012-13 will have a negligible impact on overall employment size.

An examination of employment structure by the APS entity reveals a "long tail" of small employers, primarily statutory agencies with regulatory powers (Figure 4).  In June 2011 there were 58 of these smaller agencies each employing less than 500 staff, cumulatively employing over 9,600 full- and part-time personnel.

On the other hand, commonwealth government entities specifically involved in welfare, tax and warfare — Centrelink, the Australian Taxation Office, and Department of Defence, respectively — each employed over 22,000 people.  These three agencies alone accounted for about 43 per cent of aggregate APS staffing levels in 2011.

Figure 4:  Distribution of Australian Public Service staff by agency, 2011

Data as at 30 June 2011.  Including ongoing and non-ongoing staff working on a full-time or part-time basis.

Source:  Australian Public Service Commission, APS Statistical Bulletin, 2010-11.

It is possible to disaggregate information on PSA employment by employment classification, with staff at levels between APS 1 to 6 representing the lowest strands of employment classification with staff accorded little or no managerial responsibilities (at least in larger offices), Executive Level (EL) staff representing middle management (including sectional heads within departments), and Senior Executive Service (SES) staff representing senior management.

Figure 5 illustrates changes in the relative shares of these employment classifications over the past two decades.  The relative share of APS 1-6 level staff has declined from about 83 per cent of total PSA staffing in 1991 to 71 per cent in 2011, reflecting in part the contracting out of certain lines of work to the private sector, whereas the share of SES level staff have increased marginally from about one to about two per cent over the same period.

The greatest source of growth by employment classification has been within the EL 1 and 2 middle management bands, increasing from about 13 per cent of total PSA staff in 1991 to about 26 per cent in 2011.  The trend increase in EL1 and EL2 employment had been maintained even during the first two terms of the Howard government, in which total PSA employment fell from about 128,700 in 1996 to 108,700 in 2001.

Figure 5:  Australian Public Service employment, staff by employment classification as share of total, 1991 to 2011

Data expressed as share of total employment of ongoing staff.  Total includes graduates, trainees and other staff.

Source:  Australian Public Service Commission, APS Statistical Bulletin, various years.

Reflecting broader trends in Australian society, the APS is ageing with growth in the relative representation of staff aged 45 and over within the overall staffing mix (Figure 6).

Figure 6:  Age composition of Australian Public Service Staff, 1991 to 2011

Data refers to ongoing staff.

Source:  Australian Public Service Commission, APS Statistical Bulletin, various years.

The most significant growth in APS employment, by age cohort, has been exhibited amongst those aged between 50 and 54, below the minimum age of 55 years at which APS personnel may receive superannuation benefits under the Commonwealth Superannuation or Public Sector Superannuation Schemes.

By contrast, since 1991 there have been relative declines in the share of APS employment of those aged less than 45 years.  In particular the numbers of people aged in their twenties working in the APS on an ongoing basis has declined by an average of six per cent over the period, even though these declines have been largely arrested since 2000.

Another characteristic feature of the APS is its increasing feminisation, particularly since 2000 when the female-to-employment ratio within the APS exceeded the male ratio (Figure 7).

Figure 7:  Gender composition of Australian Public Service, 1991 to 2011

Data refers to ongoing staff, including graduates, trainees and other staff.

Source:  Australian Public Service Commission, APS Statistical Bulletin, various years.

In addition to people directly employed by the commonwealth government in accordance with specific public employment or administrative legislation, a variety of functions including policy advisory services are outsourced to contracted private sector service providers.  Some of these providers depend upon commonwealth government funding for their main source of income, raising questions about the true extent of their operational autonomy from the state.

A recent investigation found that more than $500 million per annum has been spent on about 18,000 contracts awarded by the commonwealth government over the past four years.  Consultancy firms KPMG, PricewaterhouseCoopers and Ernst & Young collectively received contracts from 2008 to 2011 valued at about $220 million. ⁽⁵⁾

In addition to selective purchaser-provider arrangements, governments have also fostered the creation of subsidised and regulated "quasi-markets" entailing significant service delivery functions undertaken by private sector organisations.

An example of this was the establishment of Job Services Australia (formerly the Job Network) by the Howard government in 1998, in which private, non-profit and government organisations are contracted by the commonwealth government to provide various employment services and labour market programs, including for the unemployed.

Private sector enterprises and other non-government organisations also tend to be encumbered by governmental regulations ensuring that government objectives are satisfied without recourse to explicit public funding.

The fiscal burden of commonwealth public sector employment, totalling some $28 billion in 2010-11, ⁽⁶⁾ reflects a combination of the total numbers of employees engaged by government and the salaries and other benefits accorded to employees.  While there exists a wide array of pecuniary entitlements allocated to public sector workers, the remuneration accorded to employees within the upper echelons of the commonwealth public service are significantly greater than the average remuneration earned by private sector employees (Box 1).

