“INSIDE THE QUEENSLAND
COMMISSION OF AUDIT –
THE PROCESS, MAIN FINDINGS
AND IMPLICATIONS”
Mark Gray
Adjunct Professor of Economics, University of Queensland
Chief Executive
Queensland Commission of Audit
UQ Business School
Brisbane
6 May 2013
THE PROCESS
2
ESTABLISHMENT
• Pre-election commitment of the incoming
Government
• Commission announced 29 March 2012, and
Terms of Reference issued
Commissioners
Honourable Peter Costello, AC
Professor Sandra Harding
Dr Doug McTaggart
3
TERMS OF REFERENCE – OBJECTIVES
• Comprehensive – two pages of text
• Review Queensland Government’s current and
forecast financial position, and make
recommendations on:
– strengthening Queensland economy
– Improving State’s financial position, including
regaining AAA credit rating
– ensuring value for money in delivery of front-line
services
4
TERMS OF REFERENCE – SCOPE
•
•
•
•
•
Key issues
Financial position
Improving the State’s financial position
Service delivery
Government commercial enterprises
The economy
• Terms of reference interpreted broadly by
Commission
– any matters relating to functions/activities of the
Queensland Government
5
TERMS OF REFERENCE – TIMETABLE
15 June 2012
Interim Report covering state of the
Government’s financial position
30 November 2012 Interim Recommendations
28 February 2013
Final Report delivered to
Government
1 March 2013
Executive Summary of Final Report
released
30 April 2013
Full Report and Government
Response released
6
OTHER COMMISSIONS OF AUDIT
Victorian Commission of Audit
1993
National Commission of Audit,
Commonwealth Government
1996
Queensland Commission of Audit
1996
New South Wales Commission of Audit
2012
Victorian Commission of Audit
2012
7
WHAT IS A COMMISSION OF AUDIT?
• Comprehensive review of the role, functions, activities of
government
– Focus on efficiency, effectiveness and value for money
• Not an “audit” in the formal sense
– not a “financial audit”
– not a “performance audit”
– but contains elements of both
• Unique perspective
– view from “the outside looking in”, not an inside view
• Opportunity only arises infrequently
– often with a change of government
– Rarely instigated by incumbent governments
8
KEY FEATURES
• Independence
• Transparency
• Not bound by government policy
• Opportunity
– to challenge the status quo
– to consider innovative solutions (e.g. for service delivery)
– to propose strategic objectives/direction for government
– to set agenda for change over period of 10-20 years
9
PROCESS
• Secretariat established to support the Commission
– small group: primarily public service officials seconded from
Queensland Government agencies
– some limited use of external consultants
– Secretariat organised into teams to review key topics
– worked under the direction of the Commission
• Extensive powers of investigation available to the Commission
• Funding provided from internal savings in Queensland
Treasury and Trade
10
PROCESS cont….
• Submissions from all core Government departments and
Government Owned corporations (GOCs).
• No public submissions
– some unsolicited submissions received and considered
• No public hearings
– Commission met with Chairs and CEOs of all GOCs
• Secretariat had extensive ongoing contact with departments
and limited contact with external parties
• Secretariat undertook research and analysis of issues,
prepared papers for Commission’s deliberations
– papers formed basis for Reports
11
MAIN FINDINGS AND IMPLICATIONS
12
OVERVIEW OF FINAL REPORT
• Focus of the Report is renewal in the public sector to provide
better front-line services
• Most comprehensive review of Queensland Government
functions ever undertaken
• 155 recommendations across four major headings (Front-Line
Service Delivery, Public Sector, Financial Management, and
Government Commercial Enterprises)
• 39 separate sections
• 1,000 pages of analysis
• 247 charts
• 127 tables
• 36 diagrams
• 47 case studies / illustrations
13
GOVERNMENT RESPONSE
118 accepted (76%)
7 accepted in principle
6 accepted in part
13 noted
5 for further consideration
6 not accepted
)
)
)
)
)
96%
14
ECONOMIC AND FISCAL CHALLENGE
The challenge for Queensland is to lift its productivity
performance to sustain the economic growth which will improve
living standards for its citizens.
