(click on figure for larger, and readable, version).
The roadmap for fiscal consolidation at the commonwealth government level should rest, initially, upon consideration as to whether the expenditure function or activity being undertaken conforms with the heads of power in Section 51 of the Constitution.
With the constitutionally allowable constitutional activities of the commonwealth being strictly limited, and being more restrictive in scope and scale than the actual activities presently being undertaken, there is substantial scope for ceasing ‘unconsitutional’ spending altogether, or transferring the relevant roles to the state governments subject to their agreement.
The next step for a reform-minded, fiscally prudent commonwealth is to carefully consider if the considered expenditure function or activity conforms with the economic conception of a public good (recalling Alex Robson’s timeless economic advice, elucidated here).
It needs to be recognised that numerous spending activities undertaken by the commonwealth are not, in fact, compatible with the public good definition. In the cases of private goods (and so-called ‘merit goods’), the commonwealth should end its involvement in their financing and/or provision. This should ideally, by way of examples, include a substantial reduction in redistributive transfers to individuals and corporations, the privatisation of state-owned broadcasting networks, and so on.
In the cases of genuine public goods, such as defence, foreign affairs and basic public administration, there is invariably scope for a reform-inclined government to enhance cost efficiency in numerous ways, which should, in turn, deliver longer term benefits to taxpayers.
Of course, a similar roadmap of fiscal consolidation could be suitably applied at the state level. There remain substantial opportunities for state governments to reduce their relative size and scope through privatisation and similar initiatives.