Garnaut Fitzgerald Review of Commonwealth-State Funding

Chapter 5: Specific Purpose Payments and Overall Payments to the States
Disincentives for efficient and effective service delivery
SPPs often restrict States’ scope to provide services in innovative and flexible ways.
This reduces, correspondingly, the potential to achieve effective outcomes. This problem
is demonstrated when an SPP focuses on one particular service in isolation. For
example, improving health or education outcomes in Australia’s remote Indigenous
communities may require attention to be given to housing, water, sewerage and
economic development.
The current Australian Health Care Agreement provides another example. It includes
what is effectively a maintenance of effort condition, but in output rather than input
terms. The agreement locks each State into delivering the services it was providing at
the start of the agreement (in July 1998). This prevents States from restructuring service
delivery to realise outcomes that are desired by the Commonwealth, as well as the State
Governments.
Matching and maintenance of effort conditions in SPPs act as disincentives to more
efficient service delivery because they prevent States from applying savings generated
by genuine efficiency improvements, or improvements in external factors, to other
programs.
For example, the Supported Accommodation Assistance Program is concerned with
reducing the level of homelessness. Yet if economic conditions improve, leading to
reduced unemployment and an associated reduction in demand for Supported
Accommodation Assistance Program services, the conditions in the agreement prevent
States from switching funds between the Supported Accommodation Assistance
Program and related public housing and social welfare programs to achieve an even
greater reduction in homelessness.
Duplication in policy making and administration
SPPs are invariably administered, managed and accounted for on an individual basis by
both Commonwealth and State Governments. Commonwealth officials oversee the
activities of State officials who then monitor program delivery in their own jurisdictions.
This blurs accountability and generates inefficiency.
Administrative duplication is greatest where Commonwealth funds are provided to the
States through a considerable number of small SPPs, where details must be submitted
for every program or where the Commonwealth must approve individual projects.
Detailed progress reporting on the application of inputs for each program, and
prescriptive accounting and audit requirements, also increase the administrative burden.
SPPs often require the establishment of project consultation mechanisms involving
multi-tiered committees, advisory systems and, finally, joint Ministerial approvals. The
ineffectiveness of these costly arrangements becomes apparent when the
Commonwealth overrides recommendations from the advisory bodies. For example,
regional and State panels assess technical aspects of project proposals for funding
under the Natural Heritage Trust. Final approval rests with a Commonwealth Ministerial
Board once Commonwealth officials have reviewed State recommendations.
FINAL REPORT [74]