15
ECONOMIC AND FISCAL CHALLENGE cont …
Multifactor productivity growth, trend (a), 1985-86 to 2011-12
3
Queensland
Rest of Australia
2
%
1
0
-1
-2
1986-87
1991-92
1996-97
2001-02
2006-07
2011-12
(a) Trend estimates are derived from original MFP data using an 11-term Henderson-weighted moving
average.
Source: Queensland Treasury and Trade
16
ECONOMIC AND FISCAL CHALLENGE cont …
‘Business as usual’ – Projected fiscal deficit
Fiscal deficit as a share of GSP
4
Lower growth
Higher growth
0
% of GSP
-4
-8
-12
-16
-20
2015-16
2050-51
17
ECONOMIC AND FISCAL CHALLENGE cont …
• Pressure on fiscal position
– Lower economic growth expected in future
– Ageing of the population
– Increased demand for government services
• Changes in service delivery to maintain stable fiscal position
– Productivity improvements of 1% year after year
– Costs to be reduced by one-third over 40 years
• This would lift GSP growth by 0.5% pa (extra $8,320 per
capita pa in today’s dollars by 2050-51)
18
SIZE OF GOVERNMENT
State Government expenditure as share of GSP
NSW
Vic
Qld
WA
SA
18
17
16
15
% of GSP
14
13
12
11
10
9
8
1983-84
1987-88
1991-92
1995-96
1999-00
2003-04
2007-08
2011-12
19
ROLE OF GOVERNMENT
Private provision of public services
20
ROLE OF GOVERNMENT cont …
Key principles to manage and deliver services
•
•
•
•
•
•
•
•
Focus on core services
Facilitate contestability in service delivery
Better demand management
Greater workforce flexibility
Capacity building
Lower overhead costs
Strengthen financial management
Build productive capacity
21
FRONT-LINE SERVICE DELIVERY
The Government must achieve better value for money in service
delivery. ‘Business as usual’ is not a sustainable option.
The primary responsibility of the Government is to ensure
services are delivered, not necessarily to be the agency that
actually does the delivery. It needs to be the ‘enabler’, not
necessarily the ‘doer’.
22
FRONT-LINE SERVICE DELIVERY cont …
State public sector wages: Queensland relative to all-states average
110
%
105
100
95
90
1983-84
1987-88
1991-92
1995-96
1999-00
2003-04
2007-08
2011-12
23
FRONT-LINE SERVICE DELIVERY cont …
Cost of service provision by state, 2010-11
108
Qld
% of national average
106
104
SA
102
WA
100
Vic
98
96
NSW
94
24
FRONT-LINE SERVICE DELIVERY cont …
Queensland public hospital expenditure and activity trends
Recurrent expenses
Weighted activity units
150
Index: 2007-08 = 100
140
130
120
110
100
90
2007-08
2008-09
2009-10
2010-11
2011-12
25
FRONT-LINE SERVICE DELIVERY cont …
Cost per casemix-adjusted separation, 2010-11
Australian average
$ per casemix-adjusted separation
5,400
5,200
5,000
4,800
4,600
4,400
4,200
4,000
NSW
Vic
Qld
WA
SA
26
FRONT-LINE SERVICE DELIVERY cont …
• Find more innovative and efficient ways of
delivering services
– reduce the high costs of service delivery
– drive higher productivity
• Greater role for non-government providers in
owning assets and delivering services (e.g.
through contestability)
27
FRONT-LINE SERVICE DELIVERY cont …
RECOMMENDATIONS
Areas for greater involvement of non-government sector
• clinical, clinical support and non-clinical services in public
hospitals
• mental health and community health services
• residential aged care facilities
• disabilities
• child safety
• corrective services
• social inclusion
• public housing services
28
FRONT-LINE SERVICE DELIVERY cont …
RECOMMENDATIONS cont …
Education
• improved student performance through increased devolution,
autonomy and accountability at individual school level.
