Ian Macdonald (Queensland, Liberal Party, Shadow Parliamentary Secretary Assisting the Leader of the Opposition in the Senate) Share this | Hansard source

I present the report of the Select Committee on State Government Financial Management, together with the Hansard record of proceedings and documents presented to the committee.

Ordered that the report be printed.

by leave—I move:

That the Senate take note of the report.

First of all, I extend my and the committee’s thanks to the committee secretariat. This particular reference and this inquiry is a very technical one. I think I speak for all the committee members in saying that much of the evidence we got was of a highly technical nature. Some of us were not as well equipped to deal with that as, perhaps, others were, but the secretariat did a magnificent job. I particularly want to mention Mr Stephen Palethorpe and Mr Tim Watling and their staff for the excellent support they gave to the committee. I also thank all of those witnesses who appeared before the committee. Some travelled great distances to assist the committee with the evidence they gave. The committee is particularly grateful to witnesses.

To speak to this report properly will take more than the 10 minutes that is allowed to me today but I want to make some general comments. I will come back to the report in more detail when time permits later in the Senate’s schedule. By and large, the committee heard and I think accepted that the financial management of the relevant state governments around Australia was pretty poor. You only have to look at the New South Wales situation in recent days to give justification to that conclusion. I particularly want to thank Mr Michael Costa, the former Treasurer in New South Wales, who had a parting shot at his former government colleagues when he resigned. He indicated that stamp duty revenues had fallen by $180 million in the first two months of the financial year, the health budget had blown out by $300 million this year alone, and there was a $5 billion capital funding shortfall over the next five years causing Standard and Poor’s to warn that there was a one in three chance of New South Wales losing its AAA rating which would, in turn, raise borrowing costs by over $500 million over the forward estimates.

If you looked at the material presented to us, perhaps you would see that we have not come to such a clear conclusion as Mr Costa made available to us in his media conference. This was one of the issues that the committee found some difficulty with during its inquiry. State governments across the country put out various reports, graphs and details of their financial positions, but they are practically meaningless. One would almost think that the way they present their reports is designed to ensure that the public has no idea of the real state of play in state government finances. That is why one of the committee’s recommendations is that there should be a uniform and simple process for all state governments to report so that you can make an assessment of the financial management of particular state governments.

The GST has been a huge windfall gain for state government finances but, as I will mention in more detail later, they have in many cases squandered the money that has been received. There is evidence to back this up and it is all mentioned in the report. You might recall that part of the deal for the states was to remove a certain number of state taxes, but the committee was disappointed to learn that not all states have done that. That is set out more fully in the report.

The evidence before the committee showed that state governments have generally failed in infrastructure investment and, in recent years, when they have borrowed to try to catch up on the core infrastructure, they have in fact put upward pressure on inflation. We often hear this government saying a whole lot about inflation. I never hear them saying, though, that to a degree the state governments’ ill-timed infrastructure investment has been a real cause of rising inflation in Australia, and I am delighted that our inquiry was able to highlight that evidence. I will detail that a little later in my speech or when I have the ability at some other time.

I want to refer to particular items in the report that may be of interest. We heard that state governments, as I say, have had a major windfall with the GST but that they have not spent it well. I refer to paragraph 4.42 of the report where we detailed that, between 1996 and 2007, the number of public sector employees in the Australian government decreased by 121,700. But, over the same time, public sector employees at the state level increased by 210,700 in number. If you could say that that is because the states are giving increased service to their constituents that might be excusable, but you can pick up any newspaper in any state capital to see the huge problems that state bureaucracies are having in running hospitals, running schools or, in fact, running anything. So that money has been squandered. Also, the report highlights that, between 1996 and 2007, the amount spent by the Commonwealth government on wages increased by 12 per cent. At the same time, state governments’ wages bills increased by 95 per cent. You can just imagine what that is doing to inflation.

I note table 4.6 in the report. Again, it deals with superannuation. State governments will give you headlines and produce some figures saying that they are doing pretty well, but when you look at superannuation liabilities, which, in the main, are unfunded, you see the real position. In relation to the net debt in the general government sector, Queensland’s figures, for example—I will use my own state—show that they have not a net debt but a surplus of some $24 billion for the current financial year which will fall to a surplus of about $13 billion in 2011-12. But, if you include the unfunded superannuation, you will find that what the Queensland government told us was a surplus of $13 billion is in fact a deficit of something like $11 billion—and that is unfunded. That is the sort of financial management we heard about during the inquiry.

I have many, many examples to support my contention that the states have managed poorly, and I very much look forward to being able to advise the Senate of them. But can I just refer the Senate to page 65 of our report where we look at government business enterprises. The Productivity Commission conducted an investigation and found that over half of the government business enterprises they investigated failed to achieve a return on assets above the risk-free rate of return. Further, they found that 12 GBEs, or 14 per cent, failed to achieve a positive return on their assets and, in total, GBEs made payments to owner governments of almost $4.4 billion but poor profitability has led to inadequate returns. The evidence provided to us listed a number of government business enterprises who paid to their shareholding governments more than 100 per cent of their profits as dividends to suit the political purposes of the relevant state government owner. They are listed in the appendix 6 of the report. I am concerned at the way states have managed their finances— (Time expired)