THE PROCESS, MAIN FINDINGS

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Nov 10, 2013 (3 years and 7 months ago)

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“INSIDE THE
QUEENSLAND

COMMISSION OF AUDIT



THE PROCESS, MAIN FINDINGS
AND IMPLICATIONS”



Mark
Gray

Adjunct Professor of Economics, University of Queensland

Chief Executive

Queensland Commission of Audit







UQ Business School

Brisbane

6 May 2013




THE PROCESS

2

ESTABLISHMENT


Pre
-
election commitment of the incoming
Government



Commission announced 29 March 2012, and
Terms of Reference issued


3

Commissioners

Honourable

Peter Costello, AC

Professor Sandra Harding

Dr

Doug
McTaggart




TERMS OF REFERENCE


OBJECTIVES


Comprehensive


two pages of text


Review Queensland Government’s current and
forecast financial position, and make
recommendations on:


s
trengthening Queensland economy


Improving State’s financial position, including
regaining AAA credit rating


ensuring
value for money in delivery of front
-
line
services


4

TERMS OF REFERENCE


SCOPE



Terms of reference interpreted broadly by
Commission


any matters relating to functions/activities of the
Queensland Government

5

Key issues


Financial
position


Improving
the State’s financial position


Service delivery


Government commercial enterprises


The economy


TERMS OF REFERENCE


TIMETABLE

6

15 June 2012

Interim Report covering state of the
Government’s financial position

30 November 2012

Interim Recommendations

28 February 2013

Final Report delivered to
Government

1 March 2013

Executive Summary of Final Report
released

30 April 2013

Full Report and Government
Response released

OTHER COMMISSIONS OF AUDIT

7

Victorian Commission of Audit

1993


National Commission of Audit,
Commonwealth Government

1996


Queensland Commission of Audit

1996


New South Wales Commission of Audit

2012


Victorian Commission of Audit

2012


WHAT IS A COMMISSION OF AUDIT?


Comprehensive review of the role, functions, activities of
government


Focus on efficiency, effectiveness and value for money


Not an “audit” in the formal sense


n
ot a “financial audit”


not
a “performance audit



b
ut contains elements of both


Unique perspective


view
from “the outside looking in”, not an inside view


Opportunity only arises infrequently


o
ften with
a change of
government


Rarely instigated by incumbent governments


8

KEY

FEATURES


Independence


Transparency


Not bound by government policy



Opportunity


t
o challenge the status quo


t
o consider
innovative solutions (e.g. for service delivery)


to propose
strategic objectives/direction for government


t
o set agenda for change over period of 10
-
20 years

9

PROCESS


Secretariat established to support the Commission


small
group: primarily public service officials seconded from
Queensland Government
agencies


s
ome limited use of external consultants


Secretariat
organised

into teams to review key topics


w
orked under the direction of the Commission




Extensive powers of investigation available to the Commission



Funding provided from internal savings in Queensland
Treasury and Trade

10

PROCESS
cont
….


Submissions from all core Government departments and
Government Owned corporations (GOCs).


No public submissions


s
ome unsolicited submissions received and considered


No public hearings


Commission
met with Chairs and CEOs of all
GOCs



Secretariat had extensive ongoing contact with departments
and limited contact with external parties


Secretariat undertook research and analysis of issues,
prepared papers for Commission’s deliberations


p
apers formed basis for Reports



11

MAIN FINDINGS AND IMPLICATIONS


12

OVERVIEW OF FINAL REPORT


Focus of the Report is renewal in the public sector to provide
better front
-
line services


Most comprehensive review of Queensland Government
functions ever undertaken


13


155
recommendations
across four
major headings (Front
-
Line
Service Delivery, Public Sector, Financial Management, and
Government Commercial Enterprises)


39 separate sections


1,000
pages of analysis


247 charts


127 tables


36 diagrams


47 case
studies / illustrations

GOVERNMENT RESPONSE

118 accepted (76%)


)

7 accepted in principle

)



6 accepted in part


)

96%

13 noted




)


5 for further consideration

)

6 not accepted




14

ECONOMIC AND FISCAL CHALLENGE

The challenge for Queensland is to lift its productivity
performance to sustain the economic growth which will improve
living standards for its citizens.

