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Advance review of the Audit Commission

April 26th, 2014

Only a few weeks until Budget Day and Joe Hockey is sitting on, or rather, selectively leaking the report of the so-called Commission of Audit. As promised, I’ve written a review in advance, which I presented to a Senate Committee a couple of weeks ago. It will be interesting to see what, if anything, needs changing when the actual report is released.

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  1. rog
    April 27th, 2014 at 07:24 | #1

    A good read – the logic is irrefutable. For a long time the LNP has been banging the debt drum and so they are committed to this course of action. As Krugman tries to explain, running a national economy is not the same as running a household budget.

  2. Ikonoclast
    April 27th, 2014 at 10:10 | #2

    Can I suggest a couple of minor changes (one is just a typo really);

    Current Text 1

    “Changes in public expenditure should be based on an assessment of costs and benefits rather than on a political agenda of rewarding favoured groups and punishing opponents.”

    Revised Text 1

    “Changes in public expenditure should be based on an assessment of costs and benefits for the whole of society rather than on a political agenda of rewarding favoured groups and punishing opponents.”

    Current text 2 (page 3)

    “the report released is thunderous publicity,”

    Revised text 2 (page 3)

    “the report is released with thunderous publicity,”

    Another Point.

    You write:

    “From a Keynesian perspective, assuming continued strong growth, it would be desirable to
    achieve a budget surplus, ideally of around 2 per cent of GDP.”

    From the context, I am not entirely sure if you are advocating this or simply describing what is your perspective of the Keynesian perspective. Either way I am not sure why you do not have some robust discussion about our continuing unacceptable unemployment and underemployment especially of the youth cohort. In particular, is not some discussion required about the trade-offs between inflation fighting and unemployment fighting? Are not the unemployed poor being made to carry much of the can for inflation fighting to protect the accumulated wealth of the well-off?

  3. paul walter
    April 28th, 2014 at 00:43 | #3

    Poor John Quiggin.

    He thinks government is about rational thought and action with adult outcomes related individual and social progress, rather than something that operates as a platform or opportunity for the outworkings of upper class subjectivities and pathologies dislocated from reality, at the expense of everyone else.

    In his most recent thread, concerning universities, he mentions examples of the pathology, in one the Kemp Brothers and Andrew Norton. He needs to say from whence the terror of all not being controlled- yes, this overwhelming urge to control, comes from with these (insecure) un-self reflexive and strange people; it must be a terrible state of mind for them to be in, but how are they to be cured before they destroy the lot for everyone else?

    Also we need to understand why these people have been so impervious to logical explanations and reassurance, for decades and not been therefore also able to “get a life”.

  4. Graham White
    April 30th, 2014 at 04:41 | #4

    tony abbots debt levy on high incomes is unexpected.

    If Labour continue to attack Abbot from the right he is likely to accuse Labour of being unreasonable, if Labour pass the debt levy it could reduce his base’s enthusiasm and could hurt him next election. It looks like Labour are doing the stupid option politically

    its also a bizarre option. I would understand if they were refusing on the basis that its too early to balance the budget before interest rates rise but attacking abbot from the right looks like political suicide for shorten

  5. Ernestine Gross
    May 2nd, 2014 at 00:07 | #5

    Prof Q, I’ve spent several hours reading the Commission’s Report and there are many more hours to go. My observations so far are:

    The methodology (the methodology) used in the Report is familiar to me as a ‘stratigic’ corporate finance report to a Board of Directors. MBA programs provide training for this method to potential consultants.

    With respect to your Summary:

    1. Spot on.
    2. The commission uses the Howard-Costello years as THE point of reference regarding target values.
    3. Haven’t found anything as yet on tax expenditure.
    4. This is outside the methodology
    5. Ditto
    6. Haven’t found anything as yet on this point.
    7. This is outside the methodology
    8. Ditto.

    Some odd observations.

    a) The Commission says it has not done detailed costings of the recommendations. They say “but when they are implemented we expect significant savings will be built in over time.”
    So, what do their diagrams about the bahaviour of ‘the balance sheet’ under ‘business as usual’ vs their ‘reform’ show? Assumptions?
    What does the term ‘savings’ mean in this context?

    b) The Commission says: “Departmens should be the primary source of policy advice.” So, what is the purpose of the Commission? (The Treasury as well as the RBA have econometric models – is everybody now forced to work with spreadshees only?)

    c) The commission says they focus on the 15 highest growth areas. Chart 3 on p vii is intersting because in 13/14, the so-called 15 highest growth areas amount to just a tiny bit over 50% (between 51 and 55%) of expenditure. So it is all assumed growth, because even a simplistic projection would show historical data, too. (I tried to find independent references for their assumptions but found the site difficult to search. I’ll have to wait until I finish reading the 300+ pages).

    d) Also on p. vii, there are growth projections for the National Disability Insurance Scheme expenditure, which I cannot reproduce. Given the information in the report, I arrive at either $9b or 14.16b but not $11. b.

    e) p xiv: “More than 4 years into the economic recovery from the Global Financial Crisis, the Budget should not be in deficit to the tune of 3% of GDP.” Why?

    f) p. xiv: “The Commission considers the central element of the fiscal strategy that has been in place for nearly two decades (i.e since 1996; comment in brackets added) should be restored to provide stability and consistency in Australia’s overall fiscal framwork.”

    They also talk about ‘common sense’, ‘pragmatic’, ‘prescriptive’ , ‘performance’ and ‘accountability’ in some places. And their recommendation as to what the government’s objectives should be, are:
    * “Achieving a surplus of 1% of GDP by 23/24
    * Substantially reducing net debt over the next decade
    * Ensuring taxation receipts remain below 24% of GDP.

    These are, in the language of corporate management, ‘key performance indicators’.

    It seems to me, the KPIs for a government should be set by the voters (even shareholders aren’t happy with KPIs for corporations).

    KPI 1 is, in all likelihood, irrelevant for the government that would listen to its consultant today.

    KPI 2 is, I believe something economists would agree with, if KPI 1 and KPI 3 are ignored.

    KPI3 is strange. Even the rules based system of the Euro EU does not have a constraint on this parameter.

    c)

    1.

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