30 June 2009 – Sydney Shove

Eliminating government waste

Introduction
My talk at Sydney Shove tonight examines the topic of waste of public money. The
waste of public money that is brought to our attention in the media such as overseas
travels costs or cost blow-outs, whilst in the hundreds of thousands or even millions,
is really small change compared to the deep rooted systemic waste that lies at the
heart of our federal system of government.

The Beyond Federation Group has been advocating reform to the way Australian
government is structured. We believe that a two-sphere structure consisting of the
Australian Government and local government working closely together is the
streamlined structure that can achieve two things.

Firstly, it will create on-going savings in the tens of billions each year by replacing 9
legislatures with just one, and secondly, creating massive productivity savings to be
passed on to taxpayers, businesses and local communities.

The boost to productivity will also see much more effective national and international
policy making from Australia.

Our goal of a more efficient, effective and much less costly way of making
government work for us is shared by many Australians.

Change will be difficult. Public sector unions will naturally be nervous about the job
security of their members as public institutions are restructured. We have a plan that
will take of public servants during the transition process.

These are times where change is upon us. Major structural change is something we
are being asked to come to terms with as we move from a carbon- based economy
to a low carbon economy. We can expect some products and industries to
disappear whilst others grow and offer new job opportunities.

Australian governments must restructure to efficiently meet the challenges of the 21st
Century. The longer we delay in eliminating institutional waste, the higher will be the
opportunity cost and if we delay, we risk of a serious decline in our standards of
living.

Why is institutional waste a problem?

As a nation, we look weak and confused as the laws and regulations of the states
and national government are all too often at cross purposes.
For foreign investors, the legislative compliance requirements of commonwealth and
state laws are extremely burdensome. There are thousands of conflicting laws on
statute books around the country.

The same frustration exists for our Australian businesses. They need all the help
they can get from government to be competitive in global markets.

What they need is a clear set of Australian rules and taxes to work with. What they
receive is a tangle of red-tape and hundreds of taxes.

The cost of supporting wasteful government processes will be felt by most of us as

our taxes, already high, are found to be insufficient to meet future obligations of
governments.

The price of continuing down the same path is high. Our retirement age is set to
increase from 65 to 67.

Our standards of essential services, already poor, are likely to fall to ever lower
levels if corrective action is not taken to dramatically reduce overhead costs by
restructuring the government sector in Australia.

Tonight I will look at the past failure to restructure at General Motors and its new
direction after bankruptcy.

I will also touch on the consequences and scale of waste for Australian governments
in failing to restructure.

I hope to finish on a more positive note and provide you with a suggested pathway to
achieving a long term sustainable financial position for our country.

How much tax revenue is wasted by Australian governments every

year?

Millions? Billions? Or Trillions?

Serious and substantial Waste of Public Money, according to the NSW
Auditor-General, refers to "... the uneconomical, inefficient, or ineffective use
of resources, authorised or unauthorised, which results in a loss/wastage of
public funds/resources. In addressing any complaint of serious and
substantial waste regard will be had, to the nature and materiality of the
waste."

Most people hate waste. We employ many specialists to detect and prevent waste.
We have Auditors, Anti- Corruption Commissions, Fraud Squads and Parliamentary
Oversight Committees who are vested with responsibility to investigate and
prosecute those who waste or misuse public money. We also have a Productivity
Commission that seeks to promote the most productive use of public money.
Are these bodies effective in minimising the serious waste of public funds?

My view is that they all have limited impact on waste in Australia. They put the spot-
light on a dark corner and stop some bad practices.

We have avoided the worst waste associated with endemic fraud and corruption that
is prevalent in many countries.

Transparency International gives us a good score, but their corruption measures do

not include institutional waste.

None of the oversight bodies that I have mentioned have had jurisdiction or direction
to investigate the massive waste that is built into the structures of our 3 tier system of
government.

Blacktown City Council made a call, through the National General Assembly of Local
Government to the Federal Government for a Productivity Commission inquiry in
2003. That call went unheeded by the Howard Government.

It is a call that needs to be made again to the Rudd Government since it is only by
way of root and branch reform to the structure of government that we can hope to
deliver the kind of efficiency and value for money that is needed to achieve our long
term survival as a prosperous and sustainable country.

Our century old structure for Australian governments is overdue for review. The
suggestion came out of the 2020 Summit to do just that - with our country
remodelled as a republic and with the shedding of one tier of government, the states.
Rudd lacks 2020 vision – he has decided not to proceed at this stage.

Let’s take a step back for a moment and look at the common type of waste that we
read about and are perhaps more familiar with.

Most people could, if asked, rank their level of disapproval for the waste of public
money.

At the extreme disapproval end, politicians who rort the system, as we have recently
seen in the UK, are especially loathed.

The Daily Telegraph exposed the extent to which a number of MPs, Labour and
Conservative, shamelessly used parliamentary allowances and expenses for purely
personal use unconnected with their parliamentary duties.

The newspaper described the rorts as an outcome of a culture of greed and venality.

The list of abuses disclosed is extensive. One MP claimed more than £66,000 for his
family home, including hundreds of pounds on refurbishing his swimming pool.

Another put in a claim for work on his helipad and received thousands of pounds for
gardening bills. Another sent to Parliament receipts for hundreds of sacks of horse
manure and yet another billed the taxpayer £115, plus VAT, for workmen to replace
25 bulbs at his second home in west London.

