Saturday, October 17, 2009

Australia weighed down by ballooning bureaucracy

"BUDGET-breaking" blowouts in public service numbers are destroying the financial position of the states and threaten economic recovery, new research has found. State governments have significantly increased their workforces since the economic reforms of the 1990s, according to a report published by the Institute of Public Affairs. The total number of workers employed by the six states jumped by 28 per cent between 2000 and 2008. Victoria led the way with a 37 per cent increase in the total number of public servants. NSW, South Australia and Tasmania each recorded growth of about 25 per cent or more.

But frontline services such as health, education and policing have not benefited from the boost in numbers. Instead, the greatest growth in state public service staffing has been in administration. The paper finds no clear evidence that the bigger bureaucracies have led to better service delivery.

And public service earnings have grown strongly, with average pay increases outstripping those of private sector workers. The research warns of an "unsustainable trend" that has seen state general government sector employee expenses rise from $43.3 billion in 2000-01 to $77.1bn in 2007-08, an increase of almost 9 per cent a year in the period.

"Continuing growth in state government bills for bureaucrats and public servants has significant national economic implications," report author Julie Novak said. "Unless states take additional actions to reduce the cost burden of their employees, the extra financial burden will stunt our national economic recovery. "It is estimated that taxpayers will need to pay an additional $15.6bn to cover state government employee expenses above wage policy benchmarks over the next four years. "The aggregate amount of payroll tax revenue collected by state governments last financial year was about $16.5bn. In effect, the states will be approaching taxpayers seeking another payroll tax to subsidise extra public servants and their salary costs."

Ms Novak said state taxes were some of the most inefficient in Australia. "More taxes means less private investment and job creation," she said. She warned of a risk that rising state wage costs would spill over into the private sector under a re-regulated industrial relations system, stoking inflationary pressures and putting pressure on interest rates.

The report's findings were endorsed by Scott Prasser, professor of public policy at the Australian Catholic University and a former senior state bureaucrat. "The states have been big spenders and overspenders for a long time," he said. Professor Prasser said large amounts of the increases in state spending had been consumed by operating expenses. "The states are consuming vast amounts of money in bureaucracy, not delivering frontline services," he said.

NSW Opposition Treasury spokesman Mike Baird agreed that, long-term, staff spending by the states was unsustainable. "Expenses are growing much faster than revenue," he warned. "I'm very happy to support growth in frontline services, but what we continually get from the NSW state government is a complete lack of transparency about what is actually going into the frontline and what is slipping to the back."


Squandering the crisis

Comment from distinguished Australian economist, Henry Ergas

A CRISIS is a terrible thing to waste. But it is easy to do. Here is how, in three simple steps. Step one, before the crisis strikes, hit roadblocks to continued growth. Step two, as the crisis strikes, promise to protect every important constituency from its ill effects, throw billions of dollars to do so and leave all the roadblocks you had so presciently identified unaddressed. Step three, as the crisis abates, claim the credit, bask in the warm glow and prepare to return to step one. Sound familiar? It should, and not only in Australia. In fact, on any objective assessment, the advanced economies' long-term growth potential has gone backwards over the past two years.

What will the US get for the many hundreds of billions of dollars it has committed? A collection of terminally ill auto companies on taxpayer-funded life support, a social security system mired in claims it can never meet, and a fiscal position worthy of a failed African state.

Nor are matters any better across the Atlantic. Gordon Brown, who combines the skill of Nathan Rees with the pretentiousness of a Rudd essay, has been fully occupied staking his claim to have saved the world. Angela Merkel speaks like a conservative and governs like a social democrat: too bad Germany needs the opposite. As for Nicolas Sarkozy, the reforms he promised have turned to dust, leaving the distortions that plague French labour and product markets, and the rents they create for favoured constituencies, happily undisturbed. And Italy, already suffering from two decades of economic stagnation, is in the clutches of Silvio Berlusconi, of whom the less said, the better.

Why has this happened? Blaming the politics would be too easy. Leadership was, after all, hardly less challenging in the wake of the oil shocks, as "Sonny Jim" Callaghan, Jimmy Carter, Valery Giscard d'Estaing and Malcolm Fraser all discovered the hard way. These were smart men. But those who replaced them knew one big thing, famously captured by Maggie Thatcher in the acronym TINA: there is no alternative. Restoring sustained growth demanded a genuine commitment to market-oriented reform.

That reform, implemented in the midst of high unemployment, persistent inflation and deteriorating budgetary positions, was spearheaded by an outstanding collection of finance ministers. Of those, only one, Nigel Lawson, was in a centre-right government; the others - Miguel Boyer (Spain), Kjell-Olof Feldt (Sweden), Jacques Delors (France), Roger Douglas (New Zealand) and our own Paul Keating - were all of the centre-left. But formed in the intellectual ferment of the 1960s, theirs was a politics of conviction, not of ticking the boxes. And they were surrounded by officials and advisers, also products of the rebellious 60s, who seized the opportunity to break with the past.