Box 1:  Salaries and benefits for the commonwealth public sector "top one per cent" The entitlements provided to the head of commonwealth public sector departments and agencies, and for those working within the APS Senior Executive Service (SES), are well in excess of average earnings provided within the private sector. Figure 8 compares the salaries of employees situated in the highest pay band in the Senior Executive Service with private sector total earnings, averaged across each year, from 1901 to 2011. While the gap between SES and private sector earnings has closed in the long run, since the mid-1990s the gap has tended to increase as governments increasingly use remuneration as a mechanism to draw private sector executives to the public sector, or to prevent public sector senior officers exiting to the private sector. Figure 8:  Average earnings for APS Senior Executive Service and private sector employees Another indicator of the sectoral pay discrepancy is provided by a comparison of remuneration received by selected department or agency heads against total average earnings in the private sector for 2010-11.  Figure 9 expresses the total remuneration package of selected heads of commonwealth government entities as a multiple of total private sector average earnings. Figure 9:  Total remuneration of commonwealth department/agency head as multiple of total average private sector earnings In recent years considerable foment within the Australian community has been generated concerning top private sector remuneration. The remuneration packages of senior private sector personnel whose enterprises are shielded from market competition through subsidies (and specific tax breaks) or regulation ought to be the subject of external scrutiny.  However, some of this community agitation has been misdirected against the salaries and other entitlements received by employees of other private sector entities who do not receive government fiscal or regulatory favours and, hence, should not represent the subject of community concern. On the other hand, the taxpaying public is entitled to scrutinise the level and distribution of public sector employee entitlements given that they are forced by government to finance such payments. With growing concerns that top public sector remuneration is growing out of line with community expectations, a combination of payment growth caps and absolute reductions in public sector employment will be necessary to ensure that the overall fiscal burdens of commonwealth public sector employment are appropriately constrained. Source:  Australian Bureau of Statistics, Average Weekly Earnings Australia, cat. no. 6302.0;  Australian Public Service Commission, Remuneration Survey, various years;  A B Atkinson and Andrew Leigh, 2006, "The Distribution of Top Incomes in Australia", Australian National University, Centre for Economic Policy Research, Discussion Paper No. 514;  Anthony Sibillin, 2011, "Top public servants in pay bonanza", The Australian Financial Review, 17 October, 2012

---

RIGHTSIZING THE PUBLIC SERVICE:  WHY IS IT NECESSARY?  WHERE CAN STAFF REDUCTIONS BE FOUND?

The rationale for public sector employment reductions

Most classical liberal scholars acknowledge that some level of public sector administration is indispensable for a functioning system of constitutional government under the rule of law.  Indeed, a competent and professional bureaucracy is necessary to help ensure provision of those limited set of tax-financed goods and services, primarily associated with the tasks of ensuring protection of life, limb and property, which cannot be provided through competitive private markets guided by profit-and-loss mechanisms.

This idea was perhaps best explained in the writings of Austrian economist Ludwig von Mises.  In his important, albeit little-known, work titled Bureaucracy, Mises explained the rationale for public sector employment lies in the inherent distinction between bureaucratic and profit managements in the economic and social domain:

'[t]here are areas of man's activities in which there cannot be any question of profit management and where bureaucratic management must prevail.  A police department cannot be operated according to the methods resorted to in the conduct of a gainful enterprise.  A bakery serves a definite number of people — its customers — in selling them piecemeal what it has produced;  it is the patronage of its customers that provides the social legitimacy — the profitability — of the bakery's business.  A police department cannot sell its “products”;  its achievements, however valuable, even indispensable as they may be, have no price on the market and therefore cannot be contrasted with the total expenditure made in the endeavors to bring them about.' ⁽⁷⁾

Elsewhere, Mises explained that "[a]s long as the activity of the state is restricted to the narrow field that liberalism assigns to it, the disadvantages of bureaucracy cannot, at any rate, make themselves too apparent." ⁽⁸⁾

However, modern governments have progressively extended their roles and activities well beyond the range of protective functions and into those more efficiently and effectively managed by enterprises or individuals in their private capacities.  It is under these scenarios, typifying the Australian experience and of most other Western countries, that the costs of public sector employment become overly burdensome and therefore more apparent to the community at large.

First, public service wages and entitlements, and other costs necessary to maintain public sector employment, are coercively financed by the taxpaying public working within the private sector. ⁽⁹⁾

Numerous theoretical and empirical studies have concluded that taxes impose significant efficiency costs hampering the functioning of the economy, as productive activities such as investments, savings, work effort and human capital accumulation are avoided to some degree by market participants in the presence of taxation.  This, in turn, has the effect of reducing private sector employment and, more generally, the rate of economic growth in the long run, contributing to foregone increases in living standards.

It is conceivable that the level of taxation conscripted to fund public sector employee salaries and benefits are typically higher than would otherwise be the case, as a consequence of industrial relations negotiations between governments and public sector workers (usually public sector union representatives).

In the case of the private sector the ability of unions to secure additional benefits for their members is constrained by the need of private enterprises to maintain their cost competitiveness.  In other words, implementation of excessive labour cost increases could lead to the closure of marginally profitable firms and retrenchment of workers thereby a reduction in union membership.