All the revelations, and the strenuous attempts in the courts by the speaker, to block
publication, brings into play the integrity of all Members of Parliament implicated.

The Daily Telegraph said: "Politicians are not doing us an honour by sitting on the
green benches; we are doing them an honour by investing in them with the power to
make decisions about our daily lives as our elected representatives".

After the High Court ordered the publication of MP’s expenses, around two million
pounds was spent blacking out personal information such as addresses, phone
numbers and signatures on claim documents.

The claims have now been published on the internet. Readers have participated in
identifying the most outrageous claims. The fall-out has seen several resignations
from the ministry and from parliament. New laws have been introduced that will
better regulate MPs expenses.

Aside from MP’s expenses, parliaments are extremely costly to run.

In Australia, MP’s expenses are generous but more tightly managed than in the UK.

The recent utegate affair relates to a donation and raises the questions of possible
conflict of interest when representations were made on his behalf.

Salaries and superannuation for MPs are independently set, but nevertheless, most
generous and well above remunerations paid to average Australians.

The cumulative salary and benefits bills for all our state and federal MP’s is colossal.
The cumulative bills for the public servants who serve our 9 parliaments is many
times greater.

The last scandal that I recall related to travel rorts. Travel by MP’s is often brought to
our attention through the media, particularly when there is little to show for the
expenses incurred.

Joe Tripodi’s extensive world travel to find buyers for NSW electricity distributors is a
case in point, with no investors found after spending a large amount travelling to
Hong Kong, China, New York, Canada, London and Spain on a trip that he said was
necessary to find buyers for the partial privatisation of the NSW electricity sector.

The sale was necessitated by the need to keep a AAA Credit Rating as public sector
costs skyrocket to unsustainable levels.

The problem for NSW is that most hollow logs or public assets, have already been
sold to the private sector.
Asset sales merely postpone the inevitable day of reckoning over the future
insolvency of the state government.

When we examine the benefits paid to members of parliament in each of the 9

Australian state, federal and territory legislatures the cost runs into the billions
annually.

Add to that the civil services that serve the parliamentarians, then we have annual
costs in the tens of billions.

Shouldn’t we be asking: Does this way of governing Australia, represent good value
for money? Is there a smarter way? Can we look to the experience of large
corporations for guidance? I will look at the General Motors experience shortly.

Ineffective use of Resources - Waste through incompetence or political

interference seems to arouse a milder condemnation, as we have seen with public
money wasted in bad procurement decisions or poor planning.

Take the recent large federal stimulus injection into schools. Let me read from a
recent story from the Australian: Rick Wallace, Victorian political reporter | June 18,
2009

SCHOOL principal Henry Grossek has thrown down the gauntlet to the
Rudd government with an insider's account that paints a murky and
disturbing picture of the much vaunted education revolution.

The veteran head of Berwick Lodge Primary School, in Melbourne's outer

southeast, pulls no punches, with claims of bungling, bullying and dubious
accounting as he reveals how an upgrade to his school was mishandled.

Mr Grossek accuses state authorities of "siphoning off vast sums of money

from government schools" and urges disgruntled but silent principals to voice
their concerns.

"I have been told countless stories not dissimilar to our own and I can
understand the public silence - fear of retribution holds many back," he writes.
"What chance do our kids have as adults if a culture of bullying exists in the
higher echelons of our education bureaucracy?"

Mr Grossek wrote his explosive first-hand account while locked in a bitter wrangle
with the state Education Department, which began when his school requested a
library and six classrooms under its $3 million funding allocation.

It was instead offered a gymnasium worth an estimated $2.1m, although the school
already had a gym.

Grossek said: "In my opinion, the Rudd government's incredibly short timeline has
been the weapon that our state authorities have used to pressure government school
principals into accepting deals that they know in their hearts to be short-changing
their schools. Meanwhile, their private school colleagues are gratefully accepting
their once in a lifetime windfalls. But then, the stimulus package was never about
equity."

What conclusions can we draw?

In my view, this story typifies what can and does go wrong when Federal money to
schools, hospitals, local government is channelled through state government
bureaucracies.

The private schools that received direct funding from the Federal Government,
experienced no such interference in utilising their capital works funding.

This problem of states siphoning Federal money for schools stimulus projects has
also occurred recently in the United States.

There, 19 States actually used the stimulus payments to pay towards their deficits,
rather than spend on schools infrastructure, which was the purpose of the grants to
the states.

In my view, government schools should not be put at a disadvantage to private

schools.

All school principles should have been invited to a conference hosted by the Federal
Government to work out the best kind of educational infrastructure designs for
schools to meet the millennium challenges.

Instead of coming up with traditional classroom templates, principles could have

been invited to consider organic structures designed to facilitate innovation, creativity
and leadership.

The funds should have gone to all school principals who could meet the Australian
government’s school infrastructure guidelines.

There are world experts in these fields that could help inspire principals to come up
with new educational infrastructure that sets Australia as a world leader in education.

Instead of this best outcome, we ended up with a worst outcome, where school
principles of government schools were bullied into accepting the wasteful
preferences of state bureaucrats and politicians that fell far short of meeting the
schools actual needs.

The lesson to be learned from this case is that:

• Government schools should be directly funded by the Federal Government –

not through state governments, and

• Prior planning should be done, well in advance, to get the best value for
students, schools and the future educational needs of Australia.
Wasteful litigation

Another vexed area of waste, is litigation. Money wasted in the courts has increased
as Australians have become more litigatious and the number of laws on the statute
books, multiply.

