Commission of audit: a crusade of dated ideology and dead ideas

The commission of audit's report will contain little of inspiration but a lot of thinking from the 1980s, John Quiggan writes.

In Australian politics, the election of a new Parliament is associated with a theatrical ceremony in which the usher of the black rod summons parliamentarians to hear the governor-general's (or governor's) speech, setting out the new government's intentions. Some aspects of this ceremony, such as the practice of assembling in the upper house, date back to the parliamentary struggles of the 17th century.

A second, equally theatrical ritual is enacted if the election produces a new Coalition government. The treasurer solemnly announces the creation of an independent commission of audit, which is supposed to examine all areas of government spending.

This ritual dates back to the election of the Kennett government in 1992. The new Victorian premier, Jeff Kennett, was facing a genuine crisis as a result of the failure of state-owned and state-regulated financial institutions in the ''recession we had to have''. From Kennett's viewpoint, the commission had two main functions. The first was to pin the responsibility for the crisis on the fraud, mismanagement and waste of the outgoing Labor government rather than on the external circumstances of the recession. The second was to provide an authoritative basis for the policy program he wanted to implement, based on privatisation, service cuts and competitive tendering.

Kennett's success, at least in his first term, set a precedent that has been followed ever since, with the announcement of a commission of audit or some similarly named body being one of the first items on the agenda of newly elected Coalition governments. The second crucial feature of these commissions was established by the Howard government. Whereas Kennett had campaigned for radical reform, John Howard had followed a ''small target'' strategy, making seemingly ironclad promises not to make politically sensitive spending cuts. On taking office, it become necessary for Howard to abandon what became known as ''non-core'' promises.

The latest commission of audit, announced by federal Treasurer Joe Hockey and Finance Minister Mathias last month, looks much like those that came before it.

First, the commission isn't in any sense independent. With token exceptions, its members have been selected on the basis of political reliability rather than relevant expertise. Its chairman, Tony Shepherd, is a former head of the Business Council of Australia. More relevantly, perhaps, he has just stepped down as chairman of Transfield, a company that depends heavily on public-private partnership deals for the private provision of public infrastructure. Expansion of the use of PPPs is among the standard recommendations of commissions of audit.


The Business Council is also providing its chief economist, Peter Crone, to head the secretariat. Shepherd and Crone are backed up by former Howard-era minister Amanda Vanstone, and Liberal apparatchik and former departmental secretary Peter Boxall. Only Tony Cole, who was Treasury secretary from 1991 to 1993, can be regarded as a non-partisan, though ideologically sympathetic, expert on public finances.

Second, the commission does not have anything like the time required to perform an audit. In the present case, the interim report, which is the one that really matters, is due by January 31, 2014. Allowing for time to set up the inquiry (as of October 31, it didn't even have a website) and publish a report, the entire job will need to be completed between Melbourne Cup Day and Australia Day. That's about 10 weeks, at a time much of the country operates at half pace.

The shortage of time won't be a problem for the kind of report the commission will actually produce. It will consist in part of ideological boilerplate, unchanged since the 1996 version. Indeed, one of the commission's supporters, financial journalist Alan Kohler, has suggested that ''Shepherd and his colleagues could simply get that report out and reuse some of the chapters on the theory of what governments should be doing, which still apply, so they don't have to do that work again''.

The rest of the report will consist of recommendations derived from the pre-existing wish-lists of influential stakeholders. It doesn't take the insight of Sherlock Holmes to work out that the Business Council's wish-list will receive close and sympathetic consideration. Also influential will be the Institute of Public Affairs, a right-wing thinktank that has been closely aligned with the Liberal Party since both organisations were founded in the early 1940s. The institute has already produced its wish-list, so it won't be hard to assess its influence on the outcome.

From within the bureaucracy, the Treasury and the Finance Department will have a major say and will also, presumably, provide most of the staff. Invariably, the Treasury and Finance have a long list of programs they would like to scrap or rationalise, for which a change of government provides the best opportunity. Conversely, the short time frame ensures that anyone outside the charmed circle, and without a pre-existing wish-list, will have no real opportunity for input.

In practice, therefore, commissions of audit are not so much reviews of existing government programs as they are opportunities for newly elected governments to put forward a policy platform based on their real ideological preferences, rather than the compromised platform that was needed to secure victory at the polls.

The idea that there are big savings still to be found after two decades of efficiency dividends, contracting out and corporatisation is an illusion.

The political utility of the exercise varies from case to case. If the new government runs quickly into political difficulties, and is barely holding on to office, a report recommending radical reforms is an embarrassment to be buried as quietly as possible. This happened in Victoria in 2012, when the Baillieu government used ''cabinet in confidence'' powers to suppress the report it commissioned after its election. In Queensland, by contrast, Premier Campbell Newman's huge majority gave him the confidence to dump promises he had made to protect public services and public sector jobs, using his commission's report as a pretext.

The use of commissions of audit to repudiate electoral commitments is a problem for anyone who takes the democratic process seriously. But, like it or not, Australian politicians of both parties have long ceased to regard such commitments as binding. With some notable exceptions, voters have forgiven them as long as they like the results.

The real problem with the commission process is illustrated by Kohler's remarks. Advocates of commissions have learned nothing, and forgotten nothing, since Kennett's audit 20 years ago, which in turn reflected the political orthodoxy of the 1980s, based on microeconomic reform, privatisation and financial deregulation.

But a lot has changed since 1993. Most of the useful elements of the microeconomic reform agenda have already been implemented. The idea that there are big savings still to be found after two decades of efficiency dividends, contracting out and corporatisation is an illusion.

As regards privatisation, the most important change has been in public attitudes. When Kennett began his privatisation program in 1993, the public was sceptical but advocates assumed that voters would be happy once they experienced the benefits. In reality, 20 years of experience has hardened scepticism into unremitting hatred. In Queensland, an amazing 85 per cent of voters opposed the Bligh government's asset sales program. Not all of that was reflected at the ballot box, but enough of it was to reduce Labor to a handful of seats.

Of course, it's open to advocates of privatisation to argue that ordinary people don't know what's good for them. But that claim sits very strangely with a rhetoric of free choice and individual responsibility.

The world in which commissions of audit began was one in which financial markets were seen as the ultimate arbiters of good economic management and AAA ratings. The elite groups that dominate the policy process still seem to believe this but the average voter is more likely to agree with Trade Minister Andrew Robb, who said, in a moment of unusual candour in July: ''I remind you that Lehman Brothers, the collapse of Lehman Brothers, which started this global financial crisis, on that very day, they still had a AAA credit rating. What does a AAA credit rating really amount to? What I'm saying is you can't place enormous store in the rating agencies.''

When commissions of audit began, there was a lot of excitement about new ways to involve the private sector in the provision of public services, epitomised by the hit American book of the time Reinventing Government. Some of those ideas, such as competitive tendering, have worked reasonably well, even if not up to their promoters' expectations. Others, such as PPPs, have been disasters, to the point that even insiders like Lend Lease have described the model as ''broken''.

In all probability, none of this experience will be reflected in the commission's report when it is released in January. Instead of a road map for Australian government in the 21st century, we will see the ideology of the 1990s used to support one last push for the policy agenda of the 1980s.

John Quiggin is an economics professor at the University of Queensland.


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