The Mugging of Bruce Baird (and the Carbon Tax) Shows Why a Tax Summit is Needed Now

It is a shame that political reality has forced NSW Shadow Treasurer Mike Baird stop thinking about imposing a profits based tax on mining, rather than the current royalties system of taxing an amount for each tonne of mineral extracted.

It probably is a more efficient way to bring mining to taxation.

We hope Baird isn't forced to drop the other parts of his observations made to The Australian:

A NSW Coalition government would push for radical reform of federal-state relations at the looming tax summit by demanding the states directly receive a greater share of overall taxes. NSW opposition Treasury spokesman Mike Baird said that, if elected on March 26, he would use the federal government's promised summit to address the imbalance in state and federal taxation powers and spending needs.

States were responsible for 40 per cent of service delivery, but raised only 16 per cent of taxes, he said, adding that NSW would operate more efficiently if it had greater responsibility for raising revenue.

We have previously noted the recommendations contained in the Henry Review, and, like Baird hopes that the proposed summit will determine:

1. which level of government should have responsibility for particular public policy areas;

2. what taxation bases should be assigned to the states and territories; and

3. where it is appropriate for the Commonwealth to be the level of government determining policy outcomes but is an area where it has no clear constitutional capacity to act, whether it is appropriate to confer Commonwealth power either:

(a) indirectly, through an agreement made under section 96 of the Constitution; or

(b) through a reference of power by the states to the Commonwealth or directly by constitutional amendment.

The importance of getting the taxation mix right is now more important than ever should the the God Knows What It Will Look Like Carbon Tax ever get up, discussed in our previous post.

Efficient public administration deserves nothing less.

Of disability, carbon and terrorism - new entitlements for a new century

Three interesting things happened this week.

The Productivity Commission draft report on disability care and support, proposing a number of new assistance programmes, was released.

It proposed a National Disability Insurance Scheme (NDIS) to provide disability-related services and supports to the community at large, with a particular emphasis on funded support for people with significant disabilities and their carers.

People with a ‘permanent disability’ will receive ‘reasonable and necessary’ support free of any income or assets test, determined on the basis of satisfying criteria contained in ‘assessment tools’ which are ‘relatively easy to administer and exhibit low susceptibility to gaming’.

It also proposed a National Injury Insurance Scheme (NIIS). Building from existing schemes, it is to provide lifetime care and support to those suffering catastrophic injuries from accidents, such as quadriplegia, acquired brain injuries, severe burns and multiple amputations, administered under consistent ‘state-based, no-fault arrangements.’

The report notably suggested ‘common law rights to sue for long-term care and support should be removed’.

The House of Representatives debated Tony Abbott’s private members bill creating an entitlement for people (or families of people) injured or killed overseas as a result of ‘terrorist acts’ under a Assisting Australian Victims of Overseas Terrorist Scheme Framework operating under guidelines prepared by the Attorney-General.

Finally, the carbon tax, was imposed on all carbon emitting sectors except (apparently) agriculture and (depending on the time of day) those using petrol, with ‘every cent raised’ to (amongst other things) ‘ assist families with household bills’ was (again) proposed by the Prime Minister.

Each proposal incorporates the payment of new entitlements to particular classes of people satisfying particular criteria.

And they are all dear.

Abbott is silent as to where the money for his proposed entitlement comes from – undoubtedly consolidated revenue.

The Productivity Commission proposes NDIS be funded by direct payments from consolidated revenue, with an alternative option being a levy on personal income (a national disability insurance premium) to be imposed so as to allow the scheme to operate.

The NIIS is to be funded from third party insurance premiums and state based property taxes.

The carbon tax of course, pays for allowances to families to compensate the effect of…well….the carbon tax.

This is odd.

One reason to bring something to tax is to encourage change in behaviour.

In this case, you would have thought the intention of the carbon tax is to get across to the ordinary family the idea that ‘turn on the air conditioner and you will receive a painful smack in the hip pocket. Don’t do it!’

Compensating for the increased cost of electricity arising from the imposition of a tax from its proceeds is….a little circular, really.

There are other concerns with these proposals.

