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Economic Analysis & Policy VoL27 No.1, March 1997 1

PLUS <;A CHANGE: PROBLEMS FACED BY THEQUEENSLAND GOVERNMENT ECONOMIC ADVISOR

Peter CrossmanExecutive Director

Audit Commission Implementation OfficeQueensland Government

1. INTRODUCTIONMay I begin by thanking the Department of Economics of the University ofQueensland and the Economic Society of Australia, Queensland Branch, for theopportunity to present this sixth Colin Clark Memorial Lecture

l.

1 have five personal and particular reasons for being happy to give thisMemorial Lecture. Firstly, Colin Clark was one of my PhD examiners. Secondly,and while it may be unfashionable to have heroes, 1can unashamedly state that hehas been, sinoe my undergraduate days, one of my personal heroes, as a greatpioneer ofeconomic accounting. Thirdly, he has a family connection to Townsville,where 1have spent most of my life as an economist. Fourthly, Colin Clark workedin Cambridge in the 1930s, preceding the workin economic accounting ofmy otherpersonal hero, the late Professor Sir Richard Stone.

Fifthly, and lastly, having now made the transition from academic economistto Treasury economist in Queensland, 1feel a special affinity with Colin Clark, whomade somewhat of a similar, although very much more significant, transition in1938, when he accepted the invitation of the Premier of Queensland of the day,William Forgan Smith"A Far Seeing Patron of Economic Science"2 to becomeGovernment Statistician, Director of the Bureau oflndustry, and Financial Advisorto the Treasmy. Colin had been lecturer in statistics in the University ofCambridgeduring the 1930s, and had been on a lecturing tour of Australia in 1937 as visitinglecturer to the Universities of Melbourne, Sydney and Western Australia.Furthermore. fifty-eight years on, 1am encouraged, as an economist, to note thatthe current Premier and Deputy Premier of Queensland have emulated ForganSmith's appointment of Colin Clark, through the selection of a senior academiceconomist, Dr Doug McTaggart, from Bond University in this State, to be theGovernment's Head of Treasury.

Iwould also like to thankMark Gray (Depury UnderTreasurer), DavidSmith(QueenslandGovernment Statistician), my colleagues and friends in Queensland Treasury and theAudit CornmissionImplementation Office, and especially the Chairman, Commissionersand Staffof the Queensland Commission ofAudit, for their advice and support. Needlessto say, aU errors and omissions in this lecture are solely my responsibility.

See the d~dication in Clark (1940).

2 Economic Analysis & Policy Vol.2? No.1, March 1997

Of course, as a Treasury economist myself, and also in my current rolefollowing my secondment to the Audit Commission Implementation Office of theQueensland Government, I should and I do state that this lecture reflects mypersonal views alone, and in no way can or should be taken necessarily to reflectany views of the Queensland Government.

This is particularly important statement to make, since the theme I have chosenfor this Memorial Lecture consists of looking at a number of problem areas facedby Colin Clark in his role as economic advisor to the Queensland Government, andexamining some aspects of those areas today - about fifty or more years on ­especially in the light of the recently completed Queensland Commission ofAudit.

The broad areas I wish to cover are: the role and organisation of informationand statistics; productivity of the Queensland economy; public finances;Commonwealth-State relations and assignments of responsibility; and theorganisation antl management of Government.

These areas were certainly of interest to Colin Clark fifty or so years ago, andthey are of continuing interest today. (They by no means comprise the full spectrumof Colin's interests of course.)

2. THE ROLE AND ORGANISATION OF INFORMATION ANDSTATISTICS

Some of these areas are interrelated - for example, statistics and CommonwealthState relations. Colin Clark was a staunch defender of the interests of State's rights,especially in the field of statistics and information. It is conjectural, but it is not clearto me at least, that he would have agreed to the integration of the State StatisticalService with that of the Commonwealth which occurred in 1956, in the case ofQueensland, and throughout that decade in the case of all States.

Indeed, the archives are littered with memoranda and material on the problemsofincreased Commonwealth interference and encroachment in the field ofstatistics.This was compounded by the actions of some other States, influenced by theirStatisticians in some cases, such as Stan Carver in New South Wales.