15

16

ECONOMIC AND FISCAL
CHALLENGE
cont



Multifactor p
roductivity growth, trend (a), 1985
-
86 to 2011
-
12


(a)

Trend estimates are
derived from original MFP data using an 11
-
term Henderson
-
weighted moving
average.


Source:

Queensl
and Treasury and Trade


-2
-1
0
1
2
3
1986-87
1991-92
1996-97
2001-02
2006-07
2011-12
%
Queensland
Rest of Australia
17

ECONOMIC AND FISCAL CHALLENGE
cont



‘Business as usual’


Projected fiscal de
ficit



-20
-16
-12
-8
-4
0
4
2015-16
2050-51
% of GSP
Fiscal deficit as a share of GSP
Lower growth
Higher growth

Pressure on fiscal position


Lower economic growth expected in
future


Ageing of the
population


Increased demand for government services



Changes in service delivery to maintain stable fiscal position


Productivity improvements of 1% year after year


Costs to be reduced by one
-
third over 40 years



This
would lift GSP growth by 0.5%
pa (extra
$8,320 per

capita pa in
today’s dollars by
2050
-
51)








18

ECONOMIC AND FISCAL CHALLENGE
cont



19

SIZE OF GOVERNMENT

State Governme
nt expenditure as share of GSP




8
9
10
11
12
13
14
15
16
17
18
1983-84
1987-88
1991-92
1995-96
1999-00
2003-04
2007-08
2011-12
% of GSP
NSW
Vic
Qld
WA
SA
20

ROLE OF GOVERNMENT

Private provision of public services

Key principles to manage and deliver
s
ervices



Focus on core services


Facilitate contestability in service delivery


Better demand management


Greater workforce flexibility


Capacity building


Lower overhead costs


Strengthen financial management


Build productive capacity

21

ROLE OF GOVERNMENT
cont



The Government must achieve better value for money in service
delivery. ‘Business as usual’ is not a sustainable option.



The primary responsibility of the Government is to ensure
services are delivered, not necessarily to be the agency that
actually does the delivery. It needs to be the ‘enabler’, not
necessarily the ‘doer’.


22

FRONT
-
LINE SERVICE DELIVERY

FRONT
-
LINE SERVICE DELIVERY
cont



23

State public sector wages: Queensland

relative to all
-
states

average




90
95
100
105
110
1983-84
1987-88
1991-92
1995-96
1999-00
2003-04
2007-08
2011-12
%
FRONT
-
LINE SERVICE DELIVERY
cont



24

Cost of service provision by state, 2010
-
11


NSW
Vic
Qld
WA
SA
94
96
98
100
102
104
106
108
% of national average
FRONT
-
LINE SERVICE DELIVERY
cont



25

Queensland public hospital

expenditure and activity trends




90
100
110
120
130
140
150
2007-08
2008-09
2009-10
2010-11
2011-12
Index: 2007
-
08 = 100
Recurrent expenses
Weighted activity units
FRONT
-
LINE SERVICE DELIVERY
cont



26

Cost per casemix
-
adjusted separation, 2010
-
11



4,000
4,200
4,400
4,600
4,800
5,000
5,200
5,400
NSW
Vic
Qld
WA
SA
$ per casemix
-
adjusted separation
Australian average
FRONT
-
LINE SERVICE DELIVERY
cont



27


Find more innovative and efficient ways of
delivering services


r
educe the high costs of service delivery


d
rive higher productivity



Greater role for non
-
government providers in
owning assets and delivering services (e.g.
through contestability)

FRONT
-
LINE SERVICE DELIVERY
cont



RECOMMENDATIONS


Areas for greater involvement of non
-
government sector


clinical, clinical support and non
-
clinical services in public
hospitals


m
ental health and community health services


r
esidential aged care facilities


d
isabilities


c
hild safety


c
orrective services


s
ocial inclusion


p
ublic housing services

28

FRONT
-
LINE SERVICE DELIVERY
cont



RECOMMENDATIONS
cont




Education


improved student performance through increased devolution,
autonomy and accountability at individual school level.


