Lindsay Tanner (Melbourne, Australian Labor Party, Shadow Minister for Finance) Share this | Hansard source

I rise to speak on Appropriation Bill (No. 3) 2005-2006 and Appropriation Bill (No. 4) 2005-2006. First, I want to traverse a number of issues about the adequacy of financial disclosure of budget information under the Howard government. There are a number of issues that I believe we need to address. Secondly, I want to refer to a specific example that illustrates one of those particular issues. Thirdly, I want to deal with the pattern of government spending, in particular the excessive government spending that has characterised the Howard government for the last four or five years. Finally, I want to make some general observations about the state of the Australian economy.

Late last year, the Labor Party established a consultation process with a substantial range of experts—commentators, economists and academics—who have considerable knowledge about the budget processes and the financial disclosure of the Commonwealth. We dubbed it Operation Sunlight. The purpose of this exercise is to obtain expert advice on a program of serious reform of the presentation of the budget and appropriations materials in order to ensure that we have genuine transparency and accountability and that it is possible for the Australian people generally, but particularly those who are the interpreters of budget information—expert commentators, economists, financial market people and other people who have to interpret and understand the budget information—to get genuinely accessible, meaningful financial information.

There is a list of particular issues that I wish to run through very quickly to indicate the kind of terrain that we are traversing. We are well advanced in our process of consultation and will hopefully, in the not too distant future, be announcing a set of proposed reforms that will become Labor’s commitment to greater transparency and accountability in government.

The outcomes and outputs framework that was introduced by the government a number of years ago is still fairly undeveloped. The elements are poorly linked across portfolios and in many cases the outcomes have little substantive meaning. For example, in Family and Community Services there is an outcome which reads as follows:

Families and children have choices and opportunities

Services and assistance that: help children have the best possible start to life; promote healthy family relationships; and help families adapt to changing economic and social circumstances and take an active part in the community.

That is an outcome that none of us could quibble with but ultimately, in the context in which it is put forward, it is effectively meaningless. It is a very general, bland statement of broad intent which anybody, no matter what their political viewpoint is, could happily sign up to. It does not really tell you anything in detail about what the particular aspects of the budget in this portfolio are. There is a problem with the outputs and outcomes framework.

The links between the appropriation legislation, which we are dealing with this evening, the portfolio budget statements and the budget itself are very poor. We have particular categories of expenditure which are highly aggregated so that in many cases it is not possible to tell how much is being spent on specific programs and in many cases it is very difficult to track the expenditure and the financial commitments from one set of financial documents to another across the appropriations legislation, the portfolio budget statements and the budget.

Intergenerational issues and the longer term implications of particular entitlements or spending categories are dealt with very inadequately. The government is commonly making new commitments, introducing new spending items, without any serious accounting for the longer term implications that they carry for the budget. There is insufficient detail with respect to spending in many areas. Particular programs are not identified separately and are subsumed within very broad outcome categories so that it is often very difficult to establish precisely what is going to be spent on a particular program or a particular agency.

Accuracy of estimation is a major problem. We received some information late today indicating that the level of error in estimating the amount of expenditure for particular programs is very high. These are dubbed parameter variations when subsequent budget documents such as the midyear economic and fiscal outlook papers are put forward. In reality, they are mistakes. They are errors in estimation of the total cost of financial commitments or likely revenue. They are getting worse and worse.

Tax expenditures—and there is an example that I want to refer to specifically in my contribution shortly—are very seriously inadequately accounted for in the budget. They do not have anything like the degree of scrutiny and examination that a spending commitment has. Whereas a particular spending commitment will be properly accounted for and there will be projections into the future, a tax expenditure is simply reported upon very perfunctorily, even though the net effect is really the same. That makes it very difficult to compare and contrast a particular form of assistance to a section of the community or a particular initiative that is done by way of tax expenditure with one that is done by way of direct expenditure by the Commonwealth. If for no other reason than to understand priority choices, it is very important to be able to compare and contrast the two.

Standing appropriations, where there is in effect an automatic continuing appropriation outside the budget process, have become much more prevalent under the Howard government. Because they are not subject to the same level of scrutiny as the annual budget and the appropriations legislation, they, by definition, tend to detract from the degree of transparency and accountability that we see in the process of parliamentary scrutiny.

