Peter Martin Economics correspondent
June 12, 2013
Illustration: Kerrie Leishman
What would Tony Abbott do? As with all potential prime ministers there's no way to be sure. But thanks to an unusual instance of history repeating, we've been given an unusually clear idea of what he'll be told to do.
It is also what he wants to be told to do.
Abbott himself set up the link in March when he promised the ''swift establishment of a commission of audit''. It will ''examine the detail of what the Commonwealth government does and whether it could be done better and more cost-effectively''.
Implicit in such a task will be determining what the Commonwealth should not do - whether there are entire areas of government that should be abandoned altogether. We know this because it has already happened. The Howard government set up a commission of audit on taking office in 1996. The commission's impressively non-political report wasted not a second dealing with alleged failures of the previous government and instead turned its attention to the more fundamental questions of what the government should not be doing, how it could perform its remaining roles more cheaply, and how it could stop the costs of its biggest payments from skyrocketing.
Its recommendations were timeless. That most were not accepted makes them no less relevant. In fact events since have made them more compelling.
Most of the time, Finance Minister Penny Wong gives the impression things are under control. But she let down her guard briefly in the lead-up to the 2011 tax summit telling delegates that ''without action to curtail spending growth, the overall level of government spending under existing programs would, over the medium to long term, become unsustainable.''
The age pension is the government's most expensive payment. Generously benchmarked to 25 per cent of male total average earnings, accessed at least in part by most retirees, and set to balloon as the retired population grows, it was to climb from 2.7 per cent of the total value of Australian production, to 3.9 per cent by the middle of the century. Spending on health was set to triple.
After this year's budget the head of the Treasury, Martin Parkinson, set out the problem starkly.
''We have a big gap between what the community demands of government and what it is prepared to pay,'' he told business economists. ''We have to think about savings, or new sources of revenue.''
The 1996 commission of audit was onto the problem early. Its report will be the first place Abbott's commission looks.
One of its simplest suggestions was to stop increasing the pension. It is traditionally raised twice a year by either enough to keep it at the male earnings benchmark or by the increase in consumer prices, whichever is the greatest. The commission suggested instead adjusting it only from time to time after reviews that would have to consider ''all relevant circumstances, including budget pressures''.
Entire Commonwealth operations would be surrendered to the states. Health and aged care belong there, the report says. The states run the hospitals and their governments know the most about the quality of their aged care services. The Commonwealth would retain responsibility for Medicare and the pharmaceutical benefits scheme, but it would be more stingy, requiring all but the poorest to pay more to see the doctor and to pay more for prescriptions. Before surrendering aged care to the states the Commonwealth would de-fund the institutions, fund the users instead and jack up the users' own (means-tested) contribution.
Responsibility for education would go to the states, along with childcare. The exception would be tertiary education where the Commonwealth would be notionally in charge, but would be hands-off, funding the students rather than the institutions. It would hand out a limited number of scholarships to year 12 students each year ''redeemable at any accredited institution''.
The staff savings in the departments of health, education and environment (which would also go to the states) would be enormous. Targeted departments would be required to cut their running costs by at least 20 per cent over three years. All other departments (including the usually exempt defence department) would be required to cut their costs by 10 per cent.
The states would need more money. The 1996 commission of audit didn't say much about where they would get it from but events since provide a ready-made solution. The states have since been given the GST. They could raise it.
It would be tempting to think Tony Abbott wouldn't welcome such a radical set of prescriptions. But it would be dead wrong.
When announcing plans for his own commission of audit in March, he specifically charged it with examining questions such as ''whether the federal health department really needs all 6000 of its current staff when the Commonwealth doesn't actually run a single hospital''.
He knows what it will examine and he must know what it is likely to recommend. He is preparing to consider bold options.
Peter Martin is the economics correspondent.
