Last week’s Commission of Audit report was not very aptly named. An audit is usually a check over what has been, not a blueprint for what is to come. A report is usually a reckoning of the present state of affairs, not a reckoning of things to come. The Commission of Audit did check the existing state of play, incidentally exaggerating government debt and downplaying government assets. But then it went on to describe what the government should do in the future about cutting expenditure (especially to the less well-off) and increasing revenue (especially from the less well off).
Ordinarily audits are checks of accounts for legitimacy and effectiveness of spending. In a private company that is predicated upon contribution to profit, which is the raison d’etre of a private-enterprise venture. Government, however, has other reasons for existence, but the recommendations of the Commission of Audit scarcely recognise it.
It listed a range of spending cuts which were essentially policy in nature, not auditory. It was a wish-list from the Finance and Treasury dries. Their airing, just before the Budget when every group is on high alert, virtually required the Treasurer, Peter Costello, to disown them; which he did. The timing and the blunt method of explaining its recommendations will ensure that most of them never come to fruition … replacing present university funding with fees, loans and scholarships; handing all pre-tertiary education and all health-care to the states; baring ATSIC from delivering services; cutting social security; and a Medicare co-payment.
Unfortunately, by being so naïve as to specify spending cuts and revenue increases, the commission has got such a thorough disowning that some of its worthwhile recommendations will be thrown out with the bath-water. Worse, worthwhile recommendations for the overall national good will be branded as far-right ideology.
The most significant recommendation was to promote a stronger private-saving culture. Low private savings is fundamental to Australia’s economic difficulties. There may be many reasons for it: historical, social, cultural and economic. The absence of adversity in Australia may cause people not to save, but there are clearly economic reasons, too, and many result from poor economic policy. The tax and welfare system discourage saving. More tax should be applied to consumption and less to income, particularly income earned from cash savings. At present services go virtually untaxed while money earned from cash deposits are taxed at the full rate, without even an allowance for inflation. Putting money in the bank is a complete mug’s game in Australia. The commission rightly identified this, but Keating and Hewson still rule us from their political graves and no-one dare mention the GST. On welfare, the commission found anomalies that presented large disincentives to save. It called for a further review. (Indeed, the commission itself would have spent its time better detailing these anomalies rather than spending time on an impractical political agenda.
The commission was very keen on more user-pays and service-provider models. It is true that price signals can be very effective in cutting waste and increasing efficiency as changes in the pharmacueical benefits scheme have proved and a Medicare co-payment would further prove. But a fair amount of government expenditure will never fit this model; it is of its nature expenditure on the long-term or the intangible and not aimed at turning a short- or even medium-term profit, and there is nothing wrong with that.