However, the insulation of government entities, especially those charged with advising and implementing public policies, from the competitive market fosters an institutional environment in which public sector unions and politicians (or senior bureaucrats acting on behalf of politicians) can agree to significant increases in employee entitlements, without direct repercussions to the survivability of their operations.

The greater prospects open to public sector unions, relative to their private sector counterparts, to secure significant salary and benefit increases is magnified by the fact that the tax costs of the concentrated benefits received can be spread thinly across the community, with little prospect of countervailing approbation by rationally ignorant or irrational voters.

Compounding the distortionary effects of additional taxation associated with growing public sector employment, the growth in employment opportunities provided by government agencies tends to attract labour toward the public sector, diverting them away from being more productively utilised within the private sector.

Other things being equal, the larger the size and scope of the public service the more attractive salaried employment within this sector becomes, diluting the relative attractiveness of private sector salaried or self-employment which are not insulated from changing market conditions. ⁽¹⁰⁾  Increasing numbers of people may seek employment within a larger public sector for employment security or the opportunity of working in well-paying, but less productive environments not necessarily guided by the urgent need to satisfy final (i.e., non-political) customers. ⁽¹¹⁾

Perhaps the most insidious effect attributable to growth of governmental employment is that public-policy bureaucrats are employed, at taxpayers' expense, to explicitly advise and administer taxation and regulatory policies which further attenuate private sector employment and other activities.

In addition to the economic costs of taxation noted above, numerous cases have been raised concerning the compliance burdens and economic distortions posed by the significant growth in commonwealth government economic, environmental and social regulations (Figure 10).

Some notable recent cases of the commonwealth regulatory edifice hampering private sector activity include:  environmental laws affecting the construction, energy and mining sectors;  the contribution of renewable energy targets redirecting scarce capital towards inefficient non-coal fired electricity generation;  and the role of existing industrial relations regulation impeding the discovery and enforceability of decentralised, efficient employment arrangements.

Figure 10:  Pages of primary commonwealth government legislation, 1901-02 to 2011

Source:  Richard J. Wood.

Most individuals and businesses affected by commonwealth regulations are familiar with the administrative compliance costs that they generate, such as the costs of filling out official forms, providing information to government authorities, record-keeping expenses, and obtaining advice from external sources (e.g., accountants, lawyers) to comply with regulatory standards.  There also exist non-paperwork compliance costs, such as staff training and alterations to physical capital to meet obligations and costs associated with delays in receiving regulatory approvals. ⁽¹²⁾

Regulations impose adverse effects upon economic performance by artificially redirecting the economic discovery process (i.e., which relates to what, how, where and when to produce value-added outputs to the satisfaction of customers in return for a profit) in ways not otherwise preferred by entrepreneurs, thus leading to foregone opportunities left unexploited.

The imposition of regulations by governments also encourages the proliferation of economic errors as prices and profit-and-loss signals are distorted and muted, magnifying efforts by entrepreneurs to invest scarce resources in the capture of regulatory rents rather than economic profits. ⁽¹³⁾

Another important problem associated with government regulations enforced by public sector employees is that they may engender competitive neutrality conflicts of interests, in that regulations hamper the operations of for-profit or not-for-profit competitors of public sector service providers.

Proponents of a large and growing public sector employment base in Australia usually prefer to cite the role of various government employees in delivering tangible services to the public, rather than those advising and enacting growth-retarding taxes and regulations, and warn of the potentially adverse consequences of any public sector rationalisation for service delivery outcomes.

It is generally accepted, however, that public sector entities lack the incentive to restrain costs and ensure output quality, in essence maintaining value-added provision, as efficiently or effectively as their private sector counterparts providing comparable goods and services.

Politicians and bureaucrats allocate scarce resources in the absence of price systems or profit-and-loss signals, with decisions with regard to allocation made on the basis of political prerogative rather than economic imperative. ⁽¹⁴⁾

The monopolistic provision of governmental outputs means that voters tend to lack interest in ascertaining if the prevailing "take-what-is-given" political allocation is consistent with individual economic desires, or even in many cases to challenge political authorities to the extent that a divergence between political allocation and economic preferences exist. ⁽¹⁵⁾  This suggests that politicians face less feedback and less restraint, encouraging excessive employment of public sector workers in lines of activity detrimental to private sector growth. ⁽¹⁶⁾

Creeping intervention by governments in fields in which they lack specialisation, and the increase in public sector employment that such a trend entails, can also contribute to a lack of efficiency in service delivery:

'[i]f any social instrument devised for a special service is made to act additionally for another, it will perform its own office badly as well as the one it usurps. ... On this account, the State is a poor head of a family, a poor commercial or agricultural leader, a bad distributor of labor and of subsistences, a bad regulator of production, exchanges, and consumption, a mediocre administrator of the province and the commune, an undiscerning philanthropist, an incompetent director of the fine arts, of science, of instruction, and of worship.  In all these offices its action is either dilatory or bungling, according to routine or oppressive, always expensive, of little effect and feeble in returns, and always beyond or apart from the real wants it pretends to satisfy.' ⁽¹⁷⁾

