On the occasion of 20th anniversary of the first election of the Howard government, mismanagement of Commonwealth property is in the news. These two facts are directly related.
As a base grade clerk, I failed my first promotion interview because I was unable to explain the essential criterion: sound understanding of the distinction between financial and economic analysis. More than 33 years later I see ministers and treasurers making whole careers by blindly ignoring this vital distinction. How can this be?
I think the answer lies somewhere in that other important distinction – between politics and government. Sadly, our system of government is run by politicians. I'm not suggesting we ditch our system but I do think it's time we made some changes.
Before the Hawke Labor government, Commonwealth property was handled in the "we've always done it this way" style with no focus on the commercial realities of property acquisition, management or disposal. Each year departments sent their property needs to the Department of Administrative Services. This got totalled and sent to Department of Finance. Of course, each year DoF allocated less than required so APG decided where the cuts were to be made, causing ill-feeling with some departments.
In 1983, Hawke modernised the conservatively run public service. The Senior Executive Service replaced the old content-rich but often managerially inept manager. Seniority was abolished and promotion became merit-based. Performance was measured and productivity went up.
The Australian Property Group, a unit within DAS which provided a central management service to Commonwealth departments and agencies, was put on a quasi-commercial footing and transformed to become a customer-focused, service organisation providing departments with expert property management services for the largest property portfolio in the country.
In 1996, as an "administrative savings measure", Howard abolished DAS, and with it the APG. The idea of decentralising property management appealed to many departments keen to manage the properties they used. It sounded like a good idea at the time.
Of course that's not how it turned out. Most departments had to absorb the property function without extra resources and most departments lacked the APG expertise. Some APG people got property work in line agencies, most didn't. A few took their expertise to the commercial property sector and made good money. The service lost a pool of talent as it did later with IT, foyer reception, personnel and many other areas.
APG made genuine savings in a variety of ways. One effective way was to aggregate rented office space needs across departments and go to the market with a single tender. The economy of scale, combined with APG's property expertise, delivered savings service-wide.
Abolishing DAS and APG in 1996 changed all that. Departments had to do it themselves, often with no expertise. Unfamiliar with the intricacies of how the property market worked, most departments fell victim to the property sharks. In the worst cases, some agencies bid against each other for the same office in the same location. Rents went up, commercial real estate made an easy fortune, and the funds available for programs, as a percentage of total portfolio expenditure, was cut.
So, what is the total dead rent over the past 20 years? Add to this all other wasted property expenses. Compare that with cost of keeping APG or, say, the total amount cut from line programs. APG used to keep dead rent figures; does DoF still do this? Is DoF as interested in needless waste as it is in cutting expenditure just for the sake of annual budget "savings"? If there has not been a net loss to the budget from property mismanagement alone, my educated guess is that the full economic impact of reduced services will have most certainly produced a net loss to the nation.
Indeed, it is precisely this kind of Howard "pretend saving" that has lead to infrastructure rundown and increased social dislocation across the country 20 years on. Somewhere between clever politics and good government the important distinction between financial and economic analysis was lost.
The really frustrating thing is that everyone already knows this: public servants, politicians, and the political commentariat. Prime minister (and former treasurer) Howard knew this when he made the "savings" in 1996. He thought no one would ever notice the smoke and mirrors trick because it would take years for the economic cost of the (assumed) financial benefit to come to light. But 20 years on he has been caught out. Just as he has with selling Telstra for $30 billion when its annual profit is now $4 billion – less than eight years to pay its buyers back.
What needs to be done to fix this mania for false "savings"? In the absence of any selection criteria, here's my pitch.
Between the revenue and the spending, there needs to be a genuine national socio-economic assessment – part of the government process but away from political fiddling. A process where the full economic cost to the long term national interest of apparent financial savings can be assessed before any financial "savings" are made.
Without this function politicians from all sides will continue "administrative savings" in the short-term interests of politics instead of the long-term interests of the nation and good government.
And without this change to our system, we are stuck with finance and politics, economics and government – in that order. Politicians deal in short term financial benefits to win elections, but good public administration for the long term national interest has a long term economic cost. An economic cost most voters are happy to pay towards but a political cost all politicians are not happy to spend.
Have I got the job?
Rupert Hewison worked in APG from 1983-1989 and retired from the public service in 2011. He lives "quietly in the country" but is still a passionate Tweeter about good government. @ruperthewison