Those days are over. Restored to its former glory, the Keynesian orthodoxy, no less confused than before, is a packet of aspirins always at one's elbow, permitting every temptation to be indulged. As for the officials, they understandably prefer to be players rather than moralists, even if that means defending the indefensible.

The lead character in Woody Allen's latest film, Whatever Works, captures the spirit of the age: what counts is what works. And work it does. Few voters complain when they get cheques in the mail. As for stimulating economic activity, it would be difficult to spend as much as governments have been spending without having some effect on the economy.

The question, however, must be whether any desired stimulus has been provided not only effectively but also efficiently: that is, in a way that avoids imposing unnecessary burdens on future taxpayers. That is a question governments studiously avoid. As a senior official from our Department of Finance said a few days ago to a Senate committee, the problem with cost-benefit analysis is that "there's a huge amount of work involved". That it is easier and more pleasurable to spend other people's money than to assess whether it is being spent wisely is not a proposition one can argue with.

Taxpayers, on the other hand, might well think that was exactly what departments of finance and treasury exist to do. But ministers clearly have other priorities.

However, it is not only the billions that have been wasted: it is the opportunity to tackle the accumulated impediments to sustained growth. Our case speaks for itself. The export ports on the Eastern seaboard remain a paralysed mess. Grain transport is inefficient to the point of collapse. The telecommunications network is being renationalised. The underlying problems in health care remain to be addressed. Education reform has descended into the farce of computers in schools and subsidies for building new classrooms. The labour market has been re-regulated, in ways that seem certain to reduce its flexibility. Urban development restrictions, that feed inflationary pressures in housing markets, remain entrenched. The Carbon Pollution Reduction Scheme, hardly the best idea to begin with, has become ever less efficient as exemptions, exceptions and side-payments proliferate.

And as for COAG, which was held out as the key to a new wave of reform, it has coagulated, with the number of meetings becoming its main performance indicator.

Overall, vast sums of money have been thrown at problems, but the required changes in governance are as far off as ever. Dollar notes can paper over cracks, but it is only a matter of time before they reappear. This is not to suggest we are the worst of the pack: that is not the case. But the fact that our economy is rebounding should not blind us to the reality: none of the roadblocks to sustained growth that Labour quite rightly pointed to before the 2007 election have been seriously tackled, much less overcome.

Little wonder, then, that inflationary pressures have emerged even while the economy continues to show signs of weakness, with full time employment 57,000 down compared to 2007. The reappearance of bottlenecks and shortages seems around the corner. Despite this, the government sticks to its stimulus spending with angry obstinacy. Fully two-thirds of that spending lies ahead, much of it on infrastructure projects that have been poorly chosen and seem more likely to divert resources from productive uses than to expand our productive potential. In a recent paper, Alex Robson and I estimate that even on generous assumptions, the result will be welfare losses of between $10 billion and $48bn.

Those losses can still be avoided, and they should be. Whether the initial spending was sensible or not is water under the bridge. What government needs to do now is draw the line. For unless it can shift from being the tooth fairy, dispensing favours to every core constituency, to the hard work of serious reform, it is not only the crisis that we will have wasted but also the opportunity for sustained growth.


Illegal immigrant realities now detonating the delusions and deceptions of Australia's Leftist government

After a fatal explosion on a boat of asylum seekers under escort by the navy to Christmas Island in April, Western Australia's Liberal Premier, Colin Barnett, said those on board had doused the boat with petrol and deliberately set it alight.

The quivering self-righteousness of the then minister for home affairs, Bob Debus, was something to behold. "I am not going to allow this particular incident to be politicised as some incidents have been politicised in the past, often to our national shame," he told ABC TV. Immigration Minister Chris Evans likewise denounced Barnett's truth-telling as unwise, unhelpful and even "silly".

Canberra claimed that Australia's border protection had never been stronger. It was a neat example of how traducing people who point out inconvenient truths, rather than engaging them in reasonable debate, ends up blowing up in your face. Six months later, the smell of vindication is in the air.

It is boom time for people smugglers. The dismantling of the Howard government's border protection policies has led to a surge in boats, the likes of which we have not seen since 2001. At the weekend, Prime Minister Kevin Rudd had to ask Indonesian President Susilo Bambang Yudhoyono for help to turn back a boat carrying 260 asylum seekers for fear the detention centre on Christmas Island would be overwhelmed. The centre can house only 1200 people and already has about 1000.

Northern Territory police have meanwhile confirmed Barnett's story: SIEV 36, which exploded in April, was doused with petrol and set alight, killing five passengers and injuring scores more, including naval personnel. The police were unable to identify the "one or more persons" responsible, but that is different from Evans' inference that no crime was committed because police "found they had no basis to charge anyone".

No sooner had the police announced the results than the Government granted residency visas to all 42 Afghan men who survived the explosion. Barnett thinks they should have waited until after the coronial inquest expected to start in January. ''Further information has come forward that it appears they deliberately ignited that fuel," Barnett told Fairfax Radio. ''Now that's a criminal act … people died … it could be seen as murder."