There is still an ongoing debate about which accounting standard, GFS or AAS—that is, government financial statistics or Australian accounting statistics—should apply. What tends to occur, although often you will get both being applied, is that governments tend to pick and choose which one they use according to which suits a particular political case. There is a long overdue need for us to rationalise this issue and to get to a point where there is a single agreed standard that is the benchmark on which all issues are dealt with.

There is a need for greater continuous disclosure of financial information. There is a need to reform the extent to which commercial-in-confidence is used by the government as a means of hiding things that are politically embarrassing—even in some cases where the commercial party to a contract may not be particularly concerned if they are revealed. There is, of course, the infamous description of the GST as a state tax, when the Auditor-General and the Australian Bureau of Statistics both agree that it should be accounted for as a Commonwealth tax which is then passed on to the states. Finally, there are serious questions with respect to the contingency reserve, which is the subject of relatively opaque and very limited reporting, even though it is encompassing a very substantial amount of money in any given year.

They are the issues that we are dealing with. The Labor Party, after due consideration of the very worthwhile suggestions we are currently receiving—we have received some quite detailed submissions from a number of people—will be putting out a specific program of budget reforms that are designed to ensure that more financial information is available, that it is more transparent, that there is a greater degree of accountability and that people have the ability to get the information that they feel they need.

I now turn to the specific matter that I think is a very good illustration of some of these problems—in this case, the misuse of a particular tax expenditure. One of the major weaknesses in budget reporting is the minimal information provided with respect to tax expenditures. I want to raise a specific example. On 20 June 2003 then Assistant Treasurer Senator Helen Coonan announced that the Constitution Education Fund Australia would be granted deductible gift recipient status. The Income Tax Assessment Act was duly amended to provide for tax deductibility with respect to donations to CEFA. DGR status is usually very difficult to obtain and is available only to organisations which undertake activities of direct benefit to the community, such as charitable or educational activities. Organisations engaged primarily in political campaigning or advocacy do not qualify.

Close examination of the CEFA reveals that it is not quite what it seems. Its address is the same as the address of Australians for Constitutional Monarchy—Level 13, 189 Kent Street, Sydney. Its executive director is Kerry Jones, who, until very recently, was executive director of ACM. Her deputy in CEFA, Phuong Dong Van, has recently been notified to ASIC as Kerry Jones’s replacement at ACM. Both ACM and CEFA engage Kerry Jones Strategic Management Services Pty Ltd to run their affairs. KJSMS is also domiciled at Level 13, 189 Kent Street, Sydney.

According to the 2004-05 CEFA annual report, KJSMS raises funds for CEFA, manages its activities and pays its expenses. KJSMS has a very similar arrangement with ACM. The national convener of ACM, Professor David Flint, is a trustee of CEFA and is the signatory on the trustee’s report in the CEFA 2004-05 annual report. According to an answer to a question on notice from the member for Banks provided by the Treasurer on 17 November 2004, Professor Flint wrote to Senator Coonan in April 2003 seeking tax deductibility for donations to CEFA. CEFA and ACM have the same auditors—Bandle McAneney of Canberra. Neither ACM nor ARM, as political lobby groups, have tax deductibility.

The story gets really interesting when you take a look at the CEFA and ACM accounts. In 2002-03, the year before donations to CEFA were made tax deductible, ACM received $450,597 in donations. In 2003-04, this fell to $203,271, less than half that amount. CEFA received $348,545 in donations in 2003-04, all of it tax deductible. A similar pattern can be seen in ACM expenses. Between 2002-03 and 2003-04, ACM labour costs fell from $198,141 to $110,655. Promotions and events costs fell from $127,955 to $61,061 and office expenses fell from $102,632 to $48,634. CEFA expenses for 2003-04 totalled $293,727. A whopping 85 per cent of its total outgoings was spent on wages, rent and office administration. A mere $14,104 was spent on direct activities for which CEFA was supposedly established—the Governor-General’s prizes.

