The ACT Auditor-General has reported on a third major incident of maladministration in recent days. The three are: Canberra Hospital doctors doing an unaccountable amount of private work; the undercharging of betterment charges on lease-purpose changes; and the illusory gains to be made by selling and leasing back the car fleet. In each matter, the ACT taxpayer has had to foot the bill. The latest one is the car fleet.
The fleet of 1300 vehicles was sold to the Macquarie Bank and leased back in a deal that was supposed to save the ACT $200,000 a year. The auditor found that the deal exposed the territory to financial risks not foreseen at contract time; further administration costs; and additional insurance.
There was a lot of risk and work for what was at best a minor saving, perhaps even a loss.
The obvious question with all these arrangements of contracting out, lease-back or outright sale is: if the private sector can make a buck out of it, why can’t the public sector? That mainly comes back to inefficient work practices in the public sector and the unacceptability of risk-taking with tax-payers’ money.
In the case of the lease-back deal, the auditor pointed out that much of the unforeseen cost came in the administration needed to monitor the lease-back. In other words there is no escaping costs associated with probity and accountability monitoring when you are dealing with public money. Those savings are illusory. In this case there is some irony in the public sector handing over a function to private enterprise and then having to pick up the very expense it hoped to save because it found it necessary to monitor and administer the arrangement
Some privatisations can be very successful. These are usually where a whole service like transport or telephony can be provided from start to finish in the private sector with no public-sector element. Where, however, links with the public sector must remain, such as maintaining a car fleet, financial checks and administration by the public sector must continue with a consequent drain on finances. The lesson here is to improve public-sector efficiency so that complicated lease-back arrangements do not seem so attractive.
Another reason for this sort of arrangement is to make the bottom line look good in the short term by reducing the public-sector capital borrowing requirement. However, that strategy is foolish in the long-term if the overall cost is higher. Of course, it may be smart in the short-term if that is your perspective, which indeed it is if you are a politician facing election every three years.
In Australia, these arrangements can also involve cunning profits created out of the different incidence of tax. A private company buying a fleet can value it according to a market price that would include territory and federal taxes, even though the territory selling the fleet has not paid those taxes. Moreover, the private company can deduct the interest used to buy the fleet against federal company tax. Ultimately, however, the Australian taxpayer (wearing both territory and national hats) pays.
At both territory and national level the out-sourcing of purchases and running of equipment used by government results in a lost opportunity to seed business which may be worth more than any savings.
More generally, lessons should be learnt from these three audit reports. But lessons will only be learnt if those responsible are identified and dealt with, otherwise how are we to know that people in the ACT public sector will not shrug their shoulders at the auditor’s report and carry on as if nothing has happened?