Finally, the need for public sector employees to rigidly conform to legislation and other rules, as part of broader efforts to maintain some semblance of democratic accountability, suggests that the public sector lacks the features of enterprise, flexibility and innovation characteristic of competitive private sector firms:

'[t]he state is a rigid collective organ, which can only act by means of a complicated apparatus, composed of numerous wheels and systems of wheels, subordinated one to another;  the state is a hierarchy either aristocratic, or bureaucratic, or elective, in which spontaneous thought is by the very nature of things subjected to a prodigious number of controlling and hampering checks.  Such a machine can invent nothing.' ⁽¹⁸⁾

Empirical evidence worldwide has shown that, despite severe regulatory impediments often placed on private sector entities, governments usually deliver services at lower levels of efficiency, and often substantially so, compared with private sector competitors in comparable industries.  This partly explains why governments tend to provide services exhibiting ever-increasing costs, in contrast with the private sector which tends to provide goods and services with improving quality and lower costs. ⁽¹⁹⁾

In any event the commonwealth government practically plays a comparatively minor role within the Australian public sector of delivering direct services to, or on behalf of, the public.  Some services, such as the High Court and other components of the federal court system which assist in the adjudication of certain disputes, may play a role in facilitating private economic and other activities, ⁽²⁰⁾ yet others can be perceived as being unambiguously detrimental to productive economic pursuits.

From relatively modest beginnings in the first decade of Federation, the welfare state now consumes a substantial share of the commonwealth government budget.  As Figure 11 illustrates commonwealth expenditure on social security and welfare is consuming a relatively greater share of national resources, as are expenditures on education and health care.  The available data also shows trend growth in the numbers of welfare recipients, despite astronomical improvements in living standards across the spectrum of personal incomes since the early twentieth century.

It is largely accepted that the welfare state hampers economic performance, reducing labour supply and entrepreneurial activities as some individuals choose to substitute a state of dependency on largely passive welfare payments for the disciplines and rigours associated with active participation in employment.  Studies have also established that valuable work skills and aptitudes among welfare recipients tend to atrophy over time, reducing the effectiveness of previous investments in human capital.

A growing phenomenon in the Australian context is the emergence of "fiscal churn" arising from the provision of welfare payments, including tax breaks for families and subsidies for child care and school education, to people on middle and high income levels.  As many critics have indicated, this trend is inherently wasteful in that the commonwealth collects taxes from middle to high income earners to redistribute welfare payments back to these same groups, less deductions to fund the administrative costs of a bureaucracy to administer the fiscal churn.

Figure 11:  Commonwealth welfare state expenditure as a proportion of GDP, 1901-02 to 2009-10

Data expressed in current prices.

Source:  Julie Novak, 2012, "The welfare state grows and grows", in Gary Johns, ed., Right Social Justice:  Better Ways to Help the Poor, Connor Court, Melbourne.

Surveys of political attitudes consistently show that Australian public sector employees, including those engaged by the commonwealth government, mainly tend to vote for left-of-centre parties which are ideologically committed to extending the sphere of governmental activities at the expense of the private sector.

The latest Australian Election Study, undertaken after the 2010 federal election, indicates that most public sector employee respondents (commonwealth, state and local) voted for Labor (48 per cent) and the Greens (14 per cent) while 36 per cent of respondents who were government employees voted for the Liberal-Nationals Coalition.

Government employees in effect represent a bloc who wield significant, and indeed unparalleled, influence within the Australian political system by virtue of their dual role as "suppliers" of government interventions (in their capacities as employees of public sector entities) and "demanders" of government interventions (in their capacities as voters).

Finally, it should also be recognised that the problems associated with growth in public sector employment in Australia are magnified by the effective growth in commonwealth government activities over and above its limited set of constitutional responsibilities as enumerated by Section 51 of the Australian Constitution.

As is well known the extension of the commonwealth's role in national economic and social affairs has been informed by a range of factors, such as constitutional ambiguities, the effect of High Court judgments in attenuating state fiscal autonomy, and the increasing exercise of legal discretion by the national Parliament to intervene in traditional state government activities. ⁽²¹⁾  However, the growth in commonwealth influence over the states would not have occurred if it were not politically profitable to do so;  as Canadian economist Jean-Luc Migué explained, "once constitutional limits break down and functions overlap, two or more levels of government compete for the same voters in the supply of services in a given territory." ⁽²²⁾

Migué shows that when two or more levels of government compete to supply the same public services, it is in the interest of suppliers to gain votes by implementing an expenditure program first.  Conversely, abstaining from supplying the output would lead to a loss in potential votes to the rival government that supplies the output first.

Even with the restraining forces of factor mobility across states and territories at play, it is likely that the political dynamics described here will lead to an oversupply of governmental services as the commonwealth intrudes into the traditional constitutional fields of the lower levels of government.