The first is, as many small businesses who geared up to provide to supply pink batts and solar panels for now reduced or removed government programmes (and those people who have, or intended, to change behaviour on the basis of the programmes) know, what the Lord giveth, the Lord can taketh away.

People can, in good faith, organise their affairs on the basis of the conditions of programmes or ‘relatively easy to administer assessment tools’ and find that all of a sudden the rules have changed, with great personal cost.

The second is the increase of the role of government.

For example, when the Prime Minister announced the carbon tax, the Sydney Morning Herald reported that:

Together with the Climate Institute, (Independent MP Tony) Windsor says more than 30,000 jobs are waiting to be created in the transition to environmentally
friendly electricity generation.

However, the report went on to say:

The institute’s chief executive officer John Conor said the net figure of 30,000 jobs would be impacted by challenges in the coal-rich Hunter Valley and Victoria's La Trobe.

"If you manage this problem you can grow opportunities," Mr Conor said.

You have to hope that the outcomes to be achieved by imposing the carbon tax are so whizzer that it’s worth having the lives of Hunter and La Trobe valley residents turned upside down – and that the residents of those areas will enjoy having changes to lifestyles ‘managed’.

The final concern is the possibility that a culture of dependency can be developed.

An example is the proposed entitlement right to be created if someone is identified as being ‘disabled’ under the proposed NDIS.

There is no particular argument about the appropriateness of providing government support to those with catastrophic illnesses or injuries.

Moreover, there is substance to the proposal of creating an entitlement right on the basis of an objective level of disability rather than the current multiple pathways to, and different levels of, entitlement depending on circumstance.

However, if the threshold level of eligibility is cast too low, there can be circumstances where a person could become eligible to receive a benefit because something objectively identified as a disability is simply part of getting old – a reasonably foreseeable circumstance that an individual could plan for.

The mere knowledge that there is a ‘right’ that will accrue in due course can mean that many will simply not prudently plan for the future, ensuring that future generations will have to ensure that this scheme (and all the others, like Abbott’s proposal and compensation to ensure families are not impacted on carbon taxes etc) are fully funded or face the electoral fury of the entitlement class and its supporters.

Tax levels will need to reflect this.

Finally, as we have previously discussed, the quality of the services provided will vary depending on the competing pressures on the budget at any given time.

Many will simply be stuck with whatever the government dishes up…….which may not be much at all.

The increasing temperature of the debate in Canberra illustrates that people are slowly becoming aware that this Parliament could really make decisions that influencing the structure of Australian society in the 21st century.

Better buckle up for the ride.

COAG - Quo Vadis?

We have previously indicated it is time to decide:

1. which level of government should have responsibility for particular public policy areas;

2. what taxation bases should be assigned to the states and territories; and

3. where it is appropriate for the Commonwealth to be the level of government determining policy outcomes but is an area where it has no clear constitutional capacity to act, whether it is appropriate to confer Commonwealth power either:

(a) indirectly, agreements made under section 96 of the Constitution; or

(b) a reference of power by the states to the Commonwealth or directly by the states or by constitutional amendment.

The political class really must come out one way or another and declare whether Australian States are either:

1. ‘incubators of innovation’ within a country where there is genuine ‘competitive federalism’ –where different jurisdictions will make different rules and regulations and have different levels of taxation, with each jurisdiction ultimately picking up what is ‘best practice’ or face the loss of people and investment; or

2. effectively English style County Councils providing a narrow range of services within an Australia with a single seamless economy with a centrally set of rules and taxation levels in force uniformly throughout the country.

The Senate has quietly formed a Select Committee on the Reform of the Australian Federation.

Only constitutional (and parliamentary) savants would have known that the Committee existed.

It would appear that some respondents are disposed towards something called a ‘Convention for the Federation’.

Others submissions are keen to ensure that the position of COAG within the federation is either formalised or, at the very least, clarified.

The Select Committee is currently to report by 17 November 2010.

In our view the work of:

(a) the Select Committee (and its submitters);

(b) the Henry Review on Taxation;

(c) the treasury heads report to be prepared for COAG; and

(d) a ‘Domesday Book’ which would look something like the List of Australian Government Bodies and Governance Relationships, and would assist in identifying what governments actually do and what duplications exist

would both form the basis of developing suitable terms of reference of a ‘Convention for the Federation’ as well as commence the conversation that would accompany the creation of such a body.

