Institute for Private Enterprise

Address to "The City Club", Parliament House, Melbourne

2 March 2001

Just recently Jeff Lambert, editor of the Macquarie Dictionary of Slang, announced he had added "jeff" to the dictionary. This wasn’t an attempt to incorporate his own name but to put Jeff Kennett in his place by defining "jeff" as "to ruin or destroy in a heartless and unfair manner."

Obviously, Mr Lambert cannot be accused of prevarication, unlike the judge in a divorce court who accused the co-respondent of doing just that and then asked him — "Did you or did you not sleep with this woman?" to which the co-respondent replied "Not a wink my lord!"

Mr Lambert’s attempt to embed a denigrated picture of the Kennett Government period has probably derived partly from reading a certain journal produced in Spencer Street and partly from ignoring the real undermining of the Victorian economy that resulted in the late 1980s in financial markets dubbing Victoria the Mexico of Australia — but without the sun! This of course was a commentary on the combined borrowing efforts of Jose` Cain and Juanita Kirner, which led to Moody’s awarding Victoria in June 1990 the first post World War II downgrade of an Australian State’s credit rating for $A denominated debt.

By 1990-91 the interest on Victoria’s public sector debt was absorbing no less than 21 cents of every dollar received in total revenue, more than double the average for all other States. In that year the best measure of Victoria’s living standards - Gross State Product per head - dropped by 2.8 per cent, over three times the average fall for Australia.

The Victorian Labor Government’s (mis) handling of the State’s finances was given remarkably little attention at the Spencer Street end of town and not much seems to have been learned there since. A recent stereotype editorial acknowledged that the Bracks Government inherited a "relatively thriving economy and enviable budgetary position" but also claimed that "on the debit side stood a depleted and demoralized public sector" (The Age 22 February).

It is not my purpose here to debate the reasons for the defeat of the Kennett Government. But it is important for future policy, particularly in regard to the role of government, to challenge the perception that the Kennett Government ruthlessly pursued economic efficiency without paying adequate regard to the social consequences, particularly in rural areas. This perception remains relevant to Victorian Government policies today and is providing a seemingly plausible explanation for the State election results in Western Australia and Queensland, as well as for forecasts that the Howard Government will be defeated. As an avowed economic rationalist I would love to pursue this issue in depth but there is sufficient time here to only touch on the Victorian scene.

Let me first, however, briefly put the Kennett era from 1992-93 to 1999-00 in an Australian perspective of the 1990s.

First, there can be no doubt that Australians have benefited greatly from the much faster growth experienced in the 1990s than in the 1970s and 1980s. We are talking here about an average per head growth each year of 2.5 per cent compared with only 1.4 per cent earlier. In fact, over the seven years of the Kennett Government period, Australian living standards increased by an astonishing 25 per cent compared with the 10 per cent increase that would have occurred under earlier growth rates. Even allowing that economic improvements are not the whole story, it is puzzling that around one-third of Australians have persuaded themselves that the quality of life is deteriorating.

Second, this large improvement in living standards was due almost entirely to a faster growth in productivity. That is, we became much more efficient in producing goods and services (we had to put less effort into doing so) and the timing, duration and extent of this productivity surge indicates that it mainly reflected economic reforms rather than the strength of the business cycle or increased usage of more advanced information technology.

Third, notwithstanding that the earlier economic reforms included a reduction in protection for some industries, imports did not grow faster than exports. Australian business generally responded well to its improved competitive position and the predictions that lower protection would lead to an external crisis and high unemployment were well off the mark.

Fourth, the divvying up of the increase in incomes resulted in equal shares going, on the one hand, to wages/salaries and, on the other hand, to profits. Thus, labour was not adversely affected by the faster growth in productivity and profits did not get an "unfair" benefit out of the economic reforms.

Finally, although there was a widening in the distribution of wage and salary earnings among individuals (which continued the trend established under Federal Labor in the 1980s), this did not cause any widening in the distribution of total disposable incomes.

