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Release of the Report of the National Commission of Audit sets the scene for budget cuts


Following intense media speculation over the last few weeks (together with selective leaking of information), the Federal Government finally released the Report ("Report") from the National Commission of Audit ("Commission") yesterday afternoon.

 

           

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The Commission was tasked to review all operations of State and Federal Governments with the intent to recommend measures to reduce what the Federal Government considers to be an unacceptably high level of Government deficit and Government spending.  In a manner similar to the Productivity Commission, the Commission undertook a rigorous and comprehensive analysis of the operations of Government based on principles of economic rationalism.  Issues such as societal benefit and equity, political expediency and ease of implementation did not form part of the agenda for the Commission. 

Clearly, as with the earlier task undertaken by a similar body to the Commission in 1996 for the first Howard Government, it is unlikely that all or even the majority of recommendations will be implemented.  However, the recommendations do provide the Federal Government with some level of justification as to any recommendations which it elects to adopt.  It also allows the Federal Government to appear to be politically and socially considerate from those recommendations which it does not adopt. 

The Federal Government has indicated that it will identify those recommendations it proposes to adopt during the Federal Budget to be delivered on 13 May 2014.  Doubtlessly, that makes the terms of that Budget more controversial than would normally be the case.

However, in the short term, the comments of the Commission and its recommendation do raise some issues of significant interest to industry.
By way of summary, these include the following:

  • Recommendations to eliminate a number of programs where deemed there to be no genuine market failure and where benefits accrue entirely or the Government largely to the firm or industry supported.  This includes recommendations to abolish the Automotive Transformation Scheme, the Steel Transformation Plan, Ethanol Production Subsidies, the Rural Financial Counselling Service, Enterprise Solutions, the Clean Energy Finance Corporation and specific funding to GM Holden and the Cadbury factory in Tasmania (although the removal of the latter would seem to be extremely unlikely given the support was granted to the Cadbury factory in the run-up to the last election). 
  • The recommendations include recommendations that a number of bodies and programs intended to assist Australian exporters such as Austrade, the Export Finance & Insurance Corporation (EFIC), the Export Markets Development Grant Scheme (EMDG), the Asian Business Engagement Plan Grants and support for the tourism sector should all be abolished.  The Commission suggests that the funding to Austrade does not appear to represent value for money with relatively high costs for the number of business opportunities generated with a low return on investment.  As a result, the Commission also recommends that the residual functions of Austrade (such as trade facilitation) should be incorporated into a commercial arm of DFAT to focus on trade facilitation and diplomacy and reduce duplication of corporate services and other overheads.  In relation to EFIC, the proposal is that the existing loan book should be transferred to DFAT to investigate options to on-sell or wind-up the loans.  The Commission also formed the view (as did the previous National Commission of Audit) that the EMDG scheme should be abolished as the benefits of success are able to be captured by the business itself.  I should add that I do not share these views!
  • In terms of broader industry assistance, the Commission has referred to support provided to industry through other trade protection such as tariffs and through other non-tariff forms of protection such as anti-dumping measures.  In 2011/2012, the Productivity Commission identified that net tariff assistance to industry amounted to $1.1 billion.  The Commission reiterated earlier comments by the Productivity Commission that Australia's current system of applying dumping fees to protect Australian producers from cheap imports "benefits a small number of import competing firms, but imposes greater costs on the rest of the economy".  Accordingly, the Commission recommends that dumping protection should not be implemented unless the benefits exceed costs to other industries and to Australian consumers. The Commission (as did the Productivity Commission) recommended including a public interest test in determining whether measures should be applied even where dumping has been established.  However, given that the Federal Government rejected that recommendation when it was made by the Productivity Commission and given the recent steps by the Federal Government to "enhance" and "toughen" our anti-dumping regime, such a fundamental change appears to be unlikely to be adopted. 
  • There are also significant recommendations regarding rationalisation of Commonwealth bodies, authorities and agencies including recommendations to abolish (7), merge with other bodies (35), consolidate into the portfolio department (22), privatisation (9) and review, with a view to merging, abolishing or transferring (26). 
  • In terms of opportunities for consolidation of Government agencies the Commission proposes a single border agency to be known as "Border Control Australia" through the merger of the border control functions of the Department of Immigration and Border Protection and the Australian Customs and Border Protection Service ('Customs').  However, that does not address other issues associated with those agencies, for example, revenue collection and administration of tariffs and other industry programs.  Consolidation of border control operations into one agency has been flagged for some time with views that the revenue aspects of border control (such as customs duty and GST) should be transferred to the Australian Taxation Office (such as happened with excise duty) and the border agencies should be left purely to border control issues.  That would be consistent with the practice overseas such as in the United States.  However, there seems to be some significant practical issues with establishing one border control agency and, in the short term, the significant cost may well outweigh any longer-term benefit.

As always, we will bring further news to you and will report further on which of these recommendations are adopted within the Federal Budget.

 

 

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