“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

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ESTABLISHMENT

• Pre-election commitment of the incoming

Government

• Commission announced 29 March 2012, and

Terms of Reference issued
Commissioners
Honourable Peter Costello, AC
Professor Sandra Harding
Dr Doug McTaggart

3
TERMS OF REFERENCE – OBJECTIVES

• Comprehensive – two pages of text

• Review Queensland Government’s current and
forecast financial position, and make
recommendations on:
– strengthening Queensland economy
– Improving State’s financial position, including
regaining AAA credit rating
– ensuring value for money in delivery of front-line
services

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TERMS OF REFERENCE – SCOPE
Key issues
• Financial position
• Improving the State’s financial position
• Service delivery
• Government commercial enterprises
• The economy

• Terms of reference interpreted broadly by

Commission
– any matters relating to functions/activities of the
Queensland Government

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TERMS OF REFERENCE – TIMETABLE

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

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OTHER COMMISSIONS OF AUDIT

Victorian Commission of Audit 1993

National Commission of Audit, 1996

Commonwealth Government
Queensland Commission of Audit 1996

New South Wales Commission of Audit 2012

Victorian Commission of Audit 2012

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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
– not a “financial audit”
– not a “performance audit”
– but contains elements of both
• Unique perspective
– view from “the outside looking in”, not an inside view
• Opportunity only arises infrequently
– often with a change of government
– Rarely instigated by incumbent governments

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KEY FEATURES

• Independence

• Transparency

• Not bound by government policy

• Opportunity
– to challenge the status quo

– to consider innovative solutions (e.g. for service delivery)

– to propose strategic objectives/direction for government

– to set agenda for change over period of 10-20 years

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PROCESS

• Secretariat established to support the Commission

– small group: primarily public service officials seconded from
Queensland Government agencies
– some limited use of external consultants
– Secretariat organised into teams to review key topics
– worked under the direction of the Commission

• Extensive powers of investigation available to the Commission

• Funding provided from internal savings in Queensland

Treasury and Trade

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PROCESS cont….
• Submissions from all core Government departments and
Government Owned corporations (GOCs).
• No public submissions
– some 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
– papers formed basis for Reports

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MAIN FINDINGS AND IMPLICATIONS

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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

• 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

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GOVERNMENT RESPONSE

118 accepted (76%) )

7 accepted in principle )
6 accepted in part ) 96%
13 noted )
5 for further consideration )
6 not accepted

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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.

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ECONOMIC AND FISCAL CHALLENGE cont …
Multifactor productivity growth, trend (a), 1985-86 to 2011-12
3 Queensland Rest of Australia

1
%

-1

-2
1986-87 1991-92 1996-97 2001-02 2006-07 2011-12

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

Source: Queensland Treasury and Trade

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ECONOMIC AND FISCAL CHALLENGE cont …

‘Business as usual’ – Projected fiscal deficit

Fiscal deficit as a share of GSP
4
Lower growth Higher growth

-4
% of GSP

-8

-12

-16

-20
2015-16 2050-51

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ECONOMIC AND FISCAL CHALLENGE cont …

• 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)

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SIZE OF GOVERNMENT
State Government expenditure as share of GSP

NSW Vic Qld WA SA

18

17

16

15

14
% of GSP

13

12

11

10

8
1983-84 1987-88 1991-92 1995-96 1999-00 2003-04 2007-08 2011-12

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ROLE OF GOVERNMENT
Private provision of public services

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ROLE OF GOVERNMENT cont …
Key principles to manage and deliver services

• 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

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FRONT-LINE SERVICE DELIVERY

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’.

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FRONT-LINE SERVICE DELIVERY cont …
State public sector wages: Queensland relative to all-states average
110

105
%

100

95

90
1983-84 1987-88 1991-92 1995-96 1999-00 2003-04 2007-08 2011-12

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FRONT-LINE SERVICE DELIVERY cont …

Cost of service provision by state, 2010-11

108

Qld
106

104
% of national average

SA
102
WA
100
Vic
98

96
NSW
94

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FRONT-LINE SERVICE DELIVERY cont …

Queensland public hospital expenditure and activity trends

Recurrent expenses Weighted activity units

150

140
Index: 2007-08 = 100

130

120

110

100

90
2007-08 2008-09 2009-10 2010-11 2011-12

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FRONT-LINE SERVICE DELIVERY cont …

Cost per casemix-adjusted separation, 2010-11

Australian average

5,400
$ per casemix-adjusted separation

5,200

5,000

4,800

4,600

4,400

4,200

4,000
NSW Vic Qld WA SA

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FRONT-LINE SERVICE DELIVERY cont …

• Find more innovative and efficient ways of

delivering services
– reduce the high costs of service delivery
– drive higher productivity

• Greater role for non-government providers in

owning assets and delivering services (e.g.
through contestability)

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FRONT-LINE SERVICE DELIVERY cont …

RECOMMENDATIONS

Areas for greater involvement of non-government sector

• clinical, clinical support and non-clinical services in public
hospitals
• mental health and community health services
• residential aged care facilities
• disabilities
• child safety
• corrective services
• social inclusion
• public housing services

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FRONT-LINE SERVICE DELIVERY cont …
RECOMMENDATIONS cont …

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

VET
• independent industry-led skills authority
• competitive market
• asset ownership to be separated from TAFE

Police and Emergency Services

• more flexible risk-based resourcing
• greater co-location of facilities to provide better integrated
emergency responses and better asset utilisation

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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.