Vast sums are spent on litigation but this kind of waste raises the ire of many
taxpayers when a government is needlessly racking up exorbitant legal costs.

High court challenges over the constitutional authority to exercise government

powers, are especially expensive and the decisions can have immediate and long
term implications for millions of Australians the way government conducts business.

The constitution divides powers to legislate between the states and the
commonwealth.

It is an increasingly ambiguous division which may lead to a challenge in the High

Court over which government has supreme authority over a particular issue.

The court is yet to provide its reasoning in a recent High Court case, that was lost by
law lecturer, and a states’ rights advocate, Bryan Pape, who sought to stop the $900
stimulus payments to taxpayers because, he asserted, it was a ‘gift’ and therefore
an unconstitutional and over-reaching exercise of the federal government’s limited
constitutional powers.

Pape claimed that payments of this nature could only be made by the states. In
losing the case, direct payments to taxpayers by the commonwealth has been
endorsed as constitutional.

The wider significance of the decision is likely to be a stronger legal basis for direct
payments to be made by the commonwealth to schools, hospitals, local government,
and other state managed institutions.

The potential benefit to tax-payers is significant and this could be the driver for
funding to by-pass the states in the future.

Certainly there would be great support from school principals, hospital boards and
local councils if all their future funding from the Australian Government came direct
to them.

The down side of channelling federal funding through the states is serious as it is
predicable. States just cannot resist the temptation to siphon off their administrative
over-heads. They have plenty of form in changing the express capital expenditure
needs of local bodies when they are given any opportunity to do so.

Needless Multiple Licensing – Inefficient use of resources

Under state laws, Jockeys, who often attend races around Australia, currently need
to obtain a licence in each state. They have recently called for a national license
system. Does it make sense?

Do you think that Australian motorists should be afforded the same deal, with a
national drivers licence? Currently drivers must obtain a new state licence when they
move interstate.

I have just mentioned two licences. There are hundreds of licences, currently state
issued that should be national licenses, if we are serious about cutting red tape.

Institutional waste – Inefficient use of resources

I wish to return to talk about the waste that rarely speaks its name – institutional
waste. I define ‘institutional waste’ as the unnecessary additional cost in running
duplicated services.

I suggest that this waste is an insidious waste because it is not reported upon in the
media annually and yet it creates by far the biggest losses, in the tens of billions,
every year.

Furthermore, the vast resources of state governments are used in ways, often well
meaning, but ultimately, counter-productive to Australia’s long term prosperity.

This elephant waste is created from excessive legislatures or put more simply, the
excessive cost from being over-governed.

Queensland decided in the 1920’s it did not need an upper house, and boldly
jettisoned it. That decision has saved taxpayers tens of millions since the house was
wound up.

A recent public opinion poll in Queensland showed that 2 out of 3 Queenslanders

would like to go the whole hog, and wind up the state lower house too.

Is this is this kind of bold structural reform that should be taken up by us all?

The fact is we would all be better off with such a reform.

Having 6 states, two territories and the commonwealth all passing laws is not only
messy, but it is a system that needs the adjudication of the High Court, to rule when
two conflicting laws lead to a dispute.

Institutional waste means that instead of having a standard gauge national rail
network, we have variable gauges in 5 states.

Institutional waste is avoided when we have a national system in place, as we have

with all vehicles driving on the left hand side of the road.
Unfortunately, we have many more examples of institutional waste than rational,
national approaches.

Institutional waste often leads to much more than economic loss. The environmental
damage caused by the over-allocation of water rights by the states to Murray Darling
has lead to the slow death of vital wetlands, necessitating a rescue plan involving
expensive water buy-backs by the federal government.

The creation of the Coalition of Australian Governments or COAG was seen by some
as a clever way for the states and federal government to resolve their differences
and agree to a common approach to issues in the national interest.

Despite numerous COAG meetings, there is still stonewalling by the Queensland

and Victorian Governments in their refusal to allow their irrigators to sell back water
rights, prompting the refusal of further sales from NSW.

In relation to Gross Feed In Tariffs (GFIT) for the national electricity grid, we have
only the ACT engaged with GFIT tariffs. The other states have various net feed-in
tariffs. Again, a similar problem to rail gauges because the states cannot agree.

Germany's GFiT program, for example, has helped create nearly 250,000 new jobs
in renewable energy. The sector will soon overtake Germany's much-vaunted car
industry as the nation's number one employer.

Germany only gets half as much sunshine as Australia. We're blessed with the
highest average solar radiation of any continent - a free, endless source of power.

Yet despite this natural advantage, Germany has the capacity to produce 200 times
more solar energy than Australia. How can this be the case?

It's because we have a disjointed state-based system of feed-in tariffs. NSW has just
decided upon a net tariff. What is needed is for the Federal Government to legislate
a nationally consistent gross feed-in tariff scheme.

Disjointed state based systems apply to almost all the functions performed by the
states. All too often, they act like nation states, sometimes hostile to each other.

There has been movement to uniform legislation is some areas such as an

Australian Building Code, road rules, and Industrial Relations laws but regrettably the
areas of differences vastly outnumber the areas where state and federal ministers
have reached agreement and implemented uniform standards.

For national companies, with offices over the country, they face a legislative
compliance labyrinth that adds greatly to their costs of doing business.

