Private in the public interest

Courier Mail
18th May 2006

Government should give a greater role to the private sector, writes Des Moore

At the Council of Australian Governments meeting in February all state and

territory leaders of Labor governments readily reached an almost unprecedented agreement with a Liberal Prime Minister on a national economic reform program involving the development of intergovernmental action plans (IAPs).

But my just published report on the role of government in Queensland, commissioned by Commerce Queensland, suggests governments can do much on their own without waiting for states-wide agreement. Indeed, it is in all their interests to maximise the private sector's role in providing services traditionally thought the responsibility of governments. No clear dividing line between the private and government sectors now exists because the private sector can provide a large proportion of what have hitherto been regarded as public goods.

The provision of services through a more competitive framework would benefit consumers because it increases efficiency and quality. Federal Opposition finance spokesman, Lindsay Tanner, and Queensland Federal Labor MP, Craig Emerson, have recently highlighted the advantages of competition. It could scarcely fail electorally.

Queensland now needs to implement the principal recommendation of the state's 1996 Audit Commission. It proposed the government "strongly separate its role as a demanding purchaser of services.from the role of service provider". [Some other states have moved further down that path than Queensland].

Encouragement should also be given to expanding private sector services that compete with government services or take over the public sector role. Such competition has already been growing as the community has recognized that the private sector generally provides services with higher quality and greater choice. Users of these services are voting with their feet despite having to pay fees as well as taxes.

In Queensland since 1997-98 the proportion of students attending fee-charging non-government schools has increased from 28 to over 30 per cent and the proportion of patients treated at fee-charging private hospitals has risen dramatically from 36 to 47 per cent. This saves the taxpayer about $3 billion net pa in a budget of $27 billion.

Unfortunately, leaving aside the Queensland Government's withdrawal from financial sector activity and its recent half-baked privatization in electricity, it has largely ignored the 1996 Audit Commission analysis of public corporations. It indicated the Government's involvement in business "is plainly too extensive and in many cases, performance is mediocre relative to benchmarks. Some of these assets should be sold and others exposed to more competition". A recent Productivity Commission analysis reaches similar conclusions on the financial performance of public corporations.

A larger private sector role would help the Queensland Government cope with the prospect of a 3 per cent pa lesser growth in recurrent spending on the services it provides. Its budget projects an average annual increase in revenue of only 4 per cent, much slower than the 7 per cent pa growth experienced over the past eight years.

Why? After growing at over 10 per cent a year from 2000-01 to 2005-06, GST receipts are now projected to increase at only about 4 per cent a year. In short, the GST "bonanza" is over and, unless taxes are to be increased, the previous level of services can only be sustained from increases by the private sector. Needless to say, other states face similar (but as yet unrecognized) situations.

Increasing Queensland's private sector role would help lift its (relative) contribution to state final demand above that in the three other largest states. It would also assist in raising the state from a distant fifth in the labour productivity stakes and fourth in per head income levels. Queensland would do better if it did more to encourage the driving force in growth and employment.

My report also proposes reducing state taxation by a fifth to a seventh, or by $1,000 -1,500 million per annum. Think how attractive Queensland would be to investors, not to mention families and individuals, with taxes about 30 per cent below the states' average. If Queensland adopted a new, "attract private sector" approach to governing the state, such a tax reduction could readily be achieved by reducing expenditure by 4-5 per cent.

[Measures to reduce expenditure both directly and by encouraging an expanded

private sector role in providing "government" services are outlined in my report.]

The Queensland Government can become a leader by positively and comprehensively seeking and encouraging private sector involvement across the whole range of government services and in the economy generally. The economic and social positions of the wider Queensland community would be improved and the per head income gap closed more quickly.

(The published version excluded square bracketed sentences and did not include quotation marks)