What happened was that the progressive income tax system funded social welfare benefits that offset the widening in earnings. Indeed, some would argue that successive governments have been far too generous in extending access to welfare benefits to middle and upper income groups.

Accordingly, there is a justifiable case that the pursuit of economic rationalist policies produced large economic benefits for the great majority of Australians and that governments used the proceeds from taxation of higher income earners to assist the less advantaged, including those who were disadvantaged by the economic changes. True, some people did lose in economic terms, particularly where protection provided by government policies was reduced or eliminated: waterside workers who lost their jobs are an obvious example. Arguably, however, those changes have introduced more equitable arrangements within Australian society.

For the rural sector, a general picture is painted of decline over the past thirty years. However, the population living outside capital cities actually increased in all States between 1995 and 2000 at a rate not much below the growth in capital cities and most of the population changes have occurred within the rural sector.

In Victoria, populations of rural cities such as Mildura, Ballarat, Bendigo, Shepparton, Warrnambool, and Wodonga all grew between 1995 and 2000 at rates close to or even above the Victorian average and the declines were mostly in smaller rural towns. Even Bairnsdale increased by 0.5 per cent pa. Recent ABS figures show that, over the twelve months to December 2000, employment increased outside the Melbourne statistical region by no less than 5.7 per cent compared with only 2.1 per cent in that region itself.

More importantly, the relative decline in rural areas has been due to only a limited extent to policy changes such as deregulation of the financial system or the introduction of more competitive structures. The continuing decline in world prices for agricultural commodities and the resultant pressure to improve productivity, for example, has been a major influence, as has the social attraction of living in a larger rather than a smaller rural center and the improved access to car transport that has enabled that. Indeed, some policy changes, such as those that improved the efficiency of infrastructure services and reduced tariffs, have undoubtedly benefited many in rural areas.

I want to turn now more specifically to the changes in the Victorian economy during the Kennett Government period.

On the economic side, if we take 1992-93 as the base (the year after the recession and one that the new Government had limited opportunities to influence) and 1999-00 as the last year in which the Kennett Government influenced economic developments, we find that Victoria performed better than other States. Indeed, during that period the growth in GSP per head was the fastest for any State or Territory. This admirable improvement in living standards was in marked contrast with experience under the previous Labor Governments, when Victoria’s GSP per head grew slower than the Australian average and, as noted, actually fell in 1990-91 at three times the Australian average rate.

For Victoria to have had the fastest growth will surprise anti-economic rationalists, who would have expected the private sector to have slowed in the face of tariff reductions and the tighter controls over government spending. Indeed, the Victorian government sector’s relative contribution did decline from about 22 per cent to 19 per cent of GSP over the period (see attached table).

It is significant that the decline in the relative contribution of public capital spending, which was mainly due to the major privatizations undertaken by the Kennett Government, was more than offset by the increase in the contribution from private capital spending (including dwellings) from 14 to 20 per cent of GSP. This strength of private capital investment indicates that the private sector responded well to the considerable structural changes that occurred. In short, the Kennett Government provided an economic climate conducive to private investment.

Looking to the future, the privatizations have put Victoria in the situation where its private sector now contributes the highest proportion of total capital spending amongst the States — around 85 per cent. That emphasizes just how important it is for the Victorian Government to pursue policies that are "investor-friendly". Sound public infrastructure projects play a role, of course, but they receive an astonishingly disproportionate attention from political parties and the media. The role of such infrastructure projects is now relatively minor and, without continuing high levels of private investment, the State’s income levels would likely slip back again to below the per head average for the States and employment would also be adversely affected. Indeed, there remains a case on both efficiency and quality grounds for further privatizations in the operation of government services, including in respect of roads (where NSW appears to have moved ahead of Victoria).