These extra costs must be passed onto customers in the form of higher prices,
thereby reducing their capacity to compete globally.
Glimmer of Hope – Major Tax Reform

Fortunately there are good prospects for progress in tax reform in Australia.

The Henry Review has a brief to conduct a root and branch review taxation in
Australia (excluding the raising of GST).

The Business Council of Australia submission points to 125 different taxes imposed
by federal, state and local governments that it argues should be reduced to maintain
and improve Australia's international competitiveness.

The state and federal governments are all facing burgeoning deficits. It is self evident
that our current processes of raising taxes are grossly inefficient and unsustainable.

Streamlining taxes is a great leap forward, and personally, I'd love to see the
removal of all state taxes and particularly payroll tax and stamp duties.

But tax reform is only one side of the budget equation. The Convenor of Beyond
Federation, Mark Drummond, recently remarked that It'd just be great if the 125
different taxes reduced to 5 to 10 or so, but even 20 to 40 would be much better than
125. Time will tell.

Swan's taxation reforms are a giant step in the right direction.

However, alone they will do little to improve the competitiveness and productivity of
business activity in Australia. A much bolder reform agenda is essential.

In the private sector, the penalty for carrying huge debts, maintaining unsustainable
practices, a top heavy management, a bloated middle management or an ineffective
organisational structure is to end up facing bankruptcy when the economic climate
deteriorates.

General Motors – A Cautionary Tale for Governments

I shall turn briefly to look at the viability of General Motors and then draw some
parallels with government.

General Motors is currently undergoing chapter 11 bankruptcy.

GM is bankrupt because for decades it failed to take the hard restructuring

decisions, preferring to do the least possible in relation to leadership, strategies,
policies, and operational practices that created its debt.

GM failed to design fuel efficient cars. It failed to manage its ever burgeoning long
term liabilities.

The new, restructured GM will be much leaner with some car divisions jettisoned,
and the closure of several assembly plants and hundreds of dealerships.
There is no guarantee that the new GM will survive, even with the 50Billion bailout
provided by the US Government.

But the great American hope is that a leaner, re-structured company which can re-
mould its culture, has some chance, some say a 50:50 chance of survival.

Here are the benefits that Fritz Henderson, GM President and CEO said he hopes to
achieve from the restructure:

‘The reinvented GM will unleash our talented work force to work within a cost
structure unrivalled in the industry.

Our product line will be offered within sharply focused brands that lead in
design, technology, quality and fuel efficiency.

Our dealer organization will be resized to compete in today’s world with a

volume and profitability to provide a great customer experience.

Our world-class supplier line-up will be capable of providing leading-edge

innovation and quality.

Our balance sheet will give us the stability and flexibility to move quickly on
new products, technologies and marketplace initiatives.

And at the same time, we’ll listen and respond to the people who matter most
- our customers.’

The long term survival of Chapter 11 restructured companies is problematic as it

requires GM to develop a new corporate culture whilst becoming leaner and fitter in
order to turn around its bottom line and survive.

Yet most of the people in GM are the same. Can they really change bad habits
developed over decades? We will have to wait and see.

British Airways is also struggling to survive – their CEO’s solution has been to ask
employees to work for up to a month for no pay.

In tough times, we are seeing many survival strategies in the corporate sector.

Let’s turn our attention back to governments. The Global Financial Crisis has had a
devastating social and economic impact on many countries.

In Iceland, only one bank survived – it was a bank run by a women CEO, who took
the position that if she didn’t understand it, she didn’t buy it.

She said that she didn’t fully understand CDO’s – consolidated debt obligations, or
DCS’s, Default Credit Swaps, so she did not enter into such agreements. All other
Icelandic Banks did so and with devastating consequences.
Hers the only Icelandic Bank that was not bankrupted with worthless instruments and
toxic assets.

Many in the finance sector lay the blame for the failures of the Global Financial
Crisis, not so much with the bankers, who they see as merely facilitating what the
lawmakers allowed them to do.

They prefer to lay blame with those charged with setting up the rules, their
parliamentarians and our regulators who were supposed to enforce them.

In my view, the market excels in finding regulatory loop-holes in each country and
taking maximum advantage for their clients.

We have a game of catch-up where it is always the regulators catching up with the
highly paid financial traders in the private sector.

In Australia we need to have all our financial regulation under one national law.

State laws, still operate with their variable treatment of business conduct.

This creates the ideal conditions for avoidance schemes where the states with the
lowest or non-existent standards becomes the registered office for such traders.

The resolve of the G20 after the GFC to tackle global tax havens and other glaring
faults with the regulatory regime is a tremendous step forward.

However, far too little has been done to prevent another crisis from reoccurring.

Most commentators agree that Australia has fared better than most. Most of our
banks had minimal exposure to the US contagion and the Federal Government had
record budget surpluses.

Nevertheless, even in the peak of the mining boom there have been several ominous
signs that our current model for funding our 3 levels of government in Australia has
been unsustainable.

The funding of basic infrastructure at state and local government levels has for
decades been allowed to run down without the necessary funds set aside for
renewal and replacement of bridges, stormwater drains, electricity grids, roads, rail
and ports.

Our hospitals, schools and universities are failing to deliver the performance
expected of a wealthy developed OECD country.

The Global Financial Crisis has now required contingency expenditure that has put
the federal government’s deficit at over 200 Billion and rising.