Notwithstanding the skewed allocation of revenue powers across levels of government, the commonwealth government and its employment base is clearly larger than it should otherwise be as a consequence of centralised constitutional overreach which is the defining characteristic of Australian federalism.

Current proposals for public sector employment reductions

In the 2012-13 Budget the Gillard government announced a program of general government sector employment reductions of about 3,100 people (on a FTE basis) during this fiscal year.  Table 1 provides a breakdown of proposed reductions in average staffing levels by department.

Table 1:  Estimate of gross reductions in average staffing levels in commonwealth general government sector, 2012-13

Staffing reductions expressed in terms of "average staffing levels", reflecting the average number of employees receiving salary or wages over the fiscal year, with adjustments for casual and part-time staff, showing the full-time equivalent.  Data includes defence personnel, non-uniformed staff and overseas personnel. (a) Less proposed increases in general government sector personnel of 1,459 ASL.

Source:  Commonwealth of Australia, 2012, Budget Papers, Canberra.

Despite warnings by the Community and Public Sector Union (CPSU) and other interests for a relatively large commonwealth public sector that the proposed cuts to APS staffing numbers poses as an imminent danger to service delivery and policy implementation, it should be noted that the magnitude of the reported reductions for this year is dwarfed by the average annual level of resignations experienced from the APS in recent years and is not substantially greater than the number of age-related retirements (Table 2). ⁽²³⁾

Table 2:  Engagements and separations of Australian Public Service staff, 2008 to 2011

Financial year data.  Data refers to ongoing staff.

Source:  Australian Public Service Commission, 2011, APS Statistical Bulletin 2010-11, APSC, Canberra.

In an effort to sharpen the political divide between it and state Coalition governments, which are seeking opportunities for public sector attrition primarily through voluntary redundancies, the commonwealth government has recently stated that its fiscal policy objective of a budget surplus in 2012-13 will not be met by further public service reductions. ⁽²⁴⁾

As noted above, the opposition Coalition parties proposed a policy at the 2010 federal election to reduce the size of the APS by some 12,000 employees over a two-year period.  The key element of this policy was that employment reductions would occur under a process of natural attrition, which generally refers to a process in which the total numbers of employees are reduced through gradual means by retirement, resignation or death.

Information provided by the Australian Public Service Commission indicates that 8,396 ongoing APS staff in 2011 resigned or retired from, or died whilst employed in, the service. ⁽²⁵⁾  With data from previous years also revealing similar orders of magnitude of natural attrition from the APS, this suggests that the Coalition, if it won office, would easily have achieved its small staffing reduction target in the short term.

A framework to rightsize the Australian Public Service

The chief criticism of the prevailing approaches by the two major parties is that their policies to reduce commonwealth government employment are strictly minimalist by their nature.  They are designed to convey an illusory perception to the general public of tough-minded cuts for the stated purpose of achieving greater economy in public administration, but which in reality largely retain the size and architecture of the public sector intact.

In addition the approaches outlined by the parties are ad hoc in their nature, with a lack of public justification outlining the underlying policy rationales for the minimalist approaches offered.

An alternative to the unsatisfactory, piecemeal approaches offered by the Labor and Liberal-National parties would be to argue the case for systemic reductions to commonwealth employment, as part of a broader strategy to permanently reduce the size of the commonwealth government and its role in Australian economic and social affairs.

Three strategic approaches can be adopted by government to ensure meaningful reductions to commonwealth public sector employment:  privatisation;  transferring entities to states and territories;  and the abolition of entities which undertake unnecessary or economically damaging activities.

Privatisation

Privatisation may be broadly defined as the transfer of government-owned assets, including enterprises of going concern, to private ownership or control. ⁽²⁶⁾  A range of interrelated arguments have been advanced favouring privatisation as an economic reform option, including:

• exploiting the relatively greater efficiencies of private sector operations compared with the public sector;
• eliminating the lack of incentives faced by monopolistic public sector entities to improve performance;
• deriving economic benefits associated with removing direct political allocation of scarce resources;
• enabling capital markets and consumers to monitor the performance of privatised entities;  and
• providing governments with sales revenues with which to repay debts or fund essential services.

The commonwealth government in the past had been particularly active in selling a number of its entities, either through offering equity to the public or through trade sales to private sector entities, from the late 1980s to the early 2000s (Table 3).  These sales, primarily in the areas of communications, financial services and infrastructure, provided the government with substantial sales revenue to the tune of at least $69 billion, the proceeds of which were used to help retire or contain public sector debts. ⁽²⁷⁾

Table 3:  Summary of major commonwealth government privatisations

The data in this Table refer to privatisations yielding proceeds $50 million or over. (a) Sale of National Rail Corporation was combined with sale of Freight Rail Corporation, owned by New South Wales government.  Figure refers to sale proceeds received by commonwealth government for its interest in National Rail Corporation.

Source:  Department of Finance and Administration, "Past sales" (accessed 2 May 2012);  Reserve Bank of Australia, 1997, "Privatisation in Australia", Reserve Bank Bulletin (December):  7-16.