Even though the Federal Government has the main role in industrial relations policies, State policies have a potentially important influence on investment and employment. With the proportionate fall in Victoria’s unemployment rate between 1992-93 and 1999-00 exceeding that for any other State, the Kennett Government’s ceding of much regulatory power to Canberra can hardly be said to have done harm.

The key point is that the greater the likelihood that regulation of employer/employee relations will add to business costs and risks, the less incentive they will have to add to employment - and the investment that creates employment. That is one reason why it is not sufficient to judge the Bracks Government’s proposed Fair Employment Bill on the basis simply of VECCI’s estimate that employment could fall by only 22,000, let alone the Government’s politically-driven estimate that only 1,900 jobs would be lost over ten years.

The reality is that, as well as having adverse effects on those already employed, increased regulation will prevent the employment of some of those who would otherwise have become employed. This loss of potential employment cannot be estimated accurately as it would depend importantly on how the proposed Fair Employment Tribunal administered what would be a very considerable extension of the regulation of employment, including of contractors. Appointees to that tribunal would almost certainly come from among those who have the misconception that employers have a superior bargaining power that requires tribunal decisions to favour employees and unions. Moreover, if the Minister obtains the power to appoint (misnamed) Information Service Officers as enforcers of Tribunal decisions with virtually free access to business premises, that will increase the potential for employment-deterring interventionism.

The Government and media commentators have failed to recognize that it is the least skilled who are most likely to experience serious adverse employment effects from increased regulation. It is particularly ironic that leaders of the major churches in Victoria have publicly supported a bill that has the potential to adversely affect those with relatively low earning capacity: one cannot resist asking whether this support is based on any sort of economic assessment or simply reflects acceptance of the Government’s unsubstantiated assertions, such as the astonishing (and completely erroneous) claim that the Bill will "redress the plight of the working poor"?

The Government’s justifications for this legislation have no economic or social basis and it is a disgrace that institutions such as the media and the church have been so gullible as to support the Bill mainly because they have fallen for the line that it is "fairer". Relevant considerations include that:

• Victorian employees who are not under Federal awards (and who provide the main excuse for the legislation) have not fallen "totally through the cracks of Federal regulation" as claimed in the Second Reading Speech. They are in fact subject to various minimum conditions under Federal legislation.

• Those employees have in any event generally been able to negotiate satisfactory agreements with their employers in the dreaded market place. Their average minimum wage is actually 7 per cent higher than for those under Federal awards and 40 per cent also receive special rates for overtime and annual leave.

• Those not satisfied with their conditions can apply for a Federal ward and some have done so. If they do, they participate in the AIRC wages safety net ie there is no need to have a Victorian safety net.

The real reason for this legislation is to protect Victoria’s trade union movement, which has maintained such a strong influence within the Labor Party, from competition in the labour market. However, one cannot help thinking that the more responsible senior Government Ministers would quietly abandon the legislation if it were amended in the Upper House to such an extent as to effectively neuter it. While the Government would then blame the Opposition for undermining its IR policies, the Opposition could justifiably claim that its actions were in the best interests of the actual and potential work force. It is probably not going too far to say that minimizing the regulatory burden on employers is currently the most important policy objective of a Victorian Government.

I say that partly because the Kennett Government was a generous benefactor in handing over a government sector that was in a very sound financial position. The general government sector deficit of $2.4 billion in 1992-93 was turned into a surplus of $2.4 billion by 1998-99 (excluding the $2.6 billion payment to reduce unfunded superannuation liabilities) and was still nearly $2 billion in 1999-00. Even with Labor’s very large budgeted increase of about 10 per cent in real operating spending (excluding interest payments) in the current year, the surplus is still estimated at over $1 billion: it will take a little while to "wear it down"!

