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Cost-shifting, blame-shifting and profligacy

By Paul Kerin - posted Thursday, 6 September 2007

There is nothing more dangerous than to introduce a new order to things, for he who introduces it has all those who profit from the old order as his enemies. Machiavelli, The Prince.

Can Prime Minister John Howard and Queensland Premier Peter Beattie both be right?

Yes! But they're both wrong too. Howard's intervention over Queensland's council amalgamations and grab for power from the states raises a bigger issue: do we really need three very expensive layers of government?


The answer is no. The gains from untangling government are enormous. But to realise them, we must abolish state governments - and beef up local governments.

We live in one of the most over-governed nations on earth. Keith Suter once estimated that we have one politician per 930 electors, compared with Britain's one per 22,000. Our three-tiered federation takes 700 governments (one national, two territory, six state and 691 local) and about 22,600 politicians to serve only 21 million citizens. Particularly at the federal and state levels, there is unnecessary and counterproductive overlap. We have state and federal ministers in multiple portfolios, including education and health. Unclear responsibilities create lack of accountability and encourage dysfunctional behaviours, including cost-shifting, blame-shifting and profligacy.

But would reforming this mess make much difference? Can it be done?

Writing in the Australian Journal of Public Administration in 2002, the University of Canberra's Mark Drummond concluded that abolishing states and moving to a two-tiered national-local system (with the federal government taking over all state functions) would save over $20 billion in public expenditure annually. As we may not want the federal government to get that big, Drummond has also estimated that a two-tier system in which the abolished states' functions are divided between the federal government and 40-60 regional governments (with some local governments remaining where necessary, such as in areas with low population densities) would save at least $15 billion.

But that's only the half of it. In total, Drummond believes the annual benefit would be $30 billion, when "massive additional savings" for the private sector through cuts to red-tape are included. Plus, we 21 million citizens would have easier lives.

The red-tape rationalisation opportunity is particularly attractive, given that the Business Council of Australia's recent reform scorecard showed that, despite the lip service paid by federal and state governments, red tape continues to grow. In reality, meaningful cuts won't happen unless we abolish one layer of government.


This necessitates comprehensive change - not opportunistic, piecemeal interventions like taking over one Tasmanian hospital. It also requires council amalgamations - the very thing Howard opposes in Queensland with no real justification. The amalgamations were recommended by two separate independent committees.

Their very good reports pointed out that Queensland's local government boundaries were largely drawn more than a century ago and are long outdated. At that time, a host of factors like primitive transport means and low population densities necessitated small councils. These are now anachronisms. Queensland's Treasury has projected that the financial outlook for 43 per cent of councils is "weak" or worse. The independent committees argued that councils must be of "sufficient scale to generate cost-efficient and effective services".

The extent to which council activities exhibit economies of scale is a controversial subject among economists. The University of New England's Brian Dollery has been a perceptive critic of the "bigger is better" justification for amalgamations in other states. But while economies of scale may peter out after a critical mass is reached, Queensland has 88 tiny councils (with less than 5,000 residents); NSW has 26, Victoria only two. And Beattie's plan would get rid of 724 politicians in one fell swoop.

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First published in The Australian on August 28, 2007.

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About the Author

Professor Paul Kerin teaches strategy at Melbourne Business School.

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