Budget 2014: Commission of Audit recommends radical shake-up of state and federal government relations

The Abbott government’s National Commission of Audit has recommended the abandonment of Australia’s post-war fiscal structure in favour of a decentralised state-based model of taxation and service delivery that would significantly reduce the Commonwealth’s role in national life. It also recommends targeting pensions, disability insurance, carers, higher education students, foreign aid and the homeless in order to deliver a more sustainable long-term budget.

Across 66 recommendations aimed at reducing government spending by $60 billion to $70 billion per year by 2023, the commission, chaired by business figure Tony Shepherd, has called for a massive reduction in Commonwealth programs and substantial reform and restructuring of the public service. But the most radical call is for a return to pre-war taxation arrangements in which the states would partially control income tax.

Federalism:

The commission has called for the devolution of services to the level closest to those receiving the services — a common enough argument — but has backed it up by calling on the Commonwealth to reduce the current personal income tax rate and replace the reduced rate with an equivalent “state surcharge” revenue from which would be hypothecated to the states. State governments would then have the power to increase or decrease the surcharge “as a means of injecting further competition into the federation”.

GST revenue would also be split between the states on a per capita basis, with smaller states receiving top-up grants from the Commonwealth to ensure they are not worse off. In return, the Commonwealth would then slash tied grants to the states, in effect freeing up the states to use tax revenue as they see fit. Natural disaster payments to the states would also be reduced to one-quarter to one-third of the cost of recovery, and Commonwealth payments to local government would cease.

Transfer and social assistance payments:

The commission calls for a major overhaul of Commonwealth welfare programs:

• Slowing indexation of the age pension so that it falls to 28% of average weekly earnings over a 15-year period and then remains at that level thereafter;
• Automatically adjusting the eligibility age to 77% of life expectancy from 2033, such that the pension age would reach 70 in the 2050s; the superannuation preservation age would adjust automatically to be five years under the pension age;
• The family home, above a high value threshold, would be included in the pension means test for new pensioners, and tapering rates increased, from 2027;
• Making the Commonwealth Seniors Health Card harder to quality for;
• Slowing down the roll-out of the National Disability Insurance Scheme;
• Cutting off Family Tax Benefit A at a significantly lower threshold — just under $100,000 a year compared to $110,000 now, and reducing the level of benefits for families with more than one child;
• Abolishing Family Tax Benefit B and replacing it with a sole parent family supplement;
• Forcing young unemployed people to relocate to “higher employment areas” and increasing the taper rate for additional income;
• More tightly targeting the Disability Support Pension and setting it at the same level as the age pension at the same time;
• Consolidating indigenous-specific programs and altering arrangements for overseeing indigenous program spending; and
• Dumping homelessness programs, as they are a state responsibility, and confining the Commonwealth’s social housing role to rent assistance payments.

Education:

The recommendations on education are straightforward — the commission wants the Commonwealth out of education as much as possible and wants higher education students to pay much more:

• States to have full responsibility for schools, with the Commonwealth’s role limited to providing pools of funding for public, Catholic systemic and private schools, and funding capped at 2017 per-student levels indexed by a combination of CPI and the Wage Price Index applying education;
• States to have full responsibility or vocational education and training; all Commonwealth programs to be abolished;
• “Significantly” reducing the size of the Commonwealth Department of Education; and
• Students to pay a greater share of higher education costs — 55% from 41% now — and accelerating payments under the Higher Education Loan Program.

Defence:

The commission is sceptical of the government’s “aspiration” to lift defence spending to 2% of GDP (which would worsen the budget by $11 billion in 2023 if achieved, according to Shepherd) and suggests funding be driven by the capability required to counter the strategic risks Australia faces:

• Moving the Defence Materiel Organisation back into the Department of Defence and privatising the Defence Housing Authority;
• Cutting the level of staff in the Department of Defence to 1998 levels;
• Greater transparency and budget accountability for the Department of Defence;
• But on intelligence — bizarrely, no discussion of any kind by the commission of Australia’s massive intelligence budget.

Health:

While the commission wants the burden of healthcare shifted to the states, it recognises this is a more complex task than in education. Instead, its priority is imposing more user charges in health in order to deter overuse:

• Punitive taxation for high income earners who don’t take out expanded, more flexible private health insurance, with no access to the private health insurance rebate;
• All patients to make Medicare co-payments of $15 up to 15 visits a year and $7.50 thereafter, with lower rates for concession card holders;
• State governments should impose emergency department co-payments for non-emergency treatment to deter avoidance of the GP co-payment;
• Capping Commonwealth hospitals funding and reducing reporting requirements on hospitals;
• Cap the Pharmaceutical Benefits Scheme, increase co-payments and deregulate the pharmacy sector;
• Aged care reforms currently in train are supported, but implementing the full suite of Productivity Commission recommendations in this area; and
• Means-testing carer payments and targeting them only at carers whose ability to work has been limited, and setting them (eventually) at the same level as the age pension.

Industry and employment:

Having proposed that the axe be taken to individual welfare, the commission couldn’t avoid proposing a similar approach to corporate welfare. But it also wants Australia’s lowest wage earners to have their remuneration held down until it reaches 44% of average weekly earnings.

• Limiting industry assistance to “areas of genuine market failure” and transitional assistance for “genuine structural change”, including closing 22 existing programs (the remaining automotive industry assistance schemes included) costing around $5 billion, and curbing anti-dumping provisions;
• Abolishing export assistance by closing the Export Finance and Industry Corporation, closing the Export Market Development program, ending tourism grants and cutting back Tourism Australian and Austrade funding;
• Consolidating and reducing research and development funding;
• Less independence for the CSIRO “to ensure that resources are being directed at areas of greatest priority”;
• Curbing the growth in the minimum wage until it is 44% of AWE in 10 years;
• Capping the paid parental leave scheme at average weekly earnings (but not means-testing it) and redirecting savings to childcare assistance, which the commission believes was more important to female participation than the PPL; and
• Ending Farm Finance Concessional Loans.

Foreign affairs and immigration:

• Abandoning the current bipartisan policy of linking foreign aid with Gross National Income and only indexing current levels of foreign aid, and reducing it if fiscal needs require it;
• Outsourcing visa processing; and
• Reducing costs of detaining asylum seekers to 2011-13 levels, plus “renegotiating contracts and better targeting of services”.

Broadcasting:

• Benchmarking the ABC and SBS against commercial broadcasters to inform decisions to cut funding.

Public service:

• Abolishing 35 agencies, a list headed by the Australian Public Service Commission (to be folded into the Department of Employment); most casualties though are small advisory boards;
• Merge or consolidate over 60 other bodies: the biggest is the merger of Customs and Immigration, and 22 health bodies should be considered for merger or consolidation;
• Privatise Australian Hearing Services, Snowy Hydro Ltd, Defence Housing Australia, ASC, consider privatising Australia Post in the medium-term;
• Outsource the Department of Human Services payments system;
• Public service departments to shift away from middle-management heavy structures;
• Public servants to be required to be “highly productive”;
• Departments to provide corporate/HR services to small agencies in their portfolios; and
• A more coherent and systematic alignment of key performance indicators, reporting requirements and program evaluation.

Infrastructure:

• Commonwealth should only invest  in projects “that provide broad economic or social benefits beyond commercial returns but cannot be completely funded in the short-term by user charges and would not otherwise go ahead”; and
• “Over time”, move to road-user charging “for all vehicles to the maximum extent possible”.

This article first appeared on Crikey.