VET


i
ndependent industry
-
led skills authority


competitive market


a
sset ownership to be separated from TAFE


Police and Emergency Services


more flexible risk
-
based resourcing


g
reater co
-
location of facilities to provide better integrated
emergency responses and better asset utilisation

29


THE PUBLIC SECTOR

The goal for the public sector must be to achieve the
highest standard of excellence and ensure that
Queensland is the best administered state in Australia.


30

PUBLIC SECTOR ARRANGEMENTS

31

Employing legislation


PS Act


15 other acts

Awards


50 Awards


50
-
60 Certified Agreements

Variability, anomalies and
inconsistencies

Classification framework


250 levels


750 pay points

Unnecessary complexity and
rigidity


Increased costs and complexity in
administration of payroll, HR and
IR systems

Health Payroll


10 Awards


Multiple industrial agreements


200 different allowances


24,000 different pay
combinations

THE PUBLIC
SECTOR
cont



RECOMMENDATIONS



Rationalise and consolidate core public service
employment conditions



Consolidate and simplify awards and certified agreements



New flexible
b
road
-
banded classification system for public
service



Appointment of employees to broad
-
banded levels (not
agency specific positions)



More effective
performance management
system

32

THE PUBLIC SECTOR
cont



RECOMMENDATIONS
cont





‘ICT as a service’ strategy


Source software, hardware and infrastructure as a service from
private providers


Government should not own and manage ICT assets



CITEC role to be discontinued within 2 years



Reduce overhead administrative and corporate costs e.g.
contestability of corporate services



Q
ueensland Shared Services (QSS) operate on
contestable basis
(
not mandated)

33



There is an urgent need to restore the highest standards of
financial management to public administration


with an
enhanced long term financial planning framework, improved
budget, cash and asset management, and greater transparency
and accountability.



FINANCIAL MANAGEMENT

34


FINANCIAL MANAGEMENT PRACTICES



Relationship
between the elements of the Appropriation Bill 2012

2010
-
11

financial year

2011
-
12

financial year

2012
-
13

financial year

2013
-
14

financial year

Supplementary
Appropriation for
Unforeseen
Expenditure

(retrospective)



Supplementary
Appropriation for
Unforeseen
Expenditure
1

(retrospective)

Appropriation sought
for budget (vote)

(prospective
appropriation)



Supply

(interim
appropriation)

35

RECOMMENDATIONS



Intergenerational Report


State Infrastructure Plan


Simplified appropriation framework


Improved budget,
cash
and asset management


Charter of Budget Accountability


Greater role for private sector in infrastructure
investment


Queensland Productivity Commission

FINANCIAL MANAGEMENT
cont



36

FISCAL REPAIR STRATEGY


Commission’s recommended strategy (Interim Report)

-

arrest deterioration in State’s financial position and
stabilise position

-
pay down debt



$25
-
30 billion debt reduction necessary to restore financial
strength and provide buffer for adverse events


-
Will also restore AAA credit rating



Debt reduction of this magnitude can only be achieved by
releasing capital from the State’s balance sheet


37

38

39

40

41

0%
20%
40%
60%
80%
100%
120%
140%
2000-01
2003-04
2006-07
2009-10
2012-13
2015-16
Trigger range for AAA credit rating

Actual

Projection

Total Government debt to revenue ratio


Source: Treasury

42

Total Government

g
ross
d
ebt
, share

of GSP



Source: Australian Bureau of Statistics 5512.0, State Budgets and Mid Year updates, Treasury


0%
5%
10%
15%
20%
25%
30%
2000-01
2002-03
2004-05
2006-07
2008-09
2010-11
2012-13
2014-15
Queensland
New South Wales
Victoria
Western Australia
Actual

Projection

43

Source: Treasury

Actual

FISCAL REPAIR STRATEGY


Commission’s recommended strategy (Interim Report)

-

arrest deterioration in State’s financial position and
stabilise position

-
pay down debt



$25
-
30 billion debt reduction necessary to restore financial
strength and provide buffer for adverse events


-
Will also restore AAA credit rating



Debt reduction of this magnitude can only be achieved by
releasing capital from the State’s balance sheet


44


The
Government must make better use of its balance sheet, by
releasing capital locked up in mature assets to pay down debt,
lower interest costs and free up funds for investment in new
infrastructure (for example, flood prevention).