On 14 October 1949, Colin Clark wrote to Wally Wurth, the Chairman of theNew South Wales Public Service Board about Colin's " ... considerable disquietabout the Commonwealth attempts to infiltrate into the legitimate sphere of StateStatistical Offices."

He went on to say:

"In the first place I must make the Constitutional position clear. "Censusand Statistics" are a legitimate subject for Commonwealth legislation andexecutive action and they are legally entitled to do anything they wish in thissphere.

However, as well organised Statistical Offices were in existence in eachState before the commonwealth was foomed (the Office organised by SirTimothy Coghlan in N.S.W. in 1880 was one of the statistical wonders ofthe world), a rrwdus vivendi was reached whereby Commonwealth andState StatiSt:lcal Offices worked in happy and fruitfUl cooperation from the1900s to the 1940s.

Economic Analysis & PolicyVo1.27 1\0.1, March 1997 3

There is one minor qualification to the above story. In 1924 the thenCommonwealth Government became conscious of its legal rights in thisfield and it was proposed that States close their Statistical Offices and havethem replaced by Commonwealth Branches. This offer was accepted onlyby Tasmania. It is undoubtedly anomalous that throughout the subsequentperiod the Commonwealth Deputy Statistician in Tasmania has largelybeen occupied in compiling information for use by the State FinanceCommittee in preparing cases against the Commonwealth re grants, shipping,etc. However, things may happen in Tasmania which cannot be taken as amodel for the rest of Australia.The dem,rcation worked out, and which prevailed till the 1940's, was thatall work capable ofbeing done locally should be done by the State Offices,and that the Commonwealth should confine itself to work which could bedone in Canberra. During the war the Commonwealth established someStatistical Offices outside Canberra, nominally to meet war-timeemergencies, but I fear that some members of the CommonwealthStatistici:m's staff had an eye on post-war prospects. The Commonwealthnow claims some of its statistical work must be done outside Canberrathrough sheer inability to obtain adequate staff and accommodation in that

city."He received no sympathy, or support, however from Wally Wurth, who explained

that.... .1 think you might solve your problem in Queensland along these lines....My personal view is that you wouldbebetter advised to make an arrangementakin to that which we have been making in New South Wales. It has manyobvious advantages from a State point of view and will effectively stopinfiltration because it ensures that the Commonwealth must decentralisestatistical collections under supervision of State Statisticians...

Over the past two years I have been discussing with Stan Carver theposition, as ithas developed, with a view to avoiding excessive centralisationof statistics in Canberra and with a view to ensuring adequate State service

in statistics.To meet the situation we have done two things in New South Wales:

a. Certain joint Commonwealth and State branches have been established,some with direct Commonwealth staffing, some with joint staffing;

b. All branches (Commonwealth and State) are being brought under oneroof under direction of the Government Statistician (who has beenappointed also as Deputy Commonwealth Statistician so that he cancontrol all statistical activities within the State). This makes it possibleto ensure an expansion ofCommonwealth Statistics in New South Waleswithout encroachment on State spheres and without the State losingservices. Actually the State gets fuller service under this scheme thanheretofore."

4 Economic Analysis & Policy VoLZ? No.1, March 1997

Who was right? Colin Clark's fears were well founded. The simple proof is intoday's fact that successive Queensland Government's have chosen to allocatescarce resoumes to re-establish a strong statistical operation to fulfil State statisticalrequirements which the Commonwealth has chosen to no longer support. The Statenow has its own statistical office, and the Queensland Government Statistician isonce again a State Government official.

The Queensland Government has even resumed the construction, withinQueenslandTreasury, ofeconomic accounts for the State. These economic accountsfirmly follow in the Queensland traditions of Colin Clark's work. Ian Castles3, theformer Australian Statistician, has stated that "the first finance minister to acceptthe practical utility of estimates of national income and to use them in theformulation of fiscal proposals was probably F.A. Cooper, Treasurer in ForganSmith's Government in his Financial Statement on 26 September 1940", and thatColin Clark may well be supposed to have drafted the strong defence of the use ofsuch estimates, that was provided in the Queensland Legislative Assembly on 10October 1940. This official use of economic accounts in Queensland narrowlyprecedes the use, in the Commonwealth Budget of November 1940, of RolandWilson's estimates4

The degree of personal support provided by Forgan Smith for economicaccounting may be strongly guessed at by the inscription provided by Colin Clarkin his gift to th"Premier ofa copy of his (and John Crawford's) 1938 book on "TheNational Income of Australia". That is, "With the author's complements & wishingthat other Premiers would read it."