Things were not much different for 2004-05, when 81 per cent of total outgoings of $456,589 were spent on wages, rent and office administration. Expenditure on direct activities rose to a still very meagre $62,600. Interestingly, in the 2004-05 CEFA annual report, Kerry Jones stated:

All funds being raised for CEFA 2003-2005 are clearly designated for specific operational projects which meet the objectives of the trust. Donors can be assured that administration expenses are kept to the necessary minimum.

The CEFA 2004-05 annual report contains a statement of personal endorsement from Prime Minister John Howard. Apart from Kerry Jones and David Flint, CEFA’s board is a waxwork museum of crusty old monarchists such as Sir Harry Gibbs, Lloyd Waddy, Digger James, Geoffrey Blainey, David Smith, Hugh Morgan and Dame Leonie Kramer. The board includes two or three token republicans who are definitely not representative of the ARM or the broader republican movement.

On 11 May, CEFA was publicly promoted by controversial right-wing Liberal member of parliament David Clark in a speech to the New South Wales Legislative Council. Governor-General Michael Jeffery is the patron of CEFA. According to an article posted on New Matilda on 9 February 2005 by the ARM’s John Warhurst and Allison Henry, CEFA has made no approach to the ARM about contributing to its activities, even though it is supposedly non-partisan in constitutional debates.

At the ACM-CEFA offices at 189 Kent Street, Sydney there is virtually no distinction between the two organisations. They share common facilities, including reception. When a member of the public visited these offices recently and asked for CEFA information on the republic debate, he was offered ACM material. When he stated that he specifically wanted CEFA material, the response was, ‘I think we’ve got some around here somewhere.’

Only one conclusion can be drawn from these facts: the ACM is engaged in a brazen tax scam, with the direct connivance of the Howard government. CEFA is simply an ACM front organisation, which exists solely as a filter through which donations to the ACM can become tax deductible. While CEFA undertakes a bare minimum of genuine activities to give it some outward legitimacy, in fact a large slab of ACM donations and expenses has simply been switched to CEFA. It operates from the same location as ACM, it is run by the same people and it has the same auditors. It is little more than a shell.

This is nothing less than a fraud on Australian taxpayers. Hundreds of thousands of dollars of tax which would otherwise be payable by ACM donors has been evaded by the use of this elaborate sham. While it is theoretically possible that there is some innocent explanation behind these facts, I find it very hard to conceive of one. If there is such an explanation, I urge the ACM to make use of their right of reply in the parliament.

The government should withdraw CEFA’s tax deductibility immediately. It should come clean on how this outrageous scam came about and why it failed to adequately police its own tax deductibility arrangements. That well-known republican Peter Costello might explain how this monarchist tax rort occurred on his watch. The former ARM leader and current federal member for Wentworth might also outline his view of this arrangement. Those ACM donors who benefited from the scam should pay the tax they rightfully owe.

I now turn to the issue of government spending generally. On a number of fronts, spending under the Howard government is out of control. I refer to the second reading amendment, which stands in my name and which I duly move:

That all words after “That” be omitted with a view to substituting the following words: “whilst not declining to give the bill a second reading, the House is of the view that:

(1)

despite record high commodity prices the Government has failed to secure Australia’s long term economic fundamentals and that it should be condemned for its failure to:

(a)

stem the widening current account deficit and trade deficits;

(b)

reverse the reduction in public education and training investment;

(c)

address critical structural weaknesses in health such as workforce shortages and rising costs;

(d)

expand and encourage research and development to move Australian industry and exports up the value-chain; and

(e)

address falling levels of workplace productivity; and

(2)

the Government’s extreme industrial relations laws will lower wages and conditions for many workers and do nothing to enhance productivity or economic growth; and

(3)

the Government’s Budget documents fail the test of transparency and accountability”.

We all recall the revelations late last year about Tumbi Creek; the Karratha Caravan Park, funded with a few hundred thousand dollars from the federal government; the hotel in Atherton; and various other projects, such as the steam train in Beaudesert that never ran. They are just the tip of the iceberg of the vast amount of waste and misuse of public funds by the Howard government: Networking the Nation, the Centenary of Federation fund, the Natural Heritage Trust and many others have all been vehicles for doling out largesse to people in marginal seats—particularly National Party held marginal seats—in order to prop up the government. How politically effective this is I think is uncertain. It is difficult to know without very intensive research, but it is economically appalling. It is a waste of taxpayers’ money and it is a misuse of taxpayers’ money. Bit by bit, the tally is mounting.