GOVERNMENT COMMERCIAL ENTERPRISES

45

GOVERNMENT COMMERCIAL ENTERPRISES

46

Commercial assessment
t
ests


1.
No need for government to own assets that compete with
private services in workably contestable markets

2.
No need for government to own commercially sustainable
businesses

3.
Where government remains responsible for services:


d
eliver through own agency or non
-
government providers


d
eliver through contestability

GOVERNMENT COMMERCIAL ENTERPRISES
cont

….


A
ustralian
E
lectricity
M
arket
O
perator

/ A
ustralian
E
nergy Regulator

T
ransmission
3

Generation

2

Retail

5

Distribution
4

Origin Energy

(multi
-
region)

AGL

(multi
-
region)

TRUenergy

(multi
-
region)

Inter
-
national
Power

(Vic & SA)

Other
Generators


CSE & Stanwell

(Qld)

AETV
&
Hydro
Tas

Snowy
Hydro

(Vic & NSW)

Delta &

Mac Gen

(NSW)

AGL Energy

(multi
-
region)

Origin Energy

(multi
-
region)

TRUenergy

(multi
-
region)

Other
Retailers

Ergon

(Qld)

Aurora

(Tas)


ETSA

(SA)

Ergon

(Qld)

Endeavour

(NSW)

AusGrid

(NSW)


Transend

(Tas)

SP Ausnet

(Vic)

Electranet

(SA)

Powerlink

(Qld)

Transgrid

(NSW)

Powercor, SP AusNet, United,
CitiPower, Jemena (Vic)

Energex

(Qld)

Essential

(NSW)

a

Public Ownership

Private Ownership

Public (planned to be privatised)
6,7

Actew AGL Public
-

Private JV

Ownership patterns in the National Electricity Market



by indicative market share

a Aurora Energy distribution

47

GOVERNMENT COMMERCIAL ENTERPRISES
cont

….

48


Key events for
e
nergy sector GOCs




Source:

Commission

of Audit

1 July
2012
1 July
2013
1 July
2014
1 July
2015
1 July
2016
1 July
2017
1 July
2018
Fixed
p
rice
c
arbon
t
ax

Market c
arbon
p
ermit cost

Current Powerlink pricing period

Current Ergon and Energex pricing
period

New Powerlink
pricing period


Increasing LNG demand

New Ergon and Energex pricing
period



Dispose of businesses operating in commercial
markets, when conditions favourable:


Energex

($9.2B)


Ergon

($7.7B)


Powerlink

($5.3B)


CS Energy ($0.9B)


Stanwell ($1.7B)


Gladstone Ports Corporation ($1.2B)


Townsville Port Authority ($376M)


Queensland Investment
Corporation ($18M)

GOVERNMENT COMMERCIAL ENTERPRISES
cont

….

RECOMMENDATIONS

49

OTHER GOC RECOMMENDATIONS

Transport Services


Bulk Ports North Queensland to have supply chain coordination
role.


Mount Isa rail freight line integrated with Townsville Port Authority


Passenger rail and bus services to be restructured to be delivered
through:


c
ontestable contracts


f
ranchise and lease arrangements


Reform of GOC governance model


Single shareholding Minister model


Improve efficiency of GOCs


Reform restrictive workplace practices


Remove unnecessary policy restrictions


Make transparent full cost of Government policy requirements

GOVERNMENT COMMERCIAL ENTERPRISES
cont

….

50


BUSINESS AS USUAL” IS NOT SUSTAINABLE


High cost of delivering services



Low productivity



Ageing population and workforce
placing pressure on financial position

51

Expenses expected to rise faster than revenues

Unlock scarce capital
and free up resources
for debt reduction and
new investment

52

Innovative service
delivery (including
greater use of

non
-
government sector)

Improved public
sector flexibility and
efficiency

Greater productivity and
better resource use




including use of capital

More front
-
line services
(with stable fiscal
position)

STRATEGIC BLUEPRINT

VALUE OF COMMISSION OF AUDIT PROCESS


Independent, objective, arm’s length view


No “baggage”


Fresh look at the way things are done


Valuable input from the bureaucracy


Long term strategic perspective


Opportunity for renewal and reform


Decisions are a matter for government


53