Commonwealth Grants Commission figures make it clear that the actual scope for duplication of costs by a new state government is quite limited. The overwhelming majority of state outlays involve no duplication because they relate directly to the delivery of a service to individuals from a local office and thereby remain the same whether that service is delivered by a large existing state or a new regional one.
Through the Grants Commission, the Commonwealth and the States and Territories have gone to considerable effort to determine what “Minimum Administrative Structure” is needed to deliver the core head office functions of a state, including Parliament. They have also agreed on the cost of this function which is continually updated from year to year. It is only this “fixed” or overhead cost of a new state government that is duplicated when a new state is formed from part of an existing one.
Whenever the prospect of a new regional state is mentioned in a public forum it will inevitably attract the trenchant “abolish the states” comments from people who already feel grossly over governed. Analysis of feedback reveals that most of these people do not actually live in the region that is the subject of the new state proposal and will rarely, if ever, have any need to deal with the new state entity, beyond the purchase of a fishing license while on vacation there.
More importantly, such views are based entirely on the cost side of the ledger, with no consideration of the very significant savings that can be made when planning, direction and control functions are performed by a smaller, leaner, more focussed organisation that is just 3 hours drive from the service delivery point instead of from a very large, bloated, less focussed organisation some 1600km from the service delivery point.
There is even less consideration of the substantial additional benefits that can be gained by local MPs and Departmental Managers who no longer have to spend a great deal of their time outside their core area of responsibility, and discussing issues that are not even relevant to their constituents. The direct causal relationship between increased focus on relevant issues and the quality of solutions and the targeting of responses is also overlooked by the cost fetishists.
More importantly, the substantial economic multiplier effect as the funds spent on the new administrative structure recirculate, up to 3.5 times, through the regional economy is also ignored. The new head office operates as a key economic engine in its own right.
The 2008/2009 CGC estimate for this duplicated government administrative structure was only $213 million (see para 54 p.110). http://www.cgc.gov.au/__data/assets/file/0007/18349/2010_Review_final_report_vol_1.pdf The
This figure ranges from $31 per capita in NSW, $52/capita in Qld to $640 in the ACT. And when spread over the 900,000 people of New North Wales it would be $237/capita and for the 750,000 folks in North Queensland it would be $284/capita.
However, the people of any new state already carry their share of the existing state overhead cost so this would be deducted from the projected cost of the new state. So the net cost in New North Wales would be $206/capita and in North Qld it would be $232/capita. The post secession cost in the rump states of NSW and Qld would go up by $5 and $11/capita respectively.
Many people in regional Australia would gladly pay this amount to get a government of their own choosing just down the road. But this is not an actual cost, it is just the target cost that a new state administration must find savings and efficiency gains to offset. And when one considers that average state outlays are in the order of $10,000 per capita then finding savings and improvements in the other $9,800 worth of state service delivery is not a particularly daunting task at all.
In fact, when the $213 million in additional funds are injected into the New North Wales economy it will circulate about 3.5 times and boost local GDP by $747 million and put an average $830 into each person’s pocket. And 15% of that, or $124/capita, will come back into the new state’s coffers in fees and taxes etc. And this will further reduce the net duplication cost to only $82/capita.
In North Qld the same $747 million boost to local GDP will put an average of $996 into each person’s pocket and from this amount $149 will go back into the new state’s coffers to bring the net duplication cost down to $83/capita.
So before we even begin to look at additional savings and efficiency gains from the other 98% of government service delivery, the average new north welshman has an extra $706 in his pocket after state fees and taxes. His new state has incurred $82 in debt in his name which will need to be serviced by a $4.10 increase in per capita taxes. The North Queenslander will have an extra $847 in his pocket from which his new state will need to take $4.15 in extra fees to service his $83 share of state debt.
