Abbott's plan to cut the public service and change taxation

The biggest change the Abbott Government is making to Australia does not concern refugees or carbon, although those decisions are very important. Rather, it is the radical change they are making to the Australian public service, which will be followed by even more radical changes in taxation, that will be most significant.

Outgoing Treasury chief Martin Parkinson yesterday gave Australia a peep into the extent of Treasury cuts, which theoretically amount to a one-third reduction in numbers.  But what Parkinson did not explain was that when the Abbott Government came to power, they were genuinely surprised at how far the previous government had gone in reducing the public service through efficiency dividends and other measures.

The new government realised that further simple headcount reductions of the 12,000 magnitude indicated in the election campaign would cause significant damage to the public service unless they were accompanied with a change in the way things are done.

This week, the focus is on the substantial gains business will make as a result of the deregulation program being shepherded by the Parliamentary Secretary to the Prime Minister, Josh Frydenberg. But behind that that deregulation push is a program to change the way public servants think. 

For generations, the public service has been about thinking up regulations that they could administer, therefore increasing the scope of government and the size of the public service. 

Both political parties saw increased regulation as a way of earning political points, as they will be seen to be doing something.

Frydenberg has published a booklet that requires public servants to prepare regulation impact statements and to put every new regulation through scrutiny. The booklet also requires that existing regulations are made the subject of regulatory impact statements.

The booklet is written in simple language and sets out, in incredible detail, of how public servants must assess regulations. Of course, business is being invited to reveal where regulations place unnecessary burdens. The regulatory impact statements will test these claims. (Those wishing to abolish regulations should frame their claim in the terms set out in the Frydenberg book.)

Initially, deregulation will cause a lot of public service activity, but accompanying the abolition of each set of regulations are the public servants who administer those regulations. This is a massive change.

And it is set to go much further. Australia has a vast array of taxes, but 90 per cent of the revenue is raised by about 10 taxes. There is scope for a simplification, which again affects the public service.

It will be a difficult exercise, but the Abbott Government wants to transfer major chunks of Federal Government activity to the states. For the most part, the states do it already, so it’s a reduction in duplication.

The Abbott Government also wants the states to participate in taxation simplification (payroll tax and its exemptions is an obvious area) plus raise additional taxes perhaps by lifting land taxes. Again, this is not an easy task.

But if it is achieved, then there will be an unprecedented change in the public service. It will be much leaner, but no less influential.