We have also seen an extraordinary misuse of the Commonwealth’s advertising budget, which mysteriously ramps up dramatically in the six to 12 months prior to an election, in order to advance the government’s political cause. The most recent example of this was the advertising to the tune of over $50 million in respect of the government’s industrial relations legislation, well before the legislation had even been finalised, much less tabled.

As we look around the various departments of state in the Commonwealth, we can see that there is a culture of waste and mismanagement—nowhere more so than in the Department of Defence. Having been a member of the Joint Committee of Public Accounts and Audit for extended periods, it is something of a depressing routine to be regularly dealing with the Department of Defence about waste, poor accountability, lack of financial management and all the kinds of things that you would hope are central to the appropriate management of such a crucial department as the Department of Defence.

In recent times the government has also acquired a habit of making new commitments to particular favoured constituencies, which inevitably will blow out in cost in five to 10 years time. A range of commitments such as the mature-age tax offset, the utilities allowance, the exemption from capital gains tax of retiring small business owners and the $1,500 co-contribution with respect to superannuation have relatively modest impacts on the budget—significant but not enormous—but it is inevitable that, because of demographic change, within five or 10 years the impact that those commitments will have on the budget will be enormous, just as it is equally inevitable that the current huge surpluses that are being driven by the commodity price boom will fade away.

It is worth noting that the current figures with respect to government spending as a proportion of gross domestic product are artificially favourable to the government because they do not take into account the impact of the new tax system in 2000—the introduction of the GST and all of the changes associated with that. In particular, they do not take into account the abolition of financial assistance grants.

Debate interrupted; adjournment proposed and negatived.

In particular, the figures for the percentage of gross domestic product taken up by federal government spending no longer include any equivalent of financial assistance grants. The last year that they did, the amount concerned was about $18 billion. That was paid by the Commonwealth to the states and therefore counted as Commonwealth expenditure.

Fortunately, in the budget papers there is a yearly figure of a notional payment to the states figure that would have applied had the old system still been operating, so it is possible to fairly easily do an apples-to-apples comparison. What that shows is that federal government spending is still around 23.7 per cent of GDP once you factor in the equivalent of those financial assistance grants, which, of course, are now subsumed within the payments of GST revenue to the states. Interestingly enough, that is a substantially higher figure than the equivalent figure in the late eighties under the Hawke government and prior to the recession, which inevitably blew out the percentage of federal spending as a proportion of GDP, because GDP shrank and, by definition, spending increased. When you compare it with the equivalent period in the late eighties, you will see that federal government spending at that time was 22.4 per cent of GDP. If the Howard government were spending at the same level as the Hawke government in the late eighties, its expenditure would be $11½ billion lower than it currently is—so much for the party of small government, so much for the party of the market, so much for the party of fiscal responsibility.

It is also interesting to note that very recently the lack of due process and the lack of true accountability on financial matters and expenditure in the Howard government were exposed by the Auditor-General. Section 31 of the Financial Management and Accountability Act empower the finance minister to enter into agreements with individual agencies that enable them to spend particular categories of money—for example, moneys that they receive through direct payments from the public such as charges and things of that nature. The opposition has no complaint with this. What we do have a complaint with, though, is the fact that the Auditor-General found in many cases that no such agreements had been entered into but that the agencies were behaving as if they had been.

The net effect of this is that billions of dollars of money have been expended without proper appropriation by the parliament. Under the Constitution, quite correctly, the government is unable to spend money unless this is approved by parliament, which is done, of course, by the legislation that we have before us tonight or by specific appropriations or, in some cases, by the minister—the finance minister, in this case—where they are given the delegated power to authorise particular kinds of appropriations.

That is just one small example of the Howard government’s lack of attention to detail and its lack of concern about how it handles taxpayers’ money. It is an indication that the Howard government regards your money as its money and is quite slapdash about how it accounts for it, very opaque in how it reports what it is doing with it and particularly keen to make use of it to increase its chances of being re-elected.