It will be interesting to see how reform of the federation will fare within Canberra’s ‘new political paradigm’.

The Feds Take Hospitals

The Federal Government has published A National Health and Hospitals Network for Australia’s Future, which sets out how it proposes to improve health services provided to Australians.

Others are better placed to discuss whether the plan as a whole will work.

I will concentrate on a few matters.

It is proposed that the Commonwealth will take full policy and funding policy for general practice and primary health care in Australia.

This appears to be a sweeping grab of responsibilities.

However, page 41 of the federal document says:

The detail of what is “in scope” for transfer to the Commonwealth in particular states will be negotiated with the states over the coming months.

If I were a state government I would be disappointed if I were told to ‘get with the program’ without knowing the magnitude of the change.

Take this example. The ACT Government is running a programme to reduce the number of falls amongst the elderly, and thus the level of injuries (and most importantly) hospital admissions.

Does responsibility for ‘primary health care’ mean that all programmes like reducing falls amongst the elderly (or for that matter, stop smoking programmes) will be run exclusively out of Canberra?

One would have thought the ambit of responsibilities to be assumed would have been thought out before expecting others to ‘get with the programme’.

Secondly, it is noted that the general practice sector is hoping to receive more money now the Commonwealth proposes being the sole funder of general practice.

There is a touching view held by some that the Commonwealth will invariably pump in more money than the states simply because they have more access to revenue.

Like any government, the Feds have ‘horror budgets’; the competing priorities that must be managed in any budgetary cycle means that (in this case) general practice won’t receive the money it would like all the time.

In that case, they may regret a political covenant investing in one tier of government all funding and policy responsibility.

Finally, it is noted The Australian has reported:

Kevin Rudd has put the Henry tax review firmly on the backburner, confirming today that his $50 billion public health takeover plan is his top priority.

The Prime Minister said this morning he had not decided on a specific timetable for the release of the review, which was delivered to the Rudd government by Treasury secretary Ken Henry in December.

``I believe what Australian people wanted me to do is to get on with the business of delivering health and hospitals reform. Number one priority,'' he told ABC radio.

``Each thing in its season, we've got to do one thing at a time.

``But in terms of specific timetables for doing it, no, I don't have anything particular in mind.''

The Henry Tax review has as one of its terms of reference:

3.5. Simplifying the tax system, including consideration of appropriate administrative arrangements across the Australian Federation

And as we have observed Ken Henry has said in a 2009 speech that one of the things that the Henry Tax Review was going to do was to consider each tax (except the GST) on its merit and:

only then are we considering the level of government to which different taxes and transfers should be assigned, taking into account the long-term financial needs of each level of government.

He also said:

I mentioned earlier that the revenue assignment of each level of government is dependent on how we view respective long-term financial needs. And this, in turn, depends on what we think is the appropriate role of each level of government in improving the well-being of Australians. Which government is best placed to be the financier of government services? Should a particular government be the sole provider of the service, or one provider amongst many?

I do not anticipate that the Panel will be recommending that the Commonwealth take over the delivery of any particular services currently provided by the States, nor vice versa. However, we shouldn’t assume that the present allocation of roles and responsibilities is optimal. Much of the fiscal federalism architecture reflects past thinking about the appropriate role of government and the available means of addressing disadvantage.

The Health Minister has not ruled out tax increases to pay for health reforms.

It would be a pity if a systematic review of public administration (including a review of tax and responsibilities) was lapped by a rushed release of something as important as health reform.

There is a sneaking suspicion that the rush is in part to cover for the pink batts fiasco.

That taught us the lesson of what happens when I’s aren’t dotted and T’s are not crossed.

For the sake of the health of both the federation and the individual taxpayer they have been in this important structural reform proposal.

On Dotting I's and Crossing T's: The Pink Batt Fiasco

Some hold a child life belief that the Federal Government invariably do things better than the states.

However, as the Defence Department illustrates, its record with procurements has a bit to be desired.

The failed home insulation (or pink batt) scheme is evidence of a similarly patchy outcome with programme delivery.

