IAN McAULEY.  In defence of Bridget McKenzie

In the court of public opinion Bridget McKenzie has become the scapegoat for systemic poor administration.

There is no shortage of comment on the “Sports Rort” affair, but largely ignored is the question why the Commonwealth has been involved in such a program at all.

That is not to question the justification for public funding of a program that “ensures more Australians have access to quality sporting facilities, encouraging greater community participation in sport and physical activity”, to quote from the Audit Office Report.

There are considerable health benefits of sport participation. Even hard-nosed Treasury economists acknowledge evidence that money spent supporting physical activity has cost-saving benefits down the line in terms of lower incidences of heart disease, diabetes and other lifestyle-related conditions. Those same economists know that while the market may be able to fund elite sports, there is no way that the Wilcannia Football Club can sell tickets to spectators to see their games or that the Victor Harbor Bowls Club can sell TV rights to its tournaments. These are cases of what economists call “market failure”, justifying public funding.

But why, in our federation with three tiers of government, should the Commonwealth be involved in such a program? Section 51 of the Constitution – the part that spells out the powers of the Commonwealth – makes no mention of sports.

Of course we are not rigidly bound by a document drafted 130 years ago. Many areas of necessary cooperation have been achieved through referral of powers by the states (as allowed in Section 51) or by negotiated agreements between the Commonwealth and the states. For example, until Commonwealth and state officials got together in the 1980s to address emergency management issues, different states had incompatible standards for fire hose couplings: it’s fortunate that we sorted that one out.

When it comes to community sports, however, it is hard to find any need for harmonisation or standardisation that may dictate Commonwealth involvement. It is indeed problematic that different states have different rail gauges, but it doesn’t matter that they have different football codes. Surely funding of swimming pools, ovals and so on should be the task of state and local governments, consistent with the principle of subsidiarity.

So how did we get to this point of such Commonwealth involvement, particularly under conservative Coalition governments that have traditionally stood on a platform of “states’ rights”?  Why, in 2018, did the Coalition Government establish this Community Sport Infrastructure Grant Program (CSIGP) when there were so many other calls on public revenue and when it was supposedly bound by the ostensible Coalition commitment to “small government”?

A pragmatist will answer that question by reference to the difficult financial conditions experienced by state and local governments. In a tough fiscal environment, state governments have to prioritise vital services – school education, hospitals, policing and transport, leaving community sport well down on their list of priorities. The Commonwealth has easier access to funds, so it makes sense for them to take on funding community sport.

The problem in that justification is that it takes the present distribution of funding between tiers of government as an immutable condition. It ignores the reality that state and local governments, whose responsibilities are largely for services employing skilled labour, should have a better financial deal. Just to sustain a given level of service their revenue base should be growing share of GDP – a reality the Coalition refuses to recognise.

A political analyst – a hardened cynic in the Canberra press gallery perhaps – would consider the question to be naïve. All governments like to be seen doing something, and programs that have a regional component are all the better because they can be shaped to yield electoral benefits. A pork barrel is one of the trophies of office.

That’s the “obvious” conventional political wisdom.

When checked against reality, however, the “obvious” political wisdom does not stack up. Academic studies of the effects of regional boondoggles show that they’re usually neutral in terms of electoral outcomes. While electors like an upgraded road, a refurbished stadium or a new cycle path, their liking is not accompanied by gratitude. Rather it’s the satisfaction of an exchange – they have paid their taxes and are getting public goods in return. It’s the same transactional relationship we may have with our local supermarket or hairdresser.

Specifically in relation to the CSIP grants, William Bowe (keeper of the Poll Bludger site) has found that in spite of its politically targeted outlays, it had no net effect on the Coalition vote in the 2019 election. (By now the program would be yielding net political costs.)

Even if they don’t pay much attention to research, one may wonder how, in designing the CSIPG, the Coalition hadn’t learned from the Ros Kelly whiteboard affair, which contributed to the defeat of the Keating Government, or from the problems the Rudd Government had with its home insulation program (which involved poor administration but not political interference). In both cases the government would have been far better off politically had it handed the money to the states as tied grants, acknowledging that the Commonwealth just isn’t equipped to administer such programs.

Perhaps, in failing to learn from these cases, the Coalition was so blinded by a belief in its own competence that it believed it could succeed where Labor had failed.

That’s plausible, but there is also another possible explanation: the Coalition doesn’t really have any firm principles guiding the way public money is spent, because it sees all public expenditure as wasteful. For its part the Liberal Party, in its statement of beliefs is explicit: “businesses and individuals – not government – are the true creators of wealth and employment”.

If you believe that nothing of value comes from the public sector, it doesn’t matter how public money is spent. A grant to a gun club, a new railroad, Medicare … it’s all waste, and may as well be spent in order to maximise the government’s chances in the next election.

Such a view of public expenditure underpins the political economy theory known as “public choice”, a theory that arose in the USA in the late twentieth century and that caught on in Australian universities in the 1980s.

Traditional economic theory sees public expenditure in terms of providing public goods that the market cannot provide or cannot provide so well, but public choice theory sees public expenditure quite differently. Its assumption is that public expenditure is used to appease interest groups – private health insurers who want subsidies, commuters who want a railroad, the Betoota Cricket Club who want a change room so the crows and galahs aren’t embarrassed by cricketers’ nakedness. The aim of elected office holders is to spend just enough money appeasing these interest groups, to get them over the line in the next election.

Lending evidence to this interpretation of public administration is Morrison’s handling of McKenzie’s misdemeanours. In requiring the head of his department to inquire whether she breached ministerial standards he is rejecting the Audit Office’s assessment , an assessment based on traditional principles of public expenditure, and on laws regarding the separation of ministers from the administrators of statutory bodies. Rather, the question according to Morrison is whether she has breached “ministerial standards”, the standards set by his executive government.