Since this period the momentum for further privatisation at the commonwealth level has been largely halted.  However there remains scope for the government to proceed with a significant privatisation program, to enhance the productivity of existing services and deliver sales proceeds to assist in achieving fiscal consolidation objectives.

In particular, the commonwealth government should immediately proceed with privatising the Australian Broadcasting Corporation (ABC), Australian Postal Corporation (Australia Post), Medibank Private and the Special Broadcasting Corporation (SBS).  A number of countries have liberalised their postal services (Box 2) and government broadcasting services, while there is no need to maintain a government-owned health insurer in a competitive Australian health insurance market.

Box 2:  The international experience of postal services privatisation and liberalisation The means by which individuals and businesses communicate has changed radically over the last two decades, with the emergence of internet and mobile phone technologies allowing for instantaneous communications.  Falling transportation costs has also encouraged viable courier services markets to develop throughout the developed world. These developments are challenging the viability of government-owned postal services, which have tended to retain inflexible modes of operation and high-cost structures (including to cross-subsidise other aspects of the government postal business, or certain classes of customers).  Some countries have responded by liberalising the monopoly privileges once held by public sector postal services and opening up the market to competition. In some European countries the private sector has assumed a significant ownership role in postal services provision.  In Germany 69 per cent of the formerly government post office Deutsche Post is privately owned, while in the Netherlands an Australian courier company TNT completely owns the former government post office.  The United Kingdom in recent years has proceeded along a policy path ensuring the financial viability of Royal Mail in advance of prospective privatisation. An ambitious postal privatisation agenda was pursued in the mid-2000s by the Koizumi government in Japan.  The proposal entailed splitting Japan Post into four separate companies (a bank, an insurance company, a postal service, and retail shopfront for the other three companies), to be privatised by 2007.  However pressure by trade unions and anti-reform politicians had subsequently led to a retreat from postal privatisation in that country. Most other Western countries, including Australia, have "corporatised" their government postal services in an effort to inject market-like disciplines into the sector.  This has entailed obligating postal services to pay taxes and adhere to regulations on a similar basis to that of private sector firms.  In other countries, such as New Zealand and Sweden, postal monopolies have been eliminated to allow entrepreneurs to offer alternative services.  However these entities remain under government ownership, with the next step of outright privatisation expected to engender additional efficiencies within postal markets. Source:  Eamonn Butler and Keith Boyfield, "Around the World in 80 Ideas", Adam Smith Institute (accessed 2 May 2012);  Consumer Postal Council, 2012, Index of Postal Freedom:  2012 Edition, Consumer Postal Council, Arlington;  Tad DeHaven, 2010, "Privatizing the U.S. Postal Service" (accessed 2 May 2012).

Privatising these entities would necessitate the transfer of staff, currently employed under commonwealth government legislative auspices, to the private sector.  It is estimated that the total numbers of people working in the ABC, Australia Post, Medibank Private and SBS are in the order of 44,200; ⁽²⁸⁾  a figure roughly 15 times greater than the APS staffing reductions proposed by the Gillard government, and four times than that proposed under the Coalition's 2010 election policy.

Transfer to states and territories

As discussed above, the Australian federal system is characterised by extensive duplication in functions and activities by various levels of government primarily due to the commonwealth's incursion into traditional fields of state constitutional responsibility.

Two fields of public policy in which the commonwealth government has assumed funding and policy roles at the expense of the states and territories are education and health care, which both account for almost one-quarter of commonwealth general government expenses in 2011-12. ⁽²⁹⁾  In recent months the government has announced its aspiration to alter the existing schools' funding model and introduce a dental health treatment program for low income earners, which is likely to place additional fiscal pressure on the commonwealth budget including as a consequence of any additional employment of additional public sector workers to manage these initiatives.

Annual reports published by the government indicate that about 8,100 employees were engaged by the Department of Education, Employment and Workplace Relations (including the Australian Curriculum, Assessment and Reporting Authority) in childcare and early childhood education, schooling, higher education and vocational education and training functions, and Department of Health and Ageing as at 30 June 2011.  Returning those functions and activities to the states would reduce the overall size of the commonwealth public sector by more than double the current government's 2011-12 APS employment reduction target, and would represent more than two-thirds the Coalition's employment reduction target. ⁽³⁰⁾

Other commonwealth government entities whose functions could be subject to a similar process of transference to the states may include the Department of Agriculture, Families, Infrastructure and Transport, Regional Australia, Resources and Sustainability, except for those responsibilities expressly allocated to the commonwealth under the Australian Constitution.

Abolition

In addition to privatisation and improvements in constitutional alignment between the commonwealth and states, some commonwealth government entities could be abolished altogether on account of the distortionary economic impacts of policies or programs, or unnecessary roles, undertaken by such bodies.

The policies developed and funding provided by the Department of Climate Change and Energy Efficiency, and related bodies such as the Office of Renewable Energy Regulator (Clean Energy Regulator) and the Australian Carbon Trust (Low Carbon Australia), is hampering the efficiency of the Australian economy through their distortionary impacts on production and consumption choices in energy markets.