The pink batts scheme appears to be one of those ‘wish list programmes’ that Departments submit each budget round, with the hope that one day it will win the funding to implement its wish.

As Peter Costello recently said in the Sydney Morning Herald:

In the dying days of the Howard government, the environment department prepared a list of measures designed to reduce carbon emissions. One was to insulate houses. Back in those days, home insulation was dressed up as a climate-change policy.

I was against it. ……………. I could not see how the Commonwealth could hope to manage a scheme to insulate millions of homes with thousands of private contractors when it had no staff with experience to design and supervise such a scheme.

As we now know, law firm Minter Ellison to the Environment Department said that there was, amongst other problems:

too few auditors and insufficient government resources to manage the scheme were among other serious concerns raised.

It is reasonable for Cabinet to expect that a programme consistently sponsored by a department has a well thought through implementation and management strategy. It can be disappointed with the poor outcome.

That said, as Lindsay Tanner said to Sky News, there was no focus on ‘dotting I’s and crossing T’s’ because of the urgency of putting out stimulus measures to combat the global financial crisis. So the executive government deserved what it got from the affair. Sadly, I’s have be dotted and T’s crossed.

And there have been a number of poor outcomes.

As The Australian editorialised:

It's not just the foil batts that have been a headache for Mr Garrett. His Green Loans program, under which households are assessed for energy and water-saving measures then given zero-level loans to finance the innovations, is under fire.

His solar rebate program reportedly blew out by $850m and is also being blamed for distorting the market for other alternative energy innovations such as wind
power…

Not everything can be solved by the Feds using contract management strategies like performance targets and benchmarks, with risk assigned to the party best assumed to be able to manage it and damages (or withholding funds) the ‘modern’ way to ensure compliance.

If the national government wants to act like a state government and get involved in programme delivery and low level standards setting it must staff itself like a state government and develop inspectorates so as to ensure programmes do not run off track.

Julia Gillard seems to have the right idea. When addressing the National Press Club recently on how to improve underperforming schools she said she would:

………. examine ways to provide the support and scrutiny necessary to drive schools to improve, which could include ''physical inspections'' or ''quality audits''.

''I believe that you've got to have the doors open,'' she said.

''Gone are the days when we could have teachers in classrooms with the door closed. I obviously want to see a debate about what more we need to do.

''This may involve external assessment and inspection of schools, and it will certainly involve strengthening school-based performance management of individual teachers.''

Sometimes the public interest needs a properly resourced inspectorate, with old fashioned enforcement powers. If not, there will be more pink batts episodes as the Commonwealth tries to do everything from Canberra.

Putting the unions back into government

The Australian has reported the recent ALP National Conference decided that:

…unions will be appointed to federal government boards,, committees and advisory bodies in a move that will increase their influence over critical national policies.

The decision, negotiated as part of a workforce package by Julia Gillard and senior union leaders at the ALP national conference [on July 31] follows increasing anger at their exclusion from some of the Rudd Government’s key advisory bodies, including the Henry tax review.

The Review of the Corporate Governance of Statutory Authorities and Office Holders, usually called the Uhrig Review was published in 2003.

It is the template guiding how government boards and other administrative structures are established that has been broadly been followed by governments of both persuasions.

Whilst at page 93 of the Review suggests representational appointments are ‘entirely appropriate’ for advisory committees it says at pages 98 - 99:

The review does not support representational appointments to governing boards as representational appointments can fail to produce independent and objective view. There is the potential for these appointments to be primarily concerned with the interests of those they represent, rather than the success of the entity they are responsible for governing. While it is possible to manage conflicts of interest, the preferred position is to not create circumstances where they arise.

At page 100, Uhrig suggests that ‘better practice’ means that:

In getting the best from boards, appropriately experienced directors are critical to good governance

and

Representational appointments to boards have the potential to place the success of the entity at risk.

It would be unfortunate if government boards and committees of inquiry charged to investigate specific policy issues requiring technical expertise were again weighed down with people who are ‘the honourable member’ for a specific sectoral interest.

That runs the risk of decisions made by these bodies being captured by those interests.

The public interest is not served.

This is one decision of the ALP National Conference that requires review.