McKenzie’s behaviour has been in line with the standards set by the Coalition, particularly as seen in the behaviour of the Prime Minister in his non-stop political campaigning. Is it fair that she becomes a scapegoat for the Coalition’s entrenched disregard for the public purpose?

Ian McAuley is a retired lecturer in public sector finance at the University of Canberra, and is co-author, with Miriam Lyons, of Governomics: Can we afford small government? in which the traditional economics of public expenditure is explained.  He spent some years in charge of a government discretionary regional grants program, an experience which may have coloured his views on the CSIGP.  

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12 Responses to IAN McAULEY.  In defence of Bridget McKenzie

  1. Ross Jones says:

    This argument is like the following – although she tried to blackmail the electorate into voting for the coalition, it didn’t work, so she is not really to blame. Blackmail is blackmail, pork-barreling is pork-barreling and I would expect a Minister with at least two operational braincells to know this.

  2. Chris Harrington says:

    Ian, I agree with you that there is no need for the Federal Government to be involved in lots of areas that it has recently decided to involve itself in. The cost blowouts in the NDIS, the shameful state of our aged care rationing system, the waste in administration of federal Indigenous programs. The list goes on.

    I shudder that the federal government has decided to outsource (privatise) the Aged Care Assessment Teams – the only part of the aged care system that actually works. Consider the implications of 3 year tenders on service quality, job insecurity (and hence attractiveness of, leading to high turnovers of staff with few community networks).
    Even worse, the Royal Commission into Aged Care was recently compelled to issue a public rebuttal to the Minister’s statement that the Commission supported the ACAT outsourcing model.

    I do believe that there is a role for federal government in ensuring adequate funding goes to the States for national priorities and workforce but they aren’t doing that either. The issue is – how do we rein them in?

  3. Andrew Gillespie says:

    Your suggestion that McKenzie be given a “get out of gaol” pass as she may have knowingly followed her employer’s misguided instructions is simply abhorrent. Or should the people responsible for the distribution of public funds not be held accountable? Unlike the rest of us.
    A person is responsible for their actions, unless they have a relevant impairment. As the deputy leader of her party, it is a poor showing in the political talent of the Nats.
    There is a simple answer. McKenzie must be wishing there was a federal ICAC.

  4. John Doyle says:

    Morrison is now so tainted that even his “captain’s pick” referee will only add luster to the seat of his pants. His good strategy to win the election hasn’t been borne out by his lack of gravitas etc that decent leaders can muster That win will become a poison chalice not just for him but for the country.
    It’s looking like we got what we deserved in Morrison.I cannot see him regaining credibility.

  5. john austen says:

    Mr McCauley: I think you are right, but a bit lenient on the States. For example, on the vertical fiscal imbalance matter – ‘the States are poor’ – a ton of salt is required to cover the bad taste, at least in NSW – for sports. The rebuild of perfectly good stadiums being one case in point. Roughly $800m each for the Olympic Stadium (now 20 years old) and the Sydney football stadium (31 years old). Too old? Railway carriages have a longer life. And when refurbished they are not put out of action for several years. Thanks for the post.

  6. Chris Borthwick says:

    We’re getting into Bronwyn Bishop helicopter territory her, pubtestwise.

  7. Chris Borthwick says:

    I’d hate to have you as a defence lawyer.
    “Your honour, my client is guilty of nothing except believing that the money in that bank belonged to nobody in particular and would have been used for someone’s personal advantage anyway so might as well be used for her personal advantage as anybody’s. And in any case is it fair that she go to jail when her confederates have successfully bribed the police?”
    The defence does seem close to the new Dershowitz impeachment argument that if a politician believes that the return of their government would on balance benefit the country then any action taken along the way to achieve that is legitimate.

  8. Karen Barfoot says:

    Very interesting read – thanks Ian.

  9. Evan Hadkins says:

    An additional element may be that the Libs were in panic mode, fearing (based on misleading polls), that they were in a precarious situation; and so threw everything but the kitchen sink at electorates they wanted more votes in.

  10. Wayne McMillan says:

    Ian, Why are states/ territories suffering from vertical fiscal imbalance? i.e. they don’t collect the bulk of Australian revenue, answer is they have limited revenue sources
    and are budget constrained. However they are located where most of the public expenditure happens in our federation. They rely on the federal govt for funds to provide a lot of the necessary essential public services and social/ economic infrastructure. This problem could be solved with a new fiscal federalism in light of the real macro monetary/fiscal space revealed to us by modern monetary theory. The commonwealth govt can provide more funds to the states/ territories to make up their shortfall in revenue collection and hence less reliance on political pork barreling.

  11. Richard Ure says:

    Morrison is clutching at the ministerial standards test because he has some control over that especially when he handpicks the referee. The pub test is more reliable and the outcome of that is known insofar as Bridget is concerned. The preferred test needs more information before it can pass judgment on whether the ramifications are wider.

    Where will we be if the PM’s inquiry does not reach the same conclusion as the politics in the pub? The pub is a bit rowdier than usual on this one.

  12. Bruce Legan says:

    “businesses and individuals – not government – are the true creators of wealth and employment”,
    That is where they have been extremely poor economic managers, for experience shows exactly the opposite, that where governments spend economies grow. The vast infrastructure, electricity, roads, water and sewage that enable economic growth are invariably provided by or highly subsidies by government. It is this ideological myopia that makes them lousy managers for the populace at large, serving vested interests.

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