Another commonwealth government agency which is contributing to policy-induced distortions in Australia's industrial structure is the Department of Innovation, Industry, Science and Research, including as a consequence of its ongoing role in subsidising a largely inefficient domestic motor vehicle manufacturing industry.

The abolition of climate change and corporate welfare activities would reduce commonwealth public sector employment by some 4,600 personnel.  This magnitude of employment reduction alone would exceed the government's staffing reduction target within the APS by about 1,500 people, and would represent about 39 per cent of the Coalition's 12,000 commonwealth government employment reduction target announced during the 2010 election.

Commonwealth entities, such as AusAID (1,245 staff), the Australia Council (113) and Australian Sports Commission (808), should be abolished since their activities do not relate to the financing or provision of public goods.  A similar strategy could also apply to a number of other entities, including the Australian Communications and Media Authority, Australian Human Rights Commission, Australian National Preventive Health Agency, Australian Trade Commission, Equal Opportunity for Women in the Workplace Agency, Future Fund Management Agency, NBN Co. and the Wheat Export Authority. ⁽³¹⁾

---

CONCLUSION

Writing in the late 1950s the political scientist Alan Fraser Davies wrote that:

'[t]he characteristic talent of Australians is not for improvisation, nor even for republican manners, it is for bureaucracy.  We take a somewhat hesitant pride in this, since it runs counter ... to the archaic and cherished image of ourselves as an ungovernable, if not actually lawless, people.' ⁽³²⁾

The "talent" of the Australian political class to develop exotic rationales and methods conducive to bureaucratic expansion, and hence large government, is particularly manifest at the commonwealth government level.

Successive governments, of both political persuasions, have devised politically ingenious ways to create a large body of supervisors based in Canberra, whose main roles are to fund state governments and non-government organisations and then to watch these service deliverers as they attempt to dutifully perform the commonwealth's policy bidding.

While the commonwealth has developed a fetish for micromanaging how service deliverers they fund will actually deliver such outputs, the extent of service delivery undertaken by the commonwealth itself tends to be limited to basic protective functions and some redistributive services, such as doling out payments to welfare beneficiaries.

In addition to the federal supervisory state, the commonwealth's "talent for bureaucracy" has manifest itself in the form of a substantial regulatory state with numerous authorities solely charged with ensuring that the economic and social activities of every Australian individual and business conforms with politically acceptable modes of conduct.

With the need for Australia to repair its underlying structural budget deficit recognised by both major political parties, a unique opportunity exists for the commonwealth government to instigate major steps to halt, if not reverse, the growth of bureaucracy that has largely proceeded apace in an uninterrupted fashion for decades.

The reduction in expenditures that the rightsizing of the public service would eventually entail would assist in the return of the commonwealth budget back into balance or modest surplus, without recourse to new taxes which could stymie economic growth.

Furthermore, a substantial reduction in commonwealth government employment would ensure that other Australian talents that have been suppressed for too long — particularly the exercise of private sector entrepreneurship that creatively finances and provides high-quality products to the buying public on the domestic and global economic stage — can prosper.

---

ENDNOTES

1. For ease of statistical comparability trends in relation to the employment of non-civilian defence personnel (including permanent and reserve forces) will be excluded from this paper, unless otherwise specified.

2. Howard A Scarrow, 1957, The Higher Public Service of the Commonwealth of Australia, Duke University Press, Durham, p. 72.

3. Australian Public Service Commission, 2004, A History in Three Acts: Evolution of the Public Service Act 1999, Occasional Paper No. 3, Canberra, p. 55.

4. Kirsty Laurie and Jason McDonald, 2008, "A perspective on trends in Australian Government spending", Economic Roundup (Summer): 27-49.

5. Edmund Tadros and Markus Mannheim, 2012, "Yes please minister: Labor spends billions on advice", The Canberra Times, 20 March.

6. General government sector figures, including superannuation expenses. Commonwealth of Australia, 2011, Final Budget Outcome 2010-11, Commonwealth of Australia, Canberra.

7. Ludwig von Mises, "Preface to the 1962 Edition", Bureaucracy, Ludwig von Mises Institute, Auburn.

8. Ludwig von Mises, [1927] 2005, Liberalism: The Classical Tradition, Liberty Fund Edition, Liberty Fund, Indianapolis, p. 73.

9. While Australian public sector workers are liable to pay income taxation in similar fashion as their salaried counterparts in the private sector, the point made here is that net salaries and other benefits received by government employees are coercively financed by the private sector.

10. As noted above some private sector self-employees could be effectively classified as public servants, to the extent that they mainly provide consultancy or other services either directly to governmental entities, or to entities which indirectly rely upon the public sector for their existence such as political parties, trade unions and some non-government organisations.

