In today’s edition of The Australian newspaper there appeared a piece with the headline “Slash the public service, says IPA.”
The piece referred to an occasional paper released today, found here, which examines trends in commonwealth public service growth over the past century, and critically assesses current proposals to rationalise the size of the public service (i.e., Gillard’s 3,000-odd jobs reduction target vs Coalition’s 12,000 jobs reduction via natural attrition 2010 election commitment). The paper explains why reductions in public sector employment, as part of a broader strategy to reduce the size and scope of government, are necessary, and offers a tripartite framework (privatisation, transfer entities to the states, outright abolition) to more effectively manage the need to reverse the growth in bureaucracy.
One of the features of the paper is that it examines the 3,000-odd commonwealth public sector job cuts, announced by the Gillard government in the 2012-13 Budget, in the broader context of the overall size of the public service and staffing turnover in recent years. As the following graph shows (shown in last week’s edition of the IPA weekly email “Hey, What Did I Miss?”), the announced cuts are a mere drop in the ocean of public service growth over the last decade:
What will we expect to see in MYEFO today? Surely, some program cuts, some nominal reductions in back-office agency costs (e.g. travel, consultancies), and definitely a nasty tax surprise here or there. But, if I were a betting person, I wouldn’t wager on any additional reductions in public sector employment of any great magnitude, thus consolidating the staus of government sector employees as a protected species shielded from the winds of fiscal responsibility.
I was astonished to learn there are 250,000 federal public ‘servants.’
This should be slashed by at least 200,000.
C.L.
22 Oct 12 at 9:55 am
Hi CL, yes definitely sympathetic with your position.
In my paper what I do is offer a framework for a reform-minded government to take, and run with it. I offer a few examples in the paper of what can be done, but naturally I would advocate even deeper cuts than those presented.
Julie Novak
22 Oct 12 at 9:58 am
Can anyone please essplain the Swan-o-nomics to me?
Both Swannie and Finance Minister k d wong tell us that economic growth is “on long term trend”.
We are also told that deficits are a natural, even constructive, economic tool.
Simplistically, if the taxation/expenditure settings are right, should it not go like this …..
(1) If growth is “on long term trend”, shouldn’t the budget be around equilibrium?
(2) If growth is below “long term trend”, shouldn’t the budget be in deficit?
(3) If growth is above “long term trend”, shouldn’t the budget be in surplus?
Riddle me this …. when growth was well above trend in the past few years, why did we have monster deficits?
And, if we are “on long term trend” for growth, why are we scrabbling with temporary deferrals and fiddles to get to a prima-facie surplus (but really a deficit)?
Is the answer that our tax/spending base is not sustainable?
Leigh Lowe
22 Oct 12 at 11:04 am
1) Yes. 2) No. 3) No.
Driftforge
22 Oct 12 at 11:29 am
Does that graph include CAC agencies like the ABC, ANU, etc…?
adrian
22 Oct 12 at 11:32 am
Elementary public choice theory suggests that political actors prefer to spend, rather than tax. There exists a natural tendency for governments to preside over budget deficits – the history of most Western economies, including Australia, illustrates this clearly.
Taxes conscripted from individuals and businesses to fund government spending attenuate private sector activity and, if tax rates and bases are not constrained or left untouched in the first place, lead to reduced private sector activity that the state relies upon for its economically parasitical existence. Think of high taxation as a case of political actors biting the hands that feeds them.
On the other side of the fiscal equation, you have government spending. Expenditures by government tend to grow not only because politicians doling out (even tax-financed) “benefits” are electorally popular, but there are scant cost controls within the public sector.
There is no fundamental economic law which suggests that education and health care, for example, must be rising-cost sectors, but progressive state control of these, and other areas, lead to such increases in cost. As in all monopolistic or very highly regulated situations, costs are amplified in the public sector through, for example, excessive benefits to public sector union members or other forms of value-destructive spending.
So, put the two sides of the budget together, apply some basic economic theory, and you see why budget deficits, and not budgetary balance, unfortunately tend to be the norm.
Julie Novak
22 Oct 12 at 11:37 am
Wong in an interview with ABC this morning was asked about the government’s budget and it’s effect on the economy. Wong went into spin mode. To my shock, the ABC interviewer asked Wong the same question, this time with “Yes, but..”. Again Wong went into spin mode. The interviewer then gave up and moved on.