It will take several years for the federal government to return to surplus even on the
best case scenario of a return to strong economic growth by 2012.
State governments are in far worse positions relative to their capacity to generate
income. Debt levels have jumped in every state. Their bonds to cover state debt
have been guaranteed by the Australian Government and snapped up by investors
wanting security.

This means we all have a financial stake in how each state manages its finances,
even if we do not have a vote in how that state is managed.

Unless we govern Australia in better, more united way, then we face a serious
financial problems and the resulting decline to our standard of living.

So let’s talk about possible solutions. Should governments continue with the
same old ‘business as usual’ attitude to the enormous institutional waste of
governing Australia?

Or should we consider some sensible re-structuring strategies to improve our long

term financial viability?

How should we re-structure? I have attached a draft plan from beyond Federation
Members to this paper.

When it comes to implementing change, our benchmark for improvement should be

public sector performance and the real cost of providing each and every public
service.

Talking of benchmarks, we need to think beyond just the economic bottom line that
GM or Qantas may apply as a measure of its success.

When we talk of performance in government, performance should be measured by

the quadruple bottom line or QBL.

What is the QBL? QBL embraces 4 categories of performance- Governance,

Economic, Social and Environmental. Each of these categories are headlines for
more detailed performance criteria.

Failure to take the necessary action to restructure for better long term performance
can have the same disastrous impact for governments as for corporate organisations
that fail to adapt to a changing environment.

Iceland, Latvia and Ireland rapidly fell from prosperity to high levels of unemployment
and great hardship. Latvia is now dependent on IMF loans to avoid total bankruptcy.

Many developing countries have been facing tough choices for decades.

Many have persevered with years of prescribed austerity measures to avoid default
on their loan repayments to the IMF. The IMF treatment is designed to reign-in
unserviceable national and government debt.
The poorest citizens of these countries generally suffer greatly under IMF austerity
rules.

At the most extreme, a country can end up as a failed state. Zimbabwe comes to
mind with its local currency rendered worthless by the reliance on the currency
printing press to pay its debts. The Rand and US Dollar are now the de-facto
currencies of Zimbabwe.

Yet ‘quantitative easing,’ is a strategy recently utilised by Britain and the US in the
GFC to create more liquidity when bank credit began drying up.

Quantitative easing amounts to the same thing as printing more money. For
example, QE may see an exchange of freshly minted cash for worthless bank
securities.

In a deflationary spiral, this practice is seen by some financial regulators as a sound

strategy in stopping deflation from developing whilst lubricating the real economy
with the necessary cash in order to continue business.

These are emergency measures, taken for seriously ill major economies, to avoid a
complete panic and meltdown of their finance sectors.

But the need for this action does raise some questions.

Could the incredibly large debt burden of the USA impact on the value of its currency
as international confidence in the largest economy in the world, takes a free-fall?

The US federal government is now far deeper in debt than it has been since the
years just after World War II.

This debt will constrain the country’s choices for years and could end up doing
serious economic damage if foreign lenders become unwilling to finance it.

There have been recent signs that the biggest bond buyer, the Chinese, have
stopped buying US Treasury bonds.

Without bond buyers, how can more US debt be financed? The Chinese have
proposed a new global currency – are we likely to move in that direction as the
world’s largest creditor nation flexes its financial muscle to shape the outcome it
seeks?

I believe we are likely to see a global currency emerge as a legacy of the Global
Financial Crisis.

China will have an instrumental role.

Mr. Auerbach, an economist at the University of California, Berkeley, and an author

of a widely cited study on the dangers of the current deficits predicts, “Things will get
worse gradually, unless they get worse quickly.”
Either a solution will be put off, or foreign lenders, spooked by the rising debt, will
send interest rates higher and create a crisis.’

The traditional solutions offered to manage deficits, are predictable.

They are a combination of tax increases and spending cuts. Americans and
Australians face some very unpleasant choices to manage large deficits: either

1) taxes go up or
2) important government programs will become less generous or disappear, or
3) we tackle the institutional waste associated with their 3 tier system of
government.

How governments around the world reduce the legacy of massive deficits will be one
of the great political issues of the coming decade.

Pressures on expenditure in some areas are becoming extreme.

Rising health care costs are estimated to consume a third of America's GDP in 30
years time. In Australia, the health care costs associated with an aging, increasingly
obese population are escalating.

In a recent address to the AMA, President Obama stated: "Make no mistake: The
cost of our health care is a threat to our economy. It's an escalating burden on our
families and businesses. It's a ticking time bomb for the federal budget. And it is
unsustainable for the United States of America."

Unless it was fixed, the US would go the way of General Motors, he said. (SMH 17
June 2009).

Rudd realises that health is our own ticking time bomb. The states were given up to
today to improve their performance report card for hospitals under their
management.

Preliminary reports are that they have failed. The possible consequence is a federal
government takeover down the track.

Would they do any better? The answer is yes, if the wasteful state health
bureaucracies are wound up and hospital boards, comprising local government
councillors and medical specialists are left to manage hospitals under a well
designed national health system.

The critical tipping point for the political impetus to effect major structural change to
all levels of government is approaching.

The ranking of governments in relation to their financial strength has been delegated
to ratings agencies such as Standard and Poors and Moody’s.
It is interesting that Queensland has lost its AAA ratings, it is now AA+ due to it’s
forecast deficit of $1.6 Billion caused by falling GST and mining revenues.

Standard & Poor's warned in March that Victoria's rating was "likely to come under
pressure" if the ratio of net financial liabilities to operating revenue exceeded 130 per
cent.