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PUBLIC SECTOR ARRANGEMENTS
Employing legislation Awards
• PS Act • 50 Awards
• 15 other acts • 50-60 Certified Agreements

Variability, anomalies and Increased costs and complexity in

inconsistencies administration of payroll, HR and
IR systems

Classification framework
• 250 levels
• 750 pay points Health Payroll
• 10 Awards
• Multiple industrial agreements
• 200 different allowances
Unnecessary complexity and • 24,000 different pay
rigidity combinations

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THE PUBLIC SECTOR cont …
RECOMMENDATIONS

• Rationalise and consolidate core public service

employment conditions

• Consolidate and simplify awards and certified agreements

• New flexible broad-banded classification system for public

service

• Appointment of employees to broad-banded levels (not

agency specific positions)

• More effective performance management system

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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

• Queensland Shared Services (QSS) operate on

contestable basis (not mandated)

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 FINANCIAL MANAGEMENT

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.

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 FINANCIAL MANAGEMENT PRACTICES

Relationship between the elements of the Appropriation Bill 2012

2010-11 2011-12 2012-13 2013-14

financial year financial year financial year financial year

Supplementary Supplementary Appropriation sought Supply

Appropriation for Appropriation for for budget (vote) (interim
Unforeseen Unforeseen (prospective appropriation)
Expenditure Expenditure1 appropriation)
(retrospective) (retrospective)

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FINANCIAL MANAGEMENT cont …
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

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 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

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 Total Government debt to revenue ratio

140%
Actual Projection
120%

Trigger range for AAA credit rating

100%

80%

60%

40%

20%

0%
2000-01 2003-04 2006-07 2009-10 2012-13 2015-16

Source: Treasury

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 Total Government gross debt, share of GSP

30%
Actual Projection
Queensland
25%
New South Wales
Victoria
20% Western Australia

15%

10%

5%

0%
2000-01 2002-03 2004-05 2006-07 2008-09 2010-11 2012-13 2014-15

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

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 Actual

Source: Treasury

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 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

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 GOVERNMENT COMMERCIAL ENTERPRISES

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).

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 GOVERNMENT COMMERCIAL ENTERPRISES

Commercial assessment tests

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:
• deliver through own agency or non-government providers
• deliver through contestability

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GOVERNMENT COMMERCIAL ENTERPRISES cont ….
Ownership patterns in the National Electricity Market –
by indicative market share

Australian Electricity Market Operator / Australian Energy Regulator

Inter- AETV
Other Delta & Snowy
2 Origin Energy TRUenergy AGL national & CSE & Stanwell
Generation Generators Mac Gen Hydro
(multi-region) (multi-region) (multi-region) Power Hydro (Qld)
(NSW) (Vic & NSW)
(Vic & SA) Tas

Electranet SP Ausnet Transgrid Transend Powerlink

Transmission3 (SA) (Vic) (NSW) (Tas) (Qld)

ETSA Powercor, SP AusNet, United, Essential AusGrid Endeavour a Energex Ergon

Distribution4 (SA) CitiPower, Jemena (Vic) (NSW) (NSW) (NSW) (Qld) (Qld)

Origin Energy AGL Energy TRUenergy Other Aurora Ergon

Retail 5
(multi-region) (multi-region) (multi-region) Retailers (Tas) (Qld)

Private Ownership Actew AGL Public- Private JV Public (planned to be privatised)6,7 Public Ownership

a Aurora Energy distribution

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GOVERNMENT COMMERCIAL ENTERPRISES cont ….

Key events for energy sector GOCs

1 July 1 July 1 July 1 July 1 July 1 July 1 July

2012 2013 2014 2015 2016 2017 2018

Fixed price carbon tax Market carbon permit cost

Increasing LNG demand

Current Powerlink pricing period New Powerlink

pricing period

Current Ergon and Energex pricing New Ergon and Energex pricing
period period

Source: Commission of Audit

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GOVERNMENT COMMERCIAL ENTERPRISES cont ….
RECOMMENDATIONS
• 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)

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GOVERNMENT COMMERCIAL ENTERPRISES cont ….
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:
– contestable contracts
– franchise 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

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 “BUSINESS AS USUAL” IS NOT SUSTAINABLE

• High cost of delivering services

• Low productivity

• Ageing population and workforce

placing pressure on financial position

Expenses expected to rise faster than revenues

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STRATEGIC BLUEPRINT
Innovative service Improved public Unlock scarce capital
delivery (including sector flexibility and and free up resources
greater use of efficiency for debt reduction and
non-government sector) new investment

Greater productivity and

better resource use
 including use of capital

More front-line services

(with stable fiscal
position)

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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

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