Gab
22 Oct 12 at 11:37 am
Hi Adrian – in my paper, which I linked to in the post, I have charts which cover CAC agencies.
The chart you see in the blogpiece above is drawn from the federal budget papers, and relate to the general government sector (incl. defence forces) only.
It is true that there are alternative classifications and definitions of public sector employment, designed in large part (I suspect) to confuse people, so my paper runs through the different classifications carefully.
Julie Novak
22 Oct 12 at 11:39 am
ok, thank you.
adrian
22 Oct 12 at 11:42 am
No, because it behoves responsible governments to save for the inevitable reckless government of the future that could rack up a 300 billion dollar debt in five years.
So in theory the government should be balanced. In practice the budget needs a surplus whenever possible to firewall it against future vandalism.
dd
22 Oct 12 at 11:44 am
Didn’t the QLD Bligh government increase PS numbers by 100,000 over their last 5 years, or thereabouts? You could multiply the federal public servants by each state. Considering how much they rave about the value of public services, why are they so secretive about how many employees there are?
Here we go, QLD, NSW and Victoria employ over 1,000,000 staff collectively as at June 2011, excluding the tertiary sector! http://www.theaustralian.com.au/nationalaffairs/opinion/states-shrink-at-culling-bloated-bureaucracy/story-e6frgd0x-1226468466954
The Beer Whisperer
22 Oct 12 at 11:44 am
It illustrates again why a Westminster democracy should have different criteria for the electorates involved in the different houses.
The lower house should be, and is, for the representation of the people.
The upper house should be for the representation of those who foot the bill.
Without that restraint, government continues to grow without real constraint. Criticise Tasmania all you like, but the rest of you truly aren’t that far behind on the curve.
Driftforge
22 Oct 12 at 11:45 am
MYEFO fiddle?
It would appear that the projected “surplus” for 2012-13 in the MYEFO has been achieved in part by “a phased introduction of monthly pay‑as‑you‑go (PAYG) instalments for large companies in Australia. This measure is estimated to raise $8.3 billion on an underlying cash basis over four years”.
Instalments are currently quarterly. One instalment is due in July, presumably in respect of the June quarter, in which case making the payments monthly will shift two months’ worth into the previous financial year – right?
Gavin R Putland
22 Oct 12 at 11:46 am
The finance minister worked as a lawyer for six years and that appears to have been her only experience of the private sector as a full time worker (half was with a union). Seriously. What can you say. How can you even pretend to have understood what is needed to be the minister in charge of the nation’s finances after a few months of on-the-job training.
rob
22 Oct 12 at 11:48 am
Neat trick, that.
Driftforge
22 Oct 12 at 11:49 am
Lo and behold, look who wrote it!
The Beer Whisperer
22 Oct 12 at 11:50 am
Speaking of public servants, I found this last night.
It’s not available at the original link, but google cache can be your worst enemy or your best friend.
Seriously, can anyone please translate this for me?
nilk
22 Oct 12 at 12:17 pm
That target is OTT, but many programs and agencies contribute nothing of any measurable value and could be trashed immediately. The ABC, most of the AFP (especially people smuggling work) and all of ASIS could be eradicated without anyone losing any sleep.
Blinky Bill
22 Oct 12 at 2:10 pm
The coalition’s proposed 12,000 job reductions over two years is woefully inadequate and is less than the 17,000 natural attrition rate over the same period. The coalition should be looking at reducing the Public Service by around 80,000 positions.
The multiple climate management departments should be the first to be axed, then other departments (Education, Health, etc.) which offer no real services, should be trimmed.
I’m not advocating mass sackings, just reduction through natural attrition over a longer period of time.
I would particularly like to see Climate Commissioner Flannery kept on the payroll (with no department) and instructed to travel around Australia renouncing his previous warmist alarms, and reassuring the frightened kids in schools. If he doesn’t like his new job role, he can always opt to bugger off without a redundancy payment (as Campbell Newman did to Mr. Anna Bligh).
old bloke
22 Oct 12 at 2:50 pm
It’s indecipherable nilk. At least to me, and I strongly suspect 97% of the adult population of Australia.
Winston Smith
22 Oct 12 at 2:51 pm
A quick flick through the original charter of the Fed Govt reveals that only about 1/4 of its current scope was originally envisaged.