It is no secret that the former Treasurer of the NSW State Government, Michael
Costa, tried to justify the sale of state assets such as the electricity generators and
retailers in order to maintain NSW’s AAA Credit rating.

The problem for the NSW government is that most assets have been sold off.

What happens when they have all been sold? How can the massive cost of running
the NSW parliament, the NSW civil service be financed then?

The recently announced NSW state budget outlines some savings by a staff freeze
and merging departments. The following article by Simon Benson (11 June , Daily
Telegraph) outlines the approach taken.

A 12-MONTH staff freeze across the entire NSW Government will be

imposed in next week's Budget, cutting up to 3000 permanent jobs from
the public service.

Part of the savings will be used to create jobs for 13 new fat cats - on salaries
of up to $500,000 a year each - to head up Premier Nathan Rees' super
bureaucracy.

Under the most radical restructure of government in 30 years, the Premier will
take control of the Police Ministry from the Police Minister. Departments such
as DOCS will disappear, becoming an office within a super department of
Human Services.

Agencies such as Liquor, Gaming and Racing will be lumped in with the Office
for Children and the Opera House under the banner of Communities.

The RTA, Railcorp, Sydney Ferries and the STA will merge into a mega
Transport and Infrastructure department.

The Daily Telegraph has learned Mr Rees will try to cut up to $200 million
from the Government payroll by refusing to fill vacancies created by workers
who leave.

However, up to $7 million of those savings will pay salaries for 13 new CEOs
who will head the 13 new super departments.

No public sector employee will be sacked or made redundant under a 15-

year-old agreement with unions that is still in force.
 Mr Rees yesterday outlined a plan to fold 160 agencies, including trusts,
boards and 19 existing departments into 13 "super departments". The 22
ministers will keep their jobs.

The new fat cats will take charge of the entire public service in newly created
roles with salaries of up to $500,000 each.

The existing 19 director-general positions would remain in support roles under

the new CEOs.

The budget forecasts that there will be an increase in general government net debt
from $8.1 billion in June 2009 to $15.8 billion in June 2013.

Well Michael Costa realises better than most that NSW cannot operate sustainably
in the long run.

He has expressed the view that all the states should be abolished.

Ross Gittins, economics writer for the Sydney Morning Herald wrote on 16 June:

‘.. if the Rees Government can't be blamed for the recession and consequent
budget deficits, it can be assessed on its likely ability to get the budget back
into surplus without undue delay once the recession passes. And today's
effort generates little confidence on that score. A good plan but a weak crew
to implement it. Time for new management.’

The challenge to come up with smart and achievable plans to pay off government
deficits rests with most governments.

The OECD has stated that tough measures will be needed to eventually reduce
government budget deficits that have been stretched by the crisis.

It urges governments to begin planning for such adjustments now even if they cannot
be fully implemented until the economy improves.

What better way to wind back the deficits, than making major structural reforms to
government with the aim of eliminating the deficits, whilst repositioning the nation
into a stronger financial and legal position.

In many Australian states, state governments have fallen into the same trap as
General Motors, by continuing to work with old management structures, producing
unpopular models with not changing processes that failed most of the tests of good
governance.

The states often make decisions with poor consultation with customers but survive
due to political self-interest, public apathy and a preference to do the minimum
amount possible to muddle along.
Rees’ budget amounts to rearranging the deck chairs on the Titanic. Amazingly, 13
new super departments will have 22 Ministers and 19 former director generals.

Just imagine what this top-heavy organisational chart will look like.

Will the new CEO’s be able to change the culture of the organisations they head into
efficient teams that deliver quality service at a reasonable cost?

So let’s re-cap on the biggest waste of public money in Australia today.

Our three tier system of government needs an urgent overhaul.

The Business Council of Australia has called for the abolition of the states as have
local government associations.

The old T-model government operating system was designed in a constitution written
in the late 1890’s.

Now, 108 years after federation, our constitution deserves its place in the National
Archives.

If it is agreed that we clearly need a new engine for governing Australia in the 21st
Century, then a constitutional convention should be convened to design it. What is
the likelihood?

Future of the Monarchy in Australia

We have had spokesmen for two major parties, Opposition Leader, Malcolm Turnbull
and Foreign Affairs Minister, Stephen Smith, indicating their preference for any
referendum on an Australian republic to be held after our current head of state,
Queen Elizabeth II, has relinquished the crown. (SMH, Opinion 16 June 2009,
George Williams, It’s our republic, not a dance with her majesty’s heirs.)

The British Act of Settlement that was passed in 1701 and sets out the rules for the
succession to the throne of England, Australia and other countries where QE2 is the
head of state.

The current rules give preference to males and absolutely forbid any catholic from
inheriting the crown.

But the law is silent on royals who may be atheists, Buddhists, Muslims or
scientologists for that matter.

In any case, whatever their true beliefs, the monarch becomes the head of the
Anglican Church upon coronation.

PM Gordon Brown has announced that the rules are currently under review to
remove gender and religious discrimination.
Professor George Williams has argued that a better option to reforming the rules for
the succession of English royal heirs in becoming Australia’s Head of State, is to
take action now to become a republic.

Are we ready to embrace a republic with a democratically elected Australian

President? I believe so, but we shall just have to wait and see.

Until we have a new constitution, our old constitutional rule book must be applied
with great skill by legislators and High Court judges to achieve a better government.

Fortunately, the majority of High Court judges have consistently given ever broader
scope to the powers of the Commonwealth.

