In what is likely to be one of his final speeches, outgoing Australian Treasury head, Dr Martin Parkinson, has said that the Department is in the process of retrenching one-third of its workforce, which will inevitably impact on its ability to deliver on what the Government asks it to do. He also noted that the community’s expectations of Government are unrealistic given current tax settings, and must be curbed. From The Canberra Times:
”We are currently shrinking from more than 1000 people by shedding about one in three positions,” Dr Parkinson said. ”We have already shed about 15 per cent of staff, so we are half way there.
”Clearly, since we don’t control the responsibilities given to us by government, change of this magnitude means delivering similar outcomes in a very different manner.
”In the past, our response to increased demands was to increase our efforts: by working harder and longer. Needless to say, this is not sustainable.”
And from The Australian, Dr Parkinson was reported saying the following:
“There’s a growing gap between what the community expects from government, and what government can sustainably provide… That, of course, impacts on what is expected of the public service”…
Dr Parkinson’s criticisms are warranted. Following the once-in-a-century boom in commodity prices, which saw unprecedented tax revenue flow to the Federal Government and a big expansion of public spending, society has become accustomed to the good times.
In essence, previous federal governments failed to save enough during the boom and were too generous in cutting taxes and expanding middle-class welfare. This raised community expectations of government to the extent that they now expect a high level of service and low taxation.
Now Federal Budget faces the fallout from this largesse from falling revenues as commodity prices and the terms-of-trade declines, along with legacy costs associated with past expenditure decisions. And to make matters worse, this fallout is occurring as Australia’s large baby boomer cohort shifts into retirement, which will shrink the tax base and raise expenditure on both pensions and age-related measures.
The end result is that the Budget will have to be brought back into balance via some combination of: increased taxes; expenditure cuts; and/or increased user-pay options. There is no getting around this conundrum. And the sooner that politicians and the public grasp the new reality, the sooner we can move forward with the necessary reforms to both the tax system and entitlement spending.
