Ian Macdonald (Queensland, Liberal Party, Shadow Parliamentary Secretary for Northern Australia) Share this | Hansard source

I want to highlight some of the recommendations and findings of the select committee report into state government financial management. In a broad, general way I say you do not have to go much further than the media conference of the former New South Wales Treasurer, Mr Costa, in understanding just how poorly the New South Wales government manages its financial affairs. I have to say that across all of the states the committee came to the conclusion that the states left a lot to be desired in the way they manage their financial affairs.

I want to refer to a couple of issues and particularly relate them to my home state of Queensland. At table 4.4 on page 44 of the report we see that public sector wages in Queensland increased by 49.7 per cent in the period from September 1997 to March 2008. At the same time the private sector increase in wages as a percentage was 43.6 per cent. So the public sector growth in wages was something like 6.4 per cent more than the private sector growth in wages at the same time. As the report highlights in quoting from a witness:

The difficulty also is that, in the private sector, there has been a closer link between the increases in labour costs—or, rather, increases in remuneration—and increases in productivity.

The witness went on to say that if you look at outputs in the public sector, you would see that outputs and outcomes are not increasing particularly rapidly.

It would seem that in the same time in the states there were substantially increased hospital waiting lists and worse school performances, and it is quite clear that the increased wages costs have not increased public productivity. The Ministerial Council on Education, Employment, Training and Youth Affairs indicated that between the years 2002 and 2005 the percentage of year 5 children who received benchmark results in reading and writing had declined overall and had declined in the majority of states and territories. That is in spite of the fact that there has been an increase in public sector wages. Also, in the year 2006-07 the Australian government increased funding to the states and territories for schools by 11 per cent but the actual money spent by states and territories on schools increased by just five per cent—less than half of what was provided by the federal government for wages and facilities for schools. Again there is clear evidence that the state governments were not managing their finances terribly well.

Further, our attention was drawn to ABS data which showed that between 1996 and 2007 the number of public servant employees in the Australian government decreased by 121,700 people and over the same period public sector employees at the state level had not decreased but had increased by 210,700. What is the difference? In that period there was a Liberal government in Canberra, an efficient government; in the states there were basically Labor governments, inefficient governments, putting on more people. But no-one can say that our hospitals and our schools are better off for the increase in the number of workers. In the same period, between 1996 and 2007, the amount spent by the Commonwealth government on wages increased by 12 per cent but at the same time the state government wages bill increased by some 95 per cent.

There are a lot of issues I want to raise here, so I will quickly move on. During the course of the inquiry, there was a lot of discussion about vertical fiscal imbalance, and the prospect of states levying their own income tax was raised. Realistically, this would require the Commonwealth to make room for the states, if they were going to allow the states to collect their own income tax, and you could do that by the Commonwealth reducing personal income tax rates. In 1978 the Fraser government tried that, but it did not really work because the Commonwealth did not cut its taxes to make room for surcharges by the states. But, if the states were required to collect their own income tax, it would end the blame game.

We have all heard the states saying during the years of the Howard government, ‘The reason that our schools are bad and the reason that our hospitals are bad, even though they are state responsibilities, is that the John Howard government is not giving us enough money.’ There is one way to fix that, and that is by the Commonwealth retiring from the collection of income tax—or most of it—and leaving it to the states to add a surcharge which would then make the states responsible and accountable for their own financial mismanagement. There was interesting evidence from the Institute of Public Affairs in relation to that.

What it is all about is that the states have been able to blame a Liberal government for their own inefficiencies. If they were forced to collect their own income tax, it would not only make them accountable but encourage some competition. So, if Queensland had to increase its rate of income tax to pay for the mess our hospitals are in and at the same time Western Australia was reducing its income tax because of good financial management, there would be an impetus for people to say, ‘Let’s move to a well-run government society in Western Australia and leave a high-taxing Queensland Labor government.’ So there is some merit in that.

The committee did not recommend that that happen, but what it did recommend was that the Commonwealth government should have a very serious look at retiring from some of its own income tax collections and allowing the states to add their own, with, of course, correspondingly the Commonwealth not continuing with payments to the states for various items. We need a lot longer to talk to this, but it is a worthwhile suggestion and I urge senators to have a look at the recommendations.

I also wanted to raise the disgraceful situation of government business enterprises run by the state governments. The impact that payment of dividends to governments might have on the ability to reinvest in infrastructure was noted because it potentially affects the ability of the utilities to provide essential services to customers. In 2008 the Productivity Commission did a study into the performance of GBEs and it found that there is a real underperformance. The report examined 86 GBEs and found that just over half of those monitored failed to achieve a return on assets above the risk-free rate of return in 2006-07. This implies that even a greater proportion did not earn a commercial rate of return. Twelve GBEs failed to achieve a positive return on their assets at all. In total, GBEs made dividend payments to owner governments of almost $4.4 billion in 2006-07.

The report found that nine GBEs in 2006-07 reported dividend payout ratios of over 100 per cent, mainly in the water and ports sector. We all know the problems with ports in Queensland, but, of those nine entities identified across Australia, four of them are from Queensland—Energex, Ergon Energy, the Mackay Port Authority and the Port of Brisbane Corporation. So they are paying out more in dividends than they are earning in profit, which means that they have to either use retained earnings or borrow to pay inefficient state governments a dividend so that they can make their budgets balance.

This is what is wrong with state governments and their financial management: they cannot manage themselves so they rip these dividends out of GBEs that are not in fact making a profit. You only have to fly up the coast of Queensland to see what a mess the ports are in. Why is that? Because any profits they make, anything they should be reinvesting into those ports, is ripped off by the state Labor government to try to prop up its current account budget. (Time expired)