Finally, I want to make some general observations about the state of the Australian economy—observations which are appropriate in the context of a debate on appropriation. We all know that, superficially, the economic indicators are mostly positive; that growth has been continuous for the best part of 15 years; that unemployment is the lowest it has been for some time; that business investment, after a period of stagnation, has improved recently; and of course, most particularly, that commodity prices have soared and are therefore introducing substantial new flows of money into the economy just at a time when the unsustainable levels of consumer demand that have prevailed for a couple of years—six per cent per annum growth—have fortunately flattened off a bit.

The difficulty is that, while the superficial indicators have been mostly positive and generally there is a good feeling within the community about the state of the economy, underneath the fundamentals that are crucial to delivering longer term prosperity are rotting. The Howard government is sitting back complacently and idly thanking its lucky stars that a combination of intelligent stewardship by the Reserve Bank, major structural reforms in the eighties and nineties under the Hawke and Keating governments, a global economy that for the first time in decades has all the major economies in the world growing together and, of course, the engine of China driving demand for commodities are superficially keeping the Australian economy strong. But, at the same time as these things are occurring and we are enjoying the short-term fruits of them, underneath the fundamentals are rotting.

Our current account deficit is still around the six per cent mark and, unlike previous periods when we have had major current account deficits, we now have a huge trade deficit to go with it. Productivity has been declining for 18 months. Perhaps more disturbingly, since 1998 the ratio of Australian productivity to American productivity has been going backwards. Throughout the latter part of the eighties and well into the nineties, the gap between Australian productivity and American productivity narrowed substantially.

We managed to get our productivity up to a level of about 86 per cent of the American level—and that is quite good, because there are a range of issues, particularly scale, which will always have us a little bit behind—but since that time we have gone back to about 81 per cent. Partly, that can be explained by the extraordinarily poor performance that Australia and the Howard government have manifested in things like the roll-out of broadband. We are still well behind in the use of and access to broadband in this country compared with nations like the United States and Canada. We have very serious infrastructure problems, of which broadband is perhaps the most crucial example. Our household saving rate has now got into the negatives and appears to be entrenched in the negatives. Public expenditure on education and training is going backwards, and we are the only developed nation in the world where that is occurring.

We have been fortunate that various factors have kept the economy ticking over, particularly that debt-driven burst of consumer demand a couple of years ago, the increase in commodity prices and the fact that we have a strongly growing world economy that looks as if it will probably continue to grow, at least for some time. But, one way or another, as is always the case, the crunch is coming. I do not know when, but inevitably, when fundamentals are out of alignment so badly, the crunch will come.

What tends to happen in circumstances like these is that people start thinking that the laws of economics have this time somehow been suspended, that somehow it is all different—that, in this case, perhaps globalisation, China, India or whatever other alibi you can think of means that there will not be a day of reckoning. One way or another, there is going to be a day of reckoning for the Australian economy, when the fundamentals are so much out of whack, when so little effort is being made to invest in the core things that will deliver longer term prosperity and when we are so exposed, with a huge and growing foreign debt, a huge current account deficit, an enormous trade deficit and a big decline in household savings. These are all signs of a nation that is living it up, having a good time and not thinking about the future. The key reason for that is that we have a government that is very happy to live it up, to splash money around and to turn a blind eye to the fact that the fundamentals are rotting.

The government’s only response to this critique is to talk about its industrial relations legislation. Australia already has one of the more deregulated labour markets in the world. In reality, the only net economic impact that is going to emerge from the government’s industrial relations legislation will be a reduction in living standards for a significant proportion of Australian workers, particularly lower paid workers with less bargaining power. It will not mean higher productivity; it will simply mean a transfer from one section of the community to another section of the community. Sadly, the people who are losing out are people who already do not have very much. It will mean greater inequality, greater tension in workplaces and, as a general principle, it will not have a significant beneficial impact on productivity.

That is the government’s only answer. That is its only reform agenda: to divide Australia, to punish those people who already have very little, when the fundamentals of our economy—investment, education, training, research and development, innovation, exporting—are all rotting. Those things are all in effect going backwards. We have to turn that around. (Time expired)

See this speech in context