VET
• independent industry-led skills authority
• competitive market
• asset ownership to be separated from TAFE
Police and Emergency Services
• more flexible risk-based resourcing
• greater co-location of facilities to provide better integrated
emergency responses and better asset utilisation
29
THE PUBLIC SECTOR
The goal for the public sector must be to achieve the
highest standard of excellence and ensure that
Queensland is the best administered state in Australia.
30
PUBLIC SECTOR ARRANGEMENTS
Employing legislation
• PS Act
• 15 other acts
Awards
• 50 Awards
• 50-60 Certified Agreements
Variability, anomalies and
inconsistencies
Increased costs and complexity in
administration of payroll, HR and
IR systems
Classification framework
• 250 levels
• 750 pay points
Unnecessary complexity and
rigidity
Health Payroll
• 10 Awards
• Multiple industrial agreements
• 200 different allowances
• 24,000 different pay
combinations
31
THE PUBLIC SECTOR cont …
RECOMMENDATIONS
• Rationalise and consolidate core public service
employment conditions
• Consolidate and simplify awards and certified agreements
• New flexible broad-banded classification system for public
service
• Appointment of employees to broad-banded levels (not
agency specific positions)
• More effective performance management system
32
THE PUBLIC SECTOR cont …
RECOMMENDATIONS cont …
• ‘ICT as a service’ strategy
– Source software, hardware and infrastructure as a service from
private providers
– Government should not own and manage ICT assets
• CITEC role to be discontinued within 2 years
• Reduce overhead administrative and corporate costs e.g.
contestability of corporate services
• Queensland Shared Services (QSS) operate on
contestable basis (not mandated)
33
FINANCIAL MANAGEMENT
There is an urgent need to restore the highest standards of
financial management to public administration – with an
enhanced long term financial planning framework, improved
budget, cash and asset management, and greater transparency
and accountability.
34
FINANCIAL MANAGEMENT PRACTICES
Relationship between the elements of the Appropriation Bill 2012
2010-11
financial year
2011-12
financial year
2012-13
financial year
2013-14
financial year
Supplementary
Appropriation for
Unforeseen
Expenditure
(retrospective)
Supplementary
Appropriation for
Unforeseen
Expenditure1
(retrospective)
Appropriation sought
for budget (vote)
(prospective
appropriation)
Supply
(interim
appropriation)
35
FINANCIAL MANAGEMENT cont …
RECOMMENDATIONS
•
•
•
•
•
•
Intergenerational Report
State Infrastructure Plan
Simplified appropriation framework
Improved budget, cash and asset management
Charter of Budget Accountability
Greater role for private sector in infrastructure
investment
• Queensland Productivity Commission
36
FISCAL REPAIR STRATEGY
• Commission’s recommended strategy (Interim Report)
- arrest deterioration in State’s financial position and
stabilise position
- pay down debt
• $25-30 billion debt reduction necessary to restore financial
strength and provide buffer for adverse events
- Will also restore AAA credit rating
• Debt reduction of this magnitude can only be achieved by
releasing capital from the State’s balance sheet
37
38
39
40
Total Government debt to revenue ratio
140%
Actual
Projection
120%
Trigger range for AAA credit rating
100%
80%
60%
40%
20%
0%
2000-01
2003-04
2006-07
2009-10
2012-13
2015-16
Source: Treasury
41
Total Government gross debt, share of GSP
30%
Projection
Actual
Queensland
25%
New South Wales
Victoria
20%
Western Australia
15%
10%
5%
0%
2000-01
2002-03
2004-05
2006-07
2008-09
2010-11
2012-13
2014-15
Source: Australian Bureau of Statistics 5512.0, State Budgets and Mid Year updates, Treasury
42
Actual
Source: Treasury
43
FISCAL REPAIR STRATEGY
• Commission’s recommended strategy (Interim Report)
- arrest deterioration in State’s financial position and
stabilise position
- pay down debt
• $25-30 billion debt reduction necessary to restore financial
strength and provide buffer for adverse events
- Will also restore AAA credit rating
• Debt reduction of this magnitude can only be achieved by
releasing capital from the State’s balance sheet
44
GOVERNMENT COMMERCIAL ENTERPRISES
The Government must make better use of its balance sheet, by
releasing capital locked up in mature assets to pay down debt,
lower interest costs and free up funds for investment in new
infrastructure (for example, flood prevention).
