Canberra to be cut to bone in audit report

Tony Abbott's Commission of Audit has recommended massive cuts to the size of government, with whole agencies to be abolished, privatised, or devolved to the states, in what would be the biggest reworking of the federation ever undertaken.

Among its 86 recommendations, to be finally unveiled on Thursday afternoon, are calls for the axing of multiple agencies and the surrender of huge swathes of responsibility back to the states in education, health, and other services.

Among the small group of ministers and bureaucrats granted access to the report, there is an acceptance that some ideas will be adopted, others can be modified or placed into a longer-term planning framework, and some will be regarded as politically untenable.

Senior ministers concede the report contains the kind of suggestions to be expected from "economically dry" business types, but admit many are just not achievable in the real world or politics.

Prime Minister Tony Abbott on Monday. Picture: ALEX ELLINGHAUSEN

Prime Minister Tony Abbott on Monday. Picture: ALEX ELLINGHAUSEN

The National Preventive Health Agency is the largest in a string of small so-called ''orphan'' health agencies marked for abolition. Under heavy attack from the alcohol industry, it releases its long-awaited report into a minimum floor price for alcohol on Thursday.  The report has been gathering dust now for a year and it is to be released under a clause in the agency’s act that requires the automatic release of reports if a year has elapsed since they were presented to government.

Also marked for privatisation or abolition is Defence Housing Australia, which manages and owns properties for defence families. It turns an annual profit before tax of $1 billion and employs 600 people. The government has commissioned Ernst & Young to advise on whether it should be sold.

The closely guarded Commission of Audit report is built around the theme of competition, according to a source who has seen it. It calls for competition between the states to provide services currently subject to some oversight from the Commonwealth. It also calls for competition between private firms to provide within-government services presently provided by the government itself, such as building management and Commonwealth cars.

The Audit Commission report, to be released publicly at 2.00pm on Thursday, proposes dumping Kevin Rudd's favoured notion of cooperative federalism in favour of competitive federalism and financial contestability criteria whereby services are provided against value-for-money indices.

Although asked specifically to recommend how the government could achieve a budget surplus of 1 per cent of GDP by 2023-24 the commission has interpreted its mandate much more broadly and attempted to identify the activities the government should vacate.

Like the 1996 Commission of Audit report commissioned by the Howard government, it finds that in many areas where state and Commonwealth responsibilities overlap, the responsibilities are best handed to the states.

The 1996 report recommended that the Commonwealth abandon all involvement in preschool, primary and secondary education, funding the states for it by untied rather than tied grants. The Commonwealth would cease grants to private schools, allowing the states themselves to grant money to private schools if they thought it was necessary. If adopted, the recommendation would have abolished large sections of the Commonwealth Department of Education. If recommended again it could unwind more recent initiatives such as the Gonski school funding reforms and NAPLAN.

It suggested the Commonwealth maintain control of Medicare and the Pharmaceutical Benefits Scheme, using its weight to contain costs through the introduction of co-payments.

If adopted the recommendations would undo years of Commonwealth centralisation, returning to the states responsibilities surrendered in the early decades of federation. The theory behind the decentralisation is known as “competitive federalism”. It says that free of constraints, the states and territories will compete with each other to provide the best services at the lowest cost.

Although the 1996 review proposed handing more responsibilities to the states, it also proposed extra funding in the form of untied grants. The grants would be less than the Commonwealth would have spent had it continued to provide the services itself.

The recommendation to axe the National Preventive Health Agency is awkward for the Coalition, coming after its assistant health minister Fiona Nash pulled the plug on a healthy eating website set up by the Council of Australian Governments hours after it went live. If adopted it would leave it open to charges that it wasn't serious about reining in long-term health expenditures on diseases such as obesity and alcohol-fuelled violence.

The government is into the final week of pre-budget deliberations.

As well as a controversial deficits tax, and a scaled-down paid parental leave scheme, the unemployed can expect tougher rules regarding eligibility for Newstart with a renewed push to "earn or learn". There will also be cuts to ABC and SBS funding through the extension of the government wide 2.25 per cent efficiency dividend.

With Lisa Cox

SMH.COM.AU

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