Of course there are still many grey areas. However, as more challenges to
commonwealth powers are made, the clearer it becomes, that the days of state
government exclusive powers are limited.

There can be little doubt that the states are very much interested in self-preservation,
so some major ‘turf’ battles lie ahead for the High Court to decide.

Local government is a constitutional grey area. As such, it could be a future

battleground over state or commonwealth coverage.

Not a single sentence in the constitution recognises the existence of local

government.

Future for Local Government

Local government is currently laying the ground work for a referendum proposal –
our third attempt.

The states have traditionally assumed responsibility for local government, with each
state passing its own Local Government Act.

The consequence is that we have councils with significantly different powers and
responsibilities.

Despite this handicap, we have many examples of local government leading the way
in improving services and facilities to residents.

Across Australia we have seen councils as the laboratory for innovation in the
application of technology, new ways of improving community consultation and
delivering key services like waste removal, roads, libraries, child care and
environmental services.

Despite these improvements, some state governments regard councils as a threat or

hindrance to its own agenda.
In NSW, we have seen the state government strip away the planning powers of
councils, and concentrate decision making in state appointed planning panels that
are appointed by and accountable to the Planning Minister.

This change in decision-making has seen outrageous development approvals given

that do not make sense on planning grounds. The decisions are often taken over
council objections and sometimes the Minister’s own departmental advice.

Worse, the approvals sometimes degrade the environment and economic well-being
of residents.

The reason for pro-developer approvals many observers believe has much to do with
the large political donations made by developers to political parties.

We have seen private building certifiers introduced in NSW to compete with Council
building inspectors.

The outcome of privatising regulatory functions is the classic conflict of interest and
the outcome can be the construction of buildings that fail to meet fire and other
building regulations.

The remainder of my talk today will briefly examine the rapid changes that have been
taking place in direct federal local government relations in the past year and
particularly the work of the Australian Council for Local Government.

On 18 September 2008, the Prime Minister, Kevin Rudd, and Minister Albanese
announced the establishment of the Australian Council of Local Government (ACLG)
to forge a new cooperative engagement between the Australian and local
governments giving a voice to local government on matters of national significance.

The ACLG held its Inaugural Meeting on 18 November 2008 where over 400 mayors
and shire presidents from councils and shires across Australia and representatives
from state and territory governments met at Parliament House, Canberra.

The purpose of the ACLG is to engage with local government directly with the
Australian Government to:

• provide a forum for the Australian Government and local government,

including the Australian Local Government Association (ALGA), to consider
policies and initiatives in areas of mutual interest;
• provide advice to the Australian Government on matters relevant to local
government and local communities;
• contribute to dialogue on issues of national significance that affect local
government and local communities;
• promote collaboration between the Australian Government and local
government, as well as between local governments themselves to address
emerging economic, social and environmental challenges;
• encourage innovation and best practice in local government; and
 • improve the provision of information and data to support the long term
development of local government.

It is my expectation that this growing new partnership will be nurtured to develop

over the next decade into an alternative governance structure for delivering public
services to Australian communities through local councils.

What are the prospects for success?

In a word, excellent. The federal government has already started funding local
government directly for local projects such as the construction of new libraries,
community and sporting centres.

Giving funds directly to the councils, avoids the problems of delays and bullying,
autocratic, interfering behaviour that we have come to expect from state
governments when they pass on commonwealth funds.

Some States Rights advocates believe that this new partnership may be on shaky
constitutional grounds.

However, I believe that the Pape case, may be used in defence of this partnership,
should a legal challenge be mounted in the future.

The logical outcome of this evolving process is that the wasteful state intermediaries
will be eventually wound up as the commonwealth government gains experience and
expertise in working directly with local government to deliver services to the public.

Streamlining government by winding down state governments has the potential to

produce spectacular multi-billion dollar annual efficiency dividends that can be
applied in a variety of ways:

• eliminating many taxes such as payroll tax and stamp duty,

• boosting investment in long neglected public infrastructure,

• investing in research and development, and

• better, local delivery of public services .

The future is looking good. Local government in Australia is the grass roots of our
democracy.

Local communities understand very well what they need to strengthen the health,
wellbeing, safety, development and pride in their areas.

Most councils tap into the enthusiasm and knowledge of its residents to make their
projects a success.
Councils have staff with many skills and backgrounds. They all have highly
developed networks to share innovative programs with each other.

What are the prospects for change?

Public Opinion is in support of the changes I have been discussing tonight, if a

recent Galaxy Poll taken in Queensland has similar support in other states.

Whilst the evolving direct relationship between local government and the national
government is built on a constitutional void and therefore on shaky legal ground,
nevertheless, success in this direction may lead to the winding down of the states’
role and their eventual demise, releasing vast sums of money wasted each year for
more useful and productive purposes.

Thank you.

Blueprint for reform – Australia United

Australia United:
A Unification Plan for Australia for the Period 2009 to 2020 as at 26 May 2009
I invite the honourable and learned member (Mr. Higgins) to consider this
point: If the people of the smaller states are willing to adopt the type of
government suggested by our Victorian friends, we can save the expense of
ten Houses of Legislature and five Governors, and we can become a truly
united people. But we have been sent here to frame a scheme of federation,
not of amalgamation.

