Garnaut Fitzgerald Review of Commonwealth-State Funding

CHAPTER 10: Efficiency and Economic Growth
The New Zealand Business Roundtable commissioned a report on Tasmania’s
economic performance in the last decade and the lessons to be learned for New
Zealand. It describes the Tasmanian economy as:
a cause for considerable concern not only for those Australians who happen to
live there but also to those in the rest of the country who are called to
underwrite the State’s living standards (Rae 2002).
The State’s poor economic performance is mainly attributed to poor policy decisions,
including Government inaction in adopting recommendations to relieve adverse impacts
of its anti-business and narrow-base taxation regime. Tasmanian policy has been
greatly influenced by Commonwealth transfers over the decades, and, most strongly, in
recent years. Under current arrangements, improved economic performance would not
increase the fiscal resources available for use in the State. In the future, higher levels of
successful, growth-promoting public investment may lead to less – not more – State
Government funds being available for other activities.
The fact that recipient States have much smaller proportions of the population receiving
their employment and incomes in the private sector than the donor States seems likely,
over time, to influence the political economy of policy unfavourably for economic
development.
10.6 Other aspects of efficiency
Overheads
In any system, an unambiguous source of inefficiency is the overhead cost of running
the system.
In the case of HFE, costs include the running of the CGC and the State bureaucracies
that serve and seek to persuade the CGC. These costs may total around $10 million per
year, reflecting the extraordinarily detailed and administratively cumbersome nature of
the process. Many of the most talented officers in the State public services are engaged
in the task of marshalling evidence to maximise their States’ expenditure disabilities,
minimise their revenue disabilities and criticise other jurisdictions’ arguments.
Less transparent, and larger, are the overhead costs of the 120 SPPs. In a recent audit
of seventy-one SPPs, the Australian National Audit Office (1999, p. 136) estimated the
cost of administering these to be $68.8 million (over 550 full-time staff) for the
Commonwealth alone. The Australian National Audit Office also stated that the
Commonwealth funded $77 million of State/Territory administration costs. This would be
only part of the administration costs borne by the States. There is continuous negotiation
over conditions, funding levels, guidelines, boundaries, administration, performance,
reporting and accountabilities. Governments also need substantial administrative
apparatus to provide information and policy expertise to support these negotiations.
Administrative apparatus is also needed to support agreements on these issues and
provide reports.
FINAL REPORT [146]