It didn't take long in office for Rudd to start dismantling Howard's border protection policies, under the guise of being more humane. He has relaxed the so-called Pacific Solution of offshore processing, temporary protection visas and mandatory detention. Regardless of your views of these policies, it is increasingly hard to argue their relaxation has not caused the surge in boat arrivals.

As former immigration minister Philip Ruddock pointed out this week, those were all "difficult public policy issues … and that's the reason the Rudd Government has been unwinding them. [But] the reason we've lost control of our borders now is because … all of these measures have been unwound and the people smugglers are back in business".

It was all predicted. The Australian Federal Police warned senior Government ministers this year that relaxation of border protection policies was making Australia a magnet for people smugglers. As one Iraqi asylum seeker in Indonesia told the ABC in April, "Kevin Rudd - he's changed everything about refugee. If I go to Australia now, different, different … Maybe accepted but when John Howard president [sic] Australia, he said come back to Indonesia.''

So far this year 32 boats carrying more than 1700 asylum seekers and 66 crew have been intercepted on their way from Indonesia to Ashmore Reef, 610 kilometres north of Broome. More than one-third of the people have reportedly been given visas, and the boats are still coming.

Now Rudd is talking tough. ''The Australian Government makes no apology whatsoever for deploying the most hardline measures necessary to deal with the problems of illegal immigration into Australia," he thundered this week. ''No apology whatsoever.'' The fact he used the verboten term "illegal immigration" shows the pressure he is feeling.

A Lowy Institute poll this week shows why. It reveals 76 per cent of Australians are concerned about unauthorised asylum seekers coming to Australia by boat. By contrast, concern about climate change has plummeted, from 75 per cent of people classing it as a "very important" foreign policy goal in 2007 to 56 per cent this year. Even the ABC described this as a "disjuncture between government policy and public opinion".

This wasn't what Rudd promised before the election. But if the Government's policies are fair and reasonable and in the best interest of the country, then he shouldn't underestimate the willingness of Australians to go along with them. Hypocritical posturing, doing one thing while saying the opposite, is an insult to voters, underpinned by the favourite false assumption of the chattering classes that the majority of Australians are racist rednecks.

If Rudd really wanted to show compassion he would back the audacious plan of the Christian Democrat Fred Nile and go into the people smuggling business.

Hosting a meeting yesterday at NSW Parliament House for Christians from Egypt, Iran and Iraq, the upper house MP said he was worried about the plight of Christians in the Middle East, who were desperate to come here and make good migrants. In Iraq, says the Catholic charity Aid to the Church in Need, there are only 400,000 Christians left, down from 1.4 million in 1987. Australia has a special responsibility for the Iraqi people, and from a self-interested viewpoint, Christians are likely to settle more easily into a Christian country than Muslims. "It's a desperate situation," said Nile. "They're being told 'convert or die'."

Seeing how free and easy the Government has become with boat people, Nile has hatched a plan to bring a boat of 2000 Christian asylum seekers from Indonesia to Australia. He wants donations and he dares the Government to stop him. So how about it?


Foul-mouthed surprise for mother in store

The "musicians" below:

A MOTHER outraged by clothing shop music peppered with the F-word could not find a single agency to deal with her complaint. Deb Sorensen was in a city Deborah K clothing store this month with her 14-year-old stepdaughter and her friend when "degrading and offensive" music was played. "We were subjected to a loud barrage of foul and highly disturbing lyrics, including the 'F' word," she said. "I could have simply walked out. However, my children were in the changing rooms and that was not immediately possible."

Store manager Hussein Kaiser dumped the music, which he said was chosen by young sales staff. But Ms Sorensen said there was nothing to stop others playing it. Victorian Consumer Affairs had referred her to ARIA (the Australian Recording Industry Association), which sent Ms Sorensen to AMRA (the Australian Music Retailers Association), which suggested the Australian Retail Association, which passed her on to the ACCC (Australian Competition and Consumer Commission), which suggested ASIC (Australian Securities and Investments Commission).

Ms Sorensen also contacted her local MP and Melbourne City Council. While most were sympathetic, no one could help. A spokesman for the State Government later said offensive behaviour was covered by the Summary Offences Act, enforced by police and amenity laws administered by local government. But a city council spokeswoman said it was not responsible, leaving only the police.

Ms Sorensen said police could hardly be expected to patrol shops to ensure music was appropriate. "There is obviously a gap in legislation, and authorities seem confused about who is responsible," the mother of seven said. "Vulnerable children should not be exposed to sexually explicit, violent material, anywhere, at any time."

AMRA executive officer Ian Harvey, who said he'd also encountered foul in-store music, said while music faced classification when it was sold, what a store played seemed to be up to the store. "The trouble is no one envisaged this scenario of a store playing music of this type when laws and codes of practice were written and developed," he said.

Kids Free 2B Kids director Julie Gale said it was ridiculous to expect busy police officers to be responsible for the unacceptable situation. "What it shows is this is a big hole when it comes to looking after kids," she said.


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