In part, our study was also brought on by a comment by a senior Labor politician who, when told that Gunns pulp mill needed around $350 million in subsidies per year responded…‘but that’s not all Commonwealth money’.
My answer, which he stated made him ‘uncomfortable’, was ‘No, but it is all taxpayers’ money.’
Two different worlds
A simple example of the difference between government descriptions and taxpayer descriptions is the idea of a government surplus, which you’ll find promoted as a ‘good thing’ in both the media and in government press releases.
In taxpayer language, a ‘government surplus’ translates into ‘take more than necesssary’ or ‘overtaxed’ - it literally means we’ve had to pay more tax than the government really needs.
When people are scratching to pay their food bills, extra taxation is definitely not welcome. The government doesn’t need the money, it’s surplus to requirements but they’re happy to hurt us some more anyway so they can set a little aside.
We add together all of the costs of government because taxpayers have to pay for everything. Whether the money goes to federal, state or local government, the taxpayer still has to pay. When the government screws up and the community ends up with huge extra expenses, it’s working Australians that have to pay. WA’s huge economic hit from the gas explosion on Varanus Island is one example…the government ignored constant warnings that Apache Energy was not complying with safety standards.
Boom – blackouts and untold losses.
Documents released…under Freedom of Information laws reveal that the state Department of Consumer and Employment Protection repeatedly raised concerns with the Department of Industry and Resources about the integrity of Apache’s gas pipeline more than a year before the explosion.
The blast cut a third of the state’s gas supply to business and households and led to hundreds of workers being temporarily laid off and a cut in the Reserve Bank’s forecasts of national economic growth this year. (1)
Other examples of needless costs created by government failures include the horse flu quarantine debacle and the failed Custom’s container clearance software project. Governments also impede businesses in a range of ways that include failing to provide adequate port infrastructures to export our minerals, making education less affordable and so limiting our work force, charging overseas based companies lower rates of tax than Australian companies, ordering planes that don’t fly properly, repeated hospital and medical errors and so on.
The list is long and looks like it will come to include FuelWatch and GroceryWatch.
There is no quality control on government performance. Trouble is, instead of doing the right thing and going broke like a company would, the learn that there’s no penalty for error and award themselves hefty pay rises that the taxpayer has to pay for.
Basically we get what they deliver.
As a consequence, the various layers of government cost taxpayers a lot more than the total array of charges, duties, levies, imposts and every other disguised term for tax. The whole cost of government also includes the costs created by our bewildering regulatory regime which businesses have to pass on to consumers in increased prices of goods and services.
The Australian Chamber of Commerce and Industry estimates the cost of complying with government regulations at about $86 billion a year. (2)
That $86 bn figure alone translates out to the depressing reality that compliance is costing every Australian around $4,000 each year in lost purchasing power. ($86 bn/20 million Australians)
Doing the sums
The real costs of government to Australians is the total of all taxes & charges + compliance costs + costs of rectifying errors + business lost as a result of government failures + government losses.
That’s what the world of the taxpayer looks like.
A recent article about government losses showed multi million dollar losses achieved by various Councils who bought dodgy Collateralised Debt Obligations (CDO) which turned out to be based on near worthless US mortgage and credit card debts. They were ripped off by a banking scam.
We pay the Council, they lose our money, we have to repay them that money all over again.
From the perspective of outputs and customer (voter) satisfaction, the whole government system is expensive and is letting us down very badly.
Poor quality, waste, error and expense typifies the outcomes of big industries that rely on their monopolies to gain income and basically have a ‘take it or leave it’ attitude towards their customers. Those types of organisation collapse whenever customers have a free choice.
In the case of Australian government, the whole cost of government appears to be so expensive that it is detracting from Australia’s competitiveness. The welcome review of taxation by Wayne Swan’s department must include the desired performance of government as part of the review.
This is for the same reason that a study of desired diet (inputs the system needs to operate) must include a knowledge of the way that the body will be used. High athletic performance will produce different needs to those of a writer or a surgeon.
In the same way, a desired tax system will need to meet the needs of the governments of the future. Without information about what future governments will need, the Treasurer’s study will miss the purpose of having a tax system in the first place.
Do they need all that tax? Are the hundreds of thousands of pages of regulation paying dividends?
Pan Pharmaceuticals won a $50 million payout (again paid by we taxpayers) against the federal government whose regulator had acted to protect the public by closing down Pan’s allegedly unsavoury and dangerous drug manufacturing business.
Pan came to public attention in January 2003, after complaints about its anti-travel sickness tablet Travacalm, which allegedly caused hallucinations in some people.
The substance of his appeal was that the regulator “knew full well the catastrophic effect their decision would have on Pan, its employees, customers, service providers, shareholders and, of course, me and my family, both financially and personally,” Mr Selim said in a statement.
In total, the community had lost about $750 million because of the actions of the TGA and the closure of Pan, the owner said.
So because the regulator did that damage (in order to protect the public) we taxpayers now have to compensate Mr Selim.
This raises the question of what the regulators are there for, if their actions in protecting the public lead to more public costs in compensation and are somehow illegitimate why not shut the lot down and save a few billion dollars? Now there’s word of a class action against the government by Pan who want more of our money. (4)
The case had now opened the floodgates for others to sue the Government for their losses, Mr Selim said. (5)
There is also a more ominous problem regarding what would happen if a regulator tried to close down an industrial operation such as the much spruiked Gunns pulp mill. The Pan outcome (which I understand was an out-of-court settlement) is likely to make all regulators gun shy and unwilling to take any strong action that could lead to such legal consequences.
If the regulators cannot act to protect us, and are only able to say ‘pretty please’, then why have them at all?
These questions are becoming progressively more important if Australia really does want to become internationally competitive across a broader sweep of goods and services, and remain relevant in a highly interconnected world.
Watch this space.
Mike is a complex systems consultant, change facilitator and executive and management coach.
N.B. This is a modified version of an article in ABA’s latest newsletter
In our latest work at ABA we’re looking at the economy from a taxpayer perspective which contrasts with the government perspective normally found in the media and other sources.
In part, we are doing this because it needs to be done. Those large global industries that have been most successful have focussed on what the customer wants, and then delivered it right first time, have studied their performance from the customers’ perspective. That’s why Japanese cars sell for a premium over the Aussie equivalent, and why your good brand computer works from the get go and why Motorola cut its manufacturing time for personal pagers from 52 days to 1 hour.