I helped Project Victoria provide the strong support from the business community for the initial Kennett Government policy of reducing government debt through more responsible budgetary policies and privatizations. However, by the election in 1999 public sector net debt was down to 6-7 per cent of GDP (compared with over 30 per cent in 1992-93) and it was clear that the debt problem had been well and truly overcome. Moreover, although in 1998-99 the Grants Commission estimates showed that the severity of Victorian taxes was about equal to the average for the States (a considerable improvement compared with 1992-93 when they were 6-7 per cent more severe), that was due more to the increases in NSW taxes under the Carr Government than to the small reductions in Victorian taxes. There appeared scope for considerably greater reductions.

For Project Victoria I had authored in 1996 a detailed analysis of the Victorian budgetary and tax situation and suggested that "a conservative tax reduction program would aim to cut taxes by about $1 billion by 1999-00". This assessment now appears to have been spot on. With a prospective Budget surplus of well over $1 billion at the time of the election campaign, it is difficult to understand why the Kennett Government did not feel able to go into that campaign with tax cuts of around that amount.

The Bracks Government has now promised to reduce taxes by $400 million over the whole four years it is in Government ie not all in one year but $400 million by the last year. Frankly, this can only be seen as a non-event, amounting to a miniscule reduction in tax revenue of less than 5 per cent by 2003-04, and it is not surprising that this week’s review is reported as proposing an additional $125 million a year. However, my view is that, provided there is no repetition of the surge in spending in the 2000-01 Budget — that is, provided expenditure is at least kept within the Budget projections, or indeed preferably even less in 2001-02 than the real growth of about 2.5 per cent presently projected — there should still be scope to reduce taxes by about $1 billion even with the reduced State tax base. The Budget projections for tax revenue to grow at a slower rate than GSP appear conservative given the faster growth in recent years and a prime policy objective should be to have competitive tax rates that attract business to the State (and from within it). If Victoria were to reduce the severity of its tax rates to those in the lowest taxed State, which is Western Australia, that would in fact cut taxes by about $1 billion or about 15 per cent.

The attached table reveals where Victoria’s taxes could be reduced to average severity and footnote 13 has comments on some options.

Also relevant in considering the scope for tax reductions is what is perhaps the most striking improvement of all under the Kennett Government, viz the decline in interest payments, which accounted for a miniscule 2.5 per cent of revenue of the (non-financial) public sector in 1999-00 compared with 22.5 per cent in the year the Kennett Government took office. Of course, reductions in interest payments do not sound politically sexy. But they become so once it is realized that this has effectively added over $5.5 billion to spending on the provision of services to the citizens of Victoria, a fact that seems to have been somewhat "overlooked" by almost all media commentators.

However, even allowing for the fact that spending levels reflect the substantial elimination of spending on interest, there remains the question as to whether Victoria’s financial strengthening has been at the cost of reductions on public services.

The first point to note is the fact that the Government itself is promising tax reductions, which belies any idea that there is a major "shortfall" in spending. Indeed, while the Kennett Government did effect an initial reduction in current (or operating) spending on services (excluding interest), over the whole period between 1992-93 and 1999-00 such spending actually increased by 17 per cent in real terms, or about 2 per cent per annum. This means that real current spending per head (excluding interest) increased by about 1.3 per cent pa over this period, which hardly constitutes a "serious depletion". Coincidentally, capital spending increased at the same rate as current spending.

Critics of the Kennett Government have "overlooked" these increases and some have focused instead on Grants Commission data showing Victoria as the State with the lowest per head spending on most current services. This is ironic given that few if any understand the Commission’s methodology and that that methodology is designed to ensure what the critics usually argue for most, that is, the capacity to provide equality in service levels. Most importantly, such critics do not acknowledge that the Grants Commission’s analysis shows that, partly because of its compactness and intrinsic lower costs, Victoria does not need to spend as much per head as other States in order to deliver services at the same level. Moreover, because the Commission’s estimates show how much Victoria would need to spend in any one year to deliver services at the average level for the States we can use such estimates as a basis for assessing whether or not Victoria is (or was) spending above or below such levels.