(Sir Richard Baker of South Australia, speaking at the Third Session of the
National Australasian Convention, in Melbourne on 17 March 1898, as
recorded on page 2482 of the official report)

The Australia United plan comprises objectives, outcomes and a five stage
transition plan designed to achieve full Unification for Australia by the year 2020, as
follows:

Reform Objectives
• Unification (or amalgamation) of Commonwealth, State and Territory governments
to achieve a strong national government
• strengthened local governments

Outcomes
• financial benefits of about $20 billion per annum in the public sector, $40
billion per annum in the private sector, and at least $50 billion (or about five
per cent of GDP) across the Australian economy as a whole
• improved democracy and government at national and local levels
• no State or Territory governments
• a seamless national economy
• a seamless national approach to the environment
• a national education system
• a national health system
• a single set of laws for the whole of Australia as part of a national system of
law, order and safety
• regional administration and cooperation not constrained by State and
Territory borders

Five Stage Transition Plan – to be reviewed on completion of each stage

Stage 1: Foundation Laying (~ 2009 to 2013)

• local government strengthened by constitutional recognition, functional
empowerment and increased funding from the Commonwealth government
• abolish State and Territory taxes
• ongoing efforts to establish national health, education and legal systems (such as
the efforts to establish the national curriculum, national occupational health and
safety laws, and national registration systems for businesses, tradespeople and
professionals)
• explain to the public that financial benefits in the order of at least $50 billion per
annum in 2009 dollar terms, or about five per cent of GDP, can be achieved across
the economy overall under a two-tier government structure comprising national and
local governments, but no State and Territory governments

Stage 2: Confirmation (~ 2013)

• referendum calling for the amalgamation of Commonwealth, State and Territory
governments to form a single national government under Commonwealth control,
leaving local government and regional administration of government functions
otherwise unchanged in the first instance

Stage 3: Preparation – After the Referendum at Stage 2 is Carried (~ 2013 to

2016)
• establish a single national set of laws and regulations across all fields, where such
laws can host local variations where required for different geographic and climatic
conditions (for building regulations, for example), and can be applied at the
discretion of local governments, to achieve a seamless national economy and
seamless national legal and environmental management systems
• establish fully national funding systems under Commonwealth control for education,
health and other functions currently funded at least in part by State and Territory
governments
• Commonwealth Grants Commission designs methodologies to provide
Commonwealth funding direct to local governments rather than State and Territory
governments

Stage 4: Unification Day (2016)

• Commonwealth, State and Territory Governments form a unified national
government under Commonwealth control
• Courts previously operating in States and Territories become Commonwealth
Courts
• Lands and assets of State and Territory governments are transferred to the
Commonwealth
• Unification Transition Bureau is Formed
• State and Territory Parliamentarians have the choice to retire or become part of the
Unification Transition Bureau for a maximum of four years
• all employees of State and Territory governments become employees of the
Commonwealth government, including education and health sector employees and
the police

Step 5: Consolidation to Achieve Full Unification (2016 to 2020)

• rationalisation of former Commonwealth, State and Territory bureaucracies to
achieve a single national government bureaucracy
• generous (all carrot, no stick) incentives and redundancy payout plans for surplus
public servants
• transfer of financial and human resources from bureaucracy to local government,
schools, hospitals and other "coalface" public service units
• refinement of boundaries used for regional administrative units so they no longer
stop at State and Territory borders
• financial benefits amounting to approximately $20 billion per annum in the public
sector, $40 billion per annum in the private sector, and at least $50 billion per annum
(in 2009 dollar terms), or about five per cent of GDP, are likely to be achieved across
the economy as a whole from about 2020 onwards after the initial costs of transition
more or less cancel out such benefits over the period 2016 to 2019.

Beyond Federation Contacts:

Dr Mark Drummond
Convenor of Beyond Federation (see www.beyondfederation.org.au)

Michael Cranny
Deputy Convenor of Beyond Federation
Email: Michael.cranny@gmail.com

Queensland voters want to axe state MPs

By Steven Wardill

The Courier-Mail

June 24, 2009 12:01am

QUEENSLANDERS are convinced they are over-governed and there is one set of
politicians of a particular persuasion in their crosshairs - state MPs.

A Galaxy Poll, conducted exclusively for The Courier-Mail, revealed a majority of

Queenslanders believed Australia's three-tier system of government was too much.

Most people believe the level of government that has got to go are the states despite
their responsibility to deliver key services such as health, education, roads and law
and order.
Former Brisbane lord mayor Jim Soorley yesterday said Australia should use the
tough economic times to get rid of the states and build "regional governments".

"The reality is we can no longer afford state governments," he said. "Get rid of them."

Mr Soorley said states were "historical relics" and cost Australia billions of dollars a
year in duplication and waste.

"Now is the time for Australia to wake up and get rid of the states," he said.

"They are totally dysfunctional. What do they do?"

The Galaxy Poll found two out of three people believed they were over-governed and
the opinion was evenly held between Labor and conservative voters.

States were the most popular level of government volunteered by Queenslanders for
abolition followed by local councils.

According to Galaxy, 56 per cent of people believe Premier Anna Bligh's regime
should be blotted out in a bid to reduce bureaucracy while 29 per cent preferred
getting rid of their local council.

Only 8 per cent of people believed the Federal Government should go.

Getting rid of the states was the most popular option among conservative voters with
63 per cent backing this scenario compared with 23 per cent who took aim at their
local council.

Labor voters were more evenly split with 42 per cent preferring the abolition of the
states while 41 per cent suggested the demise of their council.