45
GOVERNMENT COMMERCIAL ENTERPRISES
Commercial assessment tests
1. No need for government to own assets that compete with
private services in workably contestable markets
2. No need for government to own commercially sustainable
businesses
3. Where government remains responsible for services:
• deliver through own agency or non-government providers
• deliver through contestability
46
GOVERNMENT COMMERCIAL ENTERPRISES cont ….
Ownership patterns in the National Electricity Market –
by indicative market share
Australian Electricity Market Operator / Australian Energy Regulator
Generation
2
Origin Energy
(multi-region)
TRUenergy
(multi-region)
AGL
(multi-region)
International
Power
Other
Generators
(Vic & SA)
Transmission3
Electranet
(SA)
Distribution4
ETSA
(SA)
Retail 5
Transgrid
(NSW)
SP Ausnet
(Vic)
Powercor, SP AusNet, United,
CitiPower, Jemena (Vic)
Origin Energy
(multi-region)
Private Ownership
Essential
(NSW)
AGL Energy
(multi-region)
Actew AGL Public- Private JV
AETV
Snowy
&
Hydro
Hydro
(Vic & NSW)
Tas
Delta &
Mac Gen
(NSW)
Powerlink
(Qld)
Transend
(Tas)
AusGrid
(NSW)
Endeavour a
(NSW)
TRUenergy
(multi-region)
Public (planned to be privatised)6,7
CSE & Stanwell
(Qld)
Energex
(Qld)
Other
Retailers
Aurora
(Tas)
Ergon
(Qld)
Ergon
(Qld)
Public Ownership
a Aurora Energy distribution
47
GOVERNMENT COMMERCIAL ENTERPRISES cont ….
Key events for energy sector GOCs
1 July
2012
1 July
2013
1 July
2014
1 July
2016
1 July
2015
Fixed price carbon tax
1 July
2017
1 July
2018
Market carbon permit cost
Increasing LNG demand
Current Powerlink pricing period
Current Ergon and Energex pricing
period
New Powerlink
pricing period
New Ergon and Energex pricing
period
Source: Commission of Audit
48
GOVERNMENT COMMERCIAL ENTERPRISES cont ….
RECOMMENDATIONS
• Dispose of businesses operating in commercial
markets, when conditions favourable:
–
–
–
–
–
–
–
–
Energex ($9.2B)
Ergon ($7.7B)
Powerlink ($5.3B)
CS Energy ($0.9B)
Stanwell ($1.7B)
Gladstone Ports Corporation ($1.2B)
Townsville Port Authority ($376M)
Queensland Investment Corporation ($18M)
49
GOVERNMENT COMMERCIAL ENTERPRISES cont ….
OTHER GOC RECOMMENDATIONS
Transport Services
• Bulk Ports North Queensland to have supply chain coordination
role.
• Mount Isa rail freight line integrated with Townsville Port Authority
• Passenger rail and bus services to be restructured to be delivered
through:
– contestable contracts
– franchise and lease arrangements
Reform of GOC governance model
• Single shareholding Minister model
• Improve efficiency of GOCs
– Reform restrictive workplace practices
– Remove unnecessary policy restrictions
– Make transparent full cost of Government policy requirements
50
“BUSINESS AS USUAL” IS NOT SUSTAINABLE
• High cost of delivering services
• Low productivity
• Ageing population and workforce
placing pressure on financial position
Expenses expected to rise faster than revenues
51
STRATEGIC BLUEPRINT
Innovative service
delivery (including
greater use of
non-government sector)
Improved public
sector flexibility and
efficiency
Unlock scarce capital
and free up resources
for debt reduction and
new investment
Greater productivity and
better resource use
 including use of capital
More front-line services
(with stable fiscal
position)
52
VALUE OF COMMISSION OF AUDIT PROCESS
•
•
•
•
•
•
•
Independent, objective, arm’s length view
No “baggage”
Fresh look at the way things are done
Valuable input from the bureaucracy
Long term strategic perspective
Opportunity for renewal and reform
Decisions are a matter for government
53