In 1992-93 there can be no doubt that total Victorian spending was very much above average levels. In that year the Commission assessed Victoria as spending about $1.7 billion or 15.6 per cent more than required to achieve those levels of services. By contrast, although in 1999-00 Victoria was assessed as spending $674 million less than needed to do that, this represented below average spending of only 3.6 per cent of total spending of over $18 billion.

In other words, the financial strengthening undertaken by the Kennett Government did little more than bring Victorian spending back to around the average service level for the States from what was clearly an excessive and unsustainable height. It should be relevant to critics (but seems to be ignored by them) that the Carr Government’s spending in NSW has in recent years been even more below average service levels than Victorian spending In short, the much-maligned Kennett Government "bequeathed" to Victoria service levels that were very similar to those in the Labor State of NSW.

Of course, these figures only convey the overall picture. What about the key service sectors of education, health, welfare and police?

In fact, the Victorian story here is even better. As the attached table shows, in 1999-00 Victoria was providing above average service levels in all the politically "sensitive" categories of spending except police (which was only marginally below). Where spending was below average — mainly services to industry, economic affairs and public transport — only the much reduced public transport subsidies would have had much of a direct impact on the general public. And, as the large "savings" in this area emerged after the rail privatization, improved efficiency under the franchise arrangements rather than reductions in services would presumably have played a major part.

In any event, the change from a situation where Victorian taxpayers were subsidizing public transport by $527.4 million more than the States’ average in 1992-93, to a situation where, overall, they were subsidizing it by only $12 million more than the average, represents a very significant benefit to those taxpayers. As the franchise arrangements will also provide further significant savings to taxpayers over the next ten years or so, the Kennett Government deserves further commendation here.

As that Government’s schools education policy has also been one of those subject to particular criticism, it is worth examining this area in greater detail.

First, although it may be said that it is too early to make a definitive assessment of the Bracks Government’s government schools policy, enough time has passed to make an initial assessment worthwhile and to utilize for that purpose some recently published ABS data for the calendar year 2000. Indeed, Minister Delahunty went out of her way to claim credit for the published increase to 77.3 per cent (from 76.2 per cent in 1999) in the proportion of Victorian students finishing secondary school — the so-called "retention rate". In a style reminiscent of her unbiased ABC days, Ms Delahunty asserted that under the Kennett Government "educational involvement dropped to the lowest in the country" but that "the Bracks Government’s serious and targeted reinvestment is starting to show dividends" (Herald Sun 14/2).

Because of differences in State education policies, such as variations in the relative emphasis on TAFE, the ABS warns against relying on inter-state comparisons in retention rates. But if Ms Delahunty ignored this, perhaps it is OK to do so? The only problem is that she forgot to check her figures! Under the Kennett Government retention rates for government secondary schools were consistently well above the Australian average and, amongst the States, they were only exceeded by the State that some Victorians scoff at educationally — Queensland. Last year Victoria did manage to equal Queensland heights, however!

Unsurprisingly, Ms Delahunty made no mention of the Government’s failure to stop the drift away from government to non-government schools, which now absorb a significantly higher proportion of students than in any other State and which also put the highest proportion (over 87 per cent) through secondary school. This drift to non-government schools has not been confined to Victoria but the increase in this State since the early 1980s (from 27 to 34 per cent now) undoubtedly partly reflects the disastrous experience under the VCE and the Gramscian influence that Labor encouraged.

More surprising, perhaps, was that Ms Delahunty did not claim any credit for the fall in average class size in 2000 to 14.8. But this may have been because the fall amounted to only one-tenth of a pupil! That is, it decreased from the Kennett Government’s 1999 level of 14.9.

But we all know, naturally, that it will take time to correct that Government’s savaging of class sizes! Yet, surprise, surprise we find that in 1998 the average class size here was only one-tenth of a pupil above the Australian average, the 1999 figure already mentioned was equal, and the 1997 figure was actually one-tenth of a pupil below that average. How can The Age honestly accuse the Kennett Government of "seriously depleting resources of public schools" (17/9) when Victorian class sizes were States’ average in its last three years? True, those class sizes were smaller than the union-driven ones that the Kennett Government inherited. But is it really "serious depletion" to operate at the level in other States?