How to fix?
Make the Federal government dependant on state government grants for funding.
Driftforge
22 Oct 12 at 3:04 pm
The Commonwealth Dept of Health should be part of the Defence Dept under “Civil Defence” to deal with epidemics etc. The rest can be fired. Defence procurement should be about 2 dozen people buying off the shelf stuff that is proven to work. We sure don’t have much of a credible defence force right now beyond the tactical fighter force.
There are huge savings right there.
Eyrie
22 Oct 12 at 3:15 pm
Winston that job was advertised at around $70k pa.
The mind boggles.
nilk
22 Oct 12 at 3:47 pm
What does the Transport dept do? We dont need Duplication of departments ,one lot of Bludgers is Enough.cut Foreign Affairs to the bone ,1ambassador to ,the Americas,1to Europe including Russia ,1to China to cover N Asia and1 to Singapore to cover S Asia.we dont need anyone in Africa or the Mid East.that would save a bundle to Repay some of giLIARdsDEBT?
Borisgodunov
22 Oct 12 at 4:38 pm
Gavin,
The way it works in my small business, I have to send the Group tax monthly in the first two quarters, but the third month is combined within the Quarterly BAS when it is finalised.
So I had to pay the Group tax for the month of April by 21st May, the group Tax for the month of May by the 21st June, but the group Tax for June is not paid until the Quarterly BAS is done, and paid end August or so.
hzhousewife
22 Oct 12 at 5:21 pm
hzhousewife: Thank you. So apparently the change will bring forward instalments of company tax for the affected companies – whose GST instalments are already monthly.
Gottliebsen explains it thus:
“Let’s start with his biggest single measure, which will initially only affect those companies with turnover over $1 billion. But Swan is planning to drive the measure down into companies with $20 million or more. So by 2016, the vast majority of companies that trade in Australia (including the bulk of small enterprises) will have to pay their tax instalments monthly rather than quarterly.
“Initially, in 2012-13, this will bring forward $5.5 billion in revenue. Which will mean that our large companies will see their cash reserves drained, and/or they will increase their bank borrowing.
“From January 2014, companies with a turnover of $1 billion or more will be affected, and from January 2015, companies with turnover of $100 million or more will be hit.”
[Emphasis added.]
However, if the measure starts in 2014, I don’t see how it can bring forward revenue into 2012-13. Something’s wrong.
Gavin R Putland
22 Oct 12 at 6:40 pm
Sorry — here’s that link to Gottliebsen again.
Gavin R Putland
22 Oct 12 at 6:43 pm
Gavin – OT – why is SVR based upon land value rather than land rent?
Driftforge
22 Oct 12 at 7:09 pm
(Imputed) Rent drives land values. What’s the diff?
.
23 Oct 12 at 9:11 pm
Driftforge: More precisely, why is LVR based on the capitalized value of the land rather than the rental value?
Perhaps because the rental value is in danger of being confused with the rent actually paid. Note that your expression “land rent” can be interpreted either way. The distinction is crucial because if the rates bill is based on the rent actually paid, the bill can be avoided by withdrawing the land from the market, so that the rating system reduces the effective supply of land and raises rents; but if the rates bill is based on the rental value (imputed rent), the owner cannot avoid the bill by withdrawing the land from the market, but must let the land (or use it) in order to generate income (or savings) to cover the bill. In other words, if the bill is based on the rent actually paid, it is a cost of letting the land and is therefore passed on in the rent, whereas if the bill is based on the imputed rent, it is a cost of owning the land and cannot be passed on (because the land will continue to exist, and someone must own it).
Note that Adam Smith didn’t clearly distinguish between the rental value and the rent paid. I quote The Wealth of Nations V.2.74:
The last sentence is a howler. If vacant properties pay no tax, the argument explaining why the tax can’t be passed on is invalidated: if landlords can avoid tax by keeping their properties vacant, there will be fewer properties to rent, and tenants will indeed be disposed (nay, forced) to pay more.
Re Gottliebsen, yes, he had it wrong. The pull-forward of revenue from the re-timing of company tax is into 2013-14. The “surplus” for 2012-13 comes largely from “decisions taken but not yet announced”, as Samuel J explained.
Gavin R Putland
24 Oct 12 at 10:59 am