11. It is usually argued, invariably by public sector workers themselves, that their motivation for employment is primarily to assist, or provide for, others, or to use the available policy apparatus of governments to improve society more generally. While such rhetorical sentiments are deep-seated within the public sector these should not be accepted uncritically. As "Director's Law" and similar theories suggest the immediate beneficiaries of expanding government programs or services are public sector employees, who siphon off a proportion of public funding in the form of wages and benefits, rather than the final beneficiaries of programs or services. The ability to engender genuine economic or societal improvements through bureaucratic or political solutions is also significantly compromised, in no small part, by the limitations of central planning as famously pointed out in the "socialist calculation" debates by Mises and Friedrich Hayek.

12. Productivity Commission, 2007, Performance Benchmarking of Australian Business Regulation, Research Report, Melbourne.

13. Ludwig von Mises, [1949] 2007, Human Action: A Treatise on Economics, Liberty Fund, Indianapolis; Israel M Kirzner, 1997, "Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach", Journal of Economic Literature 35: 60-85; Bruce L Benson, 2004, "Opportunities Foregone: The Unmeasurable Costs of Regulation", Journal of Private Enterprise 19: 1-25; Bruce L Benson, 2011, "A Neo-Mengerian Examination of the Regulatory Process", Studies in Emergent Order 4: 193-208.

14. These political prerogatives may include the need to satisfy the overt political demands of prominent special interest groupings, who incidentally advocate policy positions not necessarily consistent with the interests of their own members let alone the broader community. Mancur Olson, 1971, The Logic of Collective Action: Public Goods and the Theory of Groups, Harvard University Press, Cambridge.

15. Various institutional restraints on political action, such as federalism, have been proposed on the basis that interjurisdictional mobility and political competition for larger voting bases would ensure that the extent and quality of public services, and their cost, accurately reflect individual demands. However, as discussed later, the tendency towards fiscal and regulatory centralisation has significantly muted this "competitive federalism" impulse as a feature of Australian political affairs.

16. Tyler Watts, 2012, "Government Spending Cuts are Bad for the Economy?", The Freeman online.

17. "Hippolyte Taine on 'Abusive Government Intervention' (1890)" in Robert Leroux and David Hart, eds., French Liberalism in the 19th Century, Routledge, London, p. 270-272.

18. Paul-Leroy Beaulieu, 1891, The Modern State in Relation to Society and the Individual, Swan Sonnenschein & Co, London, p. 82-83.

19. For a survey of the issues, see Dennis C Mueller, 2003, Public Choice III, Cambridge University Press, Cambridge. In addition, evidence from the United States, Europe and Australia has shown that former public sector entities, for example in utility industries, dramatically improve their productivity performance once privatised and exposed to direct market forces or contestability pressures.

20. However, the growth in disputes processed through court systems could be symptomatic of the growing range and complexity of government interventions whereby private parties seek to formally resolve disputes with public sector entities through courts. As American economist Matthew Mitchell notes, growth in legal disputation is reflected in growth in the numbers of lawyers which, in turn, "may be an indication of a nation's tendency to rent-seek". Matthew Mitchell, 2012, The Pathology of Privilege: The Economic Consequences of Government Favoritism, George Mason University, Mercatus Center, Research Paper, p. 20.

21. For a discussion of these issues see Bhajan Grewal and Peter Sheehan, 2003, "The Evolution of Constitutional Federalism in Australia: An Incomplete Contracts Approach", Victoria University of Technology, Centre for Strategic Economic Studies, Working Paper No. 22.

22. Jean-Luc Migué, 1997, "Public choice in a federal system", Public Choice 90: 235-254, p. 235.

23. Australian Public Service Commission, 2011, APS Statistical Bulletin 2010-11, APSC, Canberra.

24. Senator the Hon Penny Wong, 2012, Transcript of Interview, Sky PM Agenda with David Speers, 24 September.

25. Ibid.

26. Privatisation is distinguished from other measures undertaken by governments to promote private sector involvement in the provision of goods and services, such as contracting out, leasing or private financing of infrastructure projects. Reserve Bank of Australia, 1997, "Privatisation in Australia", Reserve Bank Bulletin (December): 7-16.

27. RBA, Ibid.

28. This figure is sourced from the latest annual reports of the four entities, and refers to staffing levels as at 30 June 2011. Figures provided by Australia Post, Medibank Private and SBS are headcounts whereas the ABC figure is for average staffing levels.

29. Commonwealth of Australia, 2012, Final Budget Outcome 2011-12, Commonwealth of Australia, Canberra.

30. As noted in previous research undertaken by the author, a transfer of commonwealth public sector functions and activities of the states should be accompanied by the decentralisation of taxing powers (e.g., personal income taxation) within the Australian federal system. However even if expenditure responsibilities were transferred to the states without the commensurate transfer of taxing powers, the states could seek to privatise or contract out activities as a means of minimising their fiscal exposure to the additional expenditure responsibilities provided by the commonwealth.

31. The staffing reductions associated with the abolition of these entities would have totalled some 2,300 persons as at 30 June 2011.

32. Quoted in Hal Colebatch, 2005, "A 'Talent for Bureaucracy': A. F. Davies and the Analysis of Government in Australia", Australian Journal of Public Administration 64 (4): 32-40.