It is also true that Victorian expenditure per head on government schools is relatively low (although not as low as in NSW or Queensland). That will almost certainly continue for one very simple reason, that is, the Kennett Government reforms allow Victoria to make use of its capacity, as shown by Grants Commission estimates, to operate government schools at the same level as other States but at a significantly lower cost per head. In reality, in the last five years of the Kennett Government, the Commission’s estimates show that Victoria’s actual spending per head on government schools was higher than needed to meet the average level for the States. What was The Age doing all this time?

Let us now examine the possible effects of Labor’ election program on this situation and consider what responses might be made to it. That election program included the employment of 650 extra teachers, 35 new State schools and a cap on class sizes with no more than 21 pupils per class in the early years of primary school. Labor also opposed the move towards "self —governing" schools that had established about 50 such government schools under the Kennett Government. Since the election a Ministerial Working Party report on Public Education, The Next Generation has also made some important recommendations including the amendment of the Education Act to incorporate a firm commitment to public schooling as "a core institution of our democracy".

Looking first at teacher numbers, as ABS data for 2000 shows that Ms Delahunty already took on another 500 teachers last year, there is little scope for further increases to meet the 650 election promise. Moreover, as Victorian class sizes were only reduced last year by one-tenth of a pupil, this suggests that, unless there is a further change in policy, they seem likely to stay around the Australian average, that is, where the Kennett Government had them in its last three years.

One possible policy change, of course, would be to revert to the average classes of 13 that the Kennett Government inherited. For last year, that would have required another 5,000 teachers at a cost of roughly $300-350 million. But there is evidence indicating that, when class sizes actually were 13, the quality of government school education was lower than under the Kennett Government. More substantially, there is fairly wide agreement that, within the range of class sizes being debated here, other influences are the most important determinant of education standards. If that were not the case, the Carr Government in NSW would surely have taken steps before now to reduce its class sizes instead of keeping them considerably above Victoria’s.

None of this is to suggest that the quality of government schools education reached satisfactory levels under the Kennett Government or that no further reforms are needed. The Bracks Government and the Victorian Opposition would be well advised to study the new "Third Way" education policy announced last month by the Blair Government in what is obviously intended as a major Labour Party plank for the forthcoming UK election and a response to public concern at the relatively poor literacy and numeracy results that have been experienced there, as also experienced in this State.

Blair’s new policy includes the conversion of about half the UK comprehensive secondary schools into specialist schools and he will even allow private companies, trusts and independent schools to take over the running of state schools, particularly where those schools are judged to have failed. Mr Blair particularly drew attention to the increase in school autonomy, so that "all schools are receiving payments made direct to the head teacher" and "all heads (are) having more control over their budgets than ever before". While he was at pains to emphasize that "there is no question of a two tier system", this produced the typical complaints from the education unions that "there will be different tiers of education" and that the gap between the most advantaged and least advantaged may widen.

This "gap" obsession was also a major criticism of the Kennett Government’ self-governing schools policy and it continues to be an obstacle to further reform of the Victorian government education system. Put in simple terms, the belief is that there will be a lower standard of education provided to children who have lower educable capacities because they will be left behind in lower quality schools. But is there any substance in this criticism?

Prime Minister Blair’s firm rejection of it is of particular interest as his Education Minister, David Blunkett, is understood to have studied the Kennett Government reforms. It is also of interest because, while Blair has deliberately downgraded the influence of unions on policy, the Bracks Government’s Fair Employment Bill shows that they remain a significant influence in Victoria. Indeed, there is little doubt that Victorian education unions will exert continuing pressure not only to reduce class sizes but to resist any reforms that can be characterized as "two-tier".