Of course, even if the new state government was unable to find a single additional dollar in efficiency gains, and all money currently spent on sending regional staff to capital city wonkshops, and the money spent on sending capital city bureaucrats to the regions to get up to speed on what the locals have known for years, just magically evaporates, then the new state government can simply increase fees and charges on the other $9,800 per capita in services by 0.84 of 1% and that $83 worth of per capita debt will not be borrowed in the first place.
So tell me, are the cost “wallies” looking silly yet?
It is interesting to note that the SEQ government currently pays out $86 million a year to supply locums to regional Doctors, at more than $1,800/day and double the cost of a permanent local GP. But less than 5% of this outlay actually remains in the town where the locum worked. Apart from about $100/day in accomodation and meals, the rest goes traight back to wherever the locum came from (in some cases to New Zealand)
This money is still classified as the regions share of the financial pie despite the fact that most of it ends up creating additional jobs everywhere but in the region. Just $62 million of this money would cover the remainder of the head office costs of a new North Qld State government, or would train an additional 172 extra medical students.
The same is taking place in education where, instead of new schools being built by locals, demountable classrooms are built in Ipswich and trucked to the regions. The funds are counted as having been spent in the region, despite the fact that all the jobs and 95% of the additional economic circulation remains in SEQ. In fact, this sort of thing is taking place right across the state budget, and is on a scale that renders the “duplication cost” of a new government in the North completely irrelevant.
And what is very clear is that the often suggested option of ceding health, education and law and order functions to the Commonwealth and leaving the region without a premier or parliament but with enhanced regional councils would actually exacerbate the leakage of local GDP to the metropolitan economies and speed up the decline of rural areas.
The “abolish the states” argument is one based solely on the consideration of the raw cost of government with scant regard for the economic multiplier effects of the same government. This is an entirely understandable oversight for regional people who do not see much of this multiplier effect in action but it is impossible to ignore when observed from within the capital region. What is clear to see is the fact that the major second and third phase circulation of state funds is restricted to about a 3 hour radius of the capital, i.e. between Noosa, Toowoomba and Byron Bay.
It is a damning indictment of the status quo that the second and third stage circulation of Queensland government outlays produces far more jobs in Northern NSW than it does in regional Queensland.
And in the North Queensland context, this would enable the complete capture of the region’s proper share of GST funds and Commonwealth grants and ensure that the overwhelming majority of second and third phase economic circulation takes place between Cairns, Mackay and Hughenden. But the more state functions are handed to the Commonwealth, the less control the region has over the second and third phase economic circulation from those outlays.
The ideal would be for 4 regional entities in the North, three on the coast and one in the west, but the population is too small to do this yet. The federal Constitution deals only with states and such small states would produce some serious distortions in the quotas for House of Reps seats. And implementing constitutional changes to accommodate these problems would require a level of nationwide consensus that is entire orders of magnitude greater than has been achieved over the past 110 years.
In practical terms we are stuck with states as the vehicle of reform. But it should also be kept in mind that there is nothing to prevent any parliament of a new state from forming internal sub-regional units, under the direction of the relevant state MP’s from that sub-region, and giving them full control over the allocation of their share of each departmental budget. This would produce an even more equitable distribution of second and third phase economic circulation and reduce the risk of a single concentration of wealth around the new capital.
This issue of equitable second and third phase economic circulation is far more important, in both funds involved and economic impact, than the issue of mining royalties etc. In Queensland the state takes a larger portion of it’s mining profits in the form of high rail freight charges, rather than royalties. And it is also clear that Bligh will have sold off this part of the revenue base to the miners themselves long before any new state gets to divide the spoils. So making the distribution of these funds a key part of any devolution campaign will only strengthen the perception amongst southern voters that there is something there to fight over and keep.
The economic benefits of creating a completely new, dispersed, economic engine in the form of a regional State government are incontestible. The costs to the rump state are so marginal as to be statisically irrelevant while the reduced pressure on existing metropolitan congestion and lifestyle degradation is obvious.
New Regional States are an idea who’s political and economic time has come.