In reality, provided that adequate resources are allocated to schools where children have lower educable capacities, there is no substance to the two-tier argument In any event, the existence of a large group of government subsidized private schools means that a two-tier system already exists in Australia: indeed, the diversity amongst private schools demonstrates that there are already many tiers of school education.

The way forward in Victorian government schools policy is, I believe, to eliminate government from the responsibility for delivering schools education, but not of course from funding it. There is a need to extend self-government well beyond what the Kennett Government did and to move down the path Blair seems prepared to venture. It is important to give the maximum freedom to individual schools to make their own decisions, particularly over staffing and curricula. The imposition of state-mandated curricula not only restricts choice: it also risks the inclusion of an ideology that is determined by the kind of education bureaucrats that operated in Victoria in the 1980s. A policy of "independent" government schools would create a competitive market in the operation of such schools, as exists amongst private schools, and this would be most likely to improve the quality of education.

POLICE POLICY

Given that my host is Shadow Police Minister, and even though I am an innocent economist, I should say something about Government police policy, which is quite a topical issue. I start by applauding the criticism by the retiring Police Commissioner of the grossly inadequate sentencing of some of those who are often described in the media as S11 protesters but who are really little more than hoodlums. Indeed, the apparent extent of light sentencing is causing increasing concern amongst those of the victims who are still alive and, more generally, amongst their families and friends as well as the general public. I hope to participate in the forthcoming rally by the Victims Support group.

It is little wonder that Parliaments are modifying the traditional judicial sentencing discretion that has existed and it might be noted that the introduction of the much-criticized mandatory sentencing policy in the Northern Territory was partly in response to complaints from Aboriginal families against whom the majority of offences were being committed. There would certainly be a case for reducing judicial discretion here in Victoria.

Having made that point, I would observe that the Police Commissioner may also have contributed to the increase in violence at public demonstrations in support of a range of causes. In recent years policing policy has been driven by the Commissioner’s instruction that "the success of any operation will be primarily judged by the extent to which the use of force is avoided or minimized". With one or two notable exceptions, police have thus become reluctant to use force in a range of violent demonstrations even when others rights were clearly significantly reduced. Moreover, proposals to re-write the instruction, and to introduce devices commonly employed overseas, have fallen on deaf ears. In the interests of giving greater protection to the rights of ordinary citizens, this policy needs to be changed, if necessary by a Ministerial instruction.

Finally, it should be pointed out that, notwithstanding that both major parties promised to increase police numbers at the last election, Victorians have had a more than adequate-sized force. Grants Commission data show that Victorian on police services has been above or only very slightly below the average level for the States and other evidence shows it has had more police per 1000 population than the most comparable State of NSW.

CONCLUSION

Whatever the causes of the defeat of the Kennett Government in 1999, there should be no downplaying of the reforms that it instituted. Rather the contrary. Major changes have been implemented that have improved the economic strength of the Victorian economy and, in particular, have provided a more appropriate structure and role for government. Although there is serious concern about current proposals for increased regulation of employer-employee relations, the improvements seem unlikely to be reversed in a major way because, some sections of the media notwithstanding, there is a broader acceptance of the need for a more competitive economy in the world in which we now live. The main question is how fast Victoria can push ahead with the further reforms that are needed both for efficiency and quality reasons. The focus here should be on further reducing the role of government in the operation of services and minimizing the extent of regulation of business activity.

I would make particular mention of the Project Victoria exercise that business associations and others started in the late 1980s and that continued for a time into the 1990s. Its rationale was the serious (and well justified) concern at the effects of various government policies on business activity. And there is little doubt that it had a major impact on the Labor Government and on the policies developed by the Opposition.

There is no comparable situation today in Victoria and none seems likely to develop. However, considerable opportunities exist for developing further substantive reforms that would have the potential to be saleable politically to the public. Such reforms could well be opposed by the existing Government but, in that case, the reformers would be clearly differentiated. In short, there is scope to develop another Project Victoria type exercise but on a different basis to the earlier one.