A comprehensive assessment of Colin Clark's pioneering work in economicaccounting and his work as an economist in Queensland and statistician cannot beachieved in this Lecture. Others have provided tantalising glimpses - they include,and I recommend reading: George Kenwood, of this University5; Don Patinkin6, inhis fascinating story of the relationship between Keynes and the econometricians;and, Ian Castles, in his finely researched studies of statistics and statisticians.

As well, in the course of an economist's work for the State, one does comeacross artefacts and evidence of Colin Clark. One is the schema of post waremployment planning, discovered on the wall of a house in Rosalie by a Treasuryofficer, Dr Jacqueline Dwyer (see Appendix 1). The manuscripts held by theGovernment Statistician's Office, containing what appear to be Colin Clark'scalculations using the Y~C+I+G+X-M rubric are another example. A furtherexample is an original copy of Roland Wilson's 1939 paper on investment - quitelikely the Queensland Government Statistician's own copy. These are all on displaytoday, together with two of the books that Colin Clark inscribed and presented to

Castles (1993. P 7)

See Conunonwealth Hansard (21 November 1940, p.80) and the Economic News(November 1940, p.l).

Kenwood (1988)

Patinkin (1976)

Economic Analysis & PolicyVo1.27 No.1, March 1997 5

his patron, Forgan Smith, and which are now in the University Library.The return to 'tradition by the State Government in constructing Queensland's

own version of the State's economic accounts is not just for sentimental reasons.The reasons are threefold: firstly, to learn more about the State's economy, and touse further information in the construction of the accounts than the AustralianBureau of Statistics employs. Secondly, to revise errors and discrepancies in theAustralian Bureau of Statistics estimates. Thirdly, to provide a means to improvethe technical capacity in economics in the State Government.

The Queensland State Accounts do contain a greater elaboration of thedomestic production account for the State than the Australian Bureau of Statisticsaccounts. Two particular areas of elaboration may be noted: one, the QueenslandState Accounts uses the quarterly interstate trade survey data - which are onlyavailable for this State, and which effectively represent the last vestige of thespecific list of statistical services "guaranteed" by the Commonwealth to the Stateat the time of the integration agreements. I am pleased to note that the QueenslandGovernment is working with the ABS to improve the quality of this unique survey.Two, the Queensland State Accounts uses the Queensland Tourist and TravelCorporation's Queensland Visitor Survey to estimate tourism transactions explicitly.Some important points can be made regarding the accounting treatment of tourism.This will also be addressed in this Lecture.

It may not be understood that major problems could and do exist in the ABSaccountS. Let me illustrate this point with an example.

In the June quarter 1994 issue of Queensland State Accounts. detailed analysisby QueenslandTreasury indicated that estimates of wages, salaries and supplementsfor Queensland had been substantially understated by the Australian Bureau ofStatistics for the four quarters of 1993-94. Non-farm civilian wages and salaries isthe largest component to be estimated in the construction of wages, salaries andsupplements. This is determined by applying average earnings from the AustralianBureau of Statistics Survey ofEmployment and Earnings (SEE) to Labour ForceSurvey wage and salary employees.

The problem arose because private sector gross earnings and private sectoraverage earnings from the SEE in Queensland have been under recorded since theSeptember quarter 1993, resulting in a major structural dislocation in private sectoraverage earnings. Figure 1 shows this fall in private sector gross earnings, and alsoshows that it was not accompanied by a corresponding decline in the number of

private sector wage and salary earner jobs.As would be expected from a structural break, the crossover of annual growth

in earnings to a lower rate than employment in September quarter 1993 was

reversed in the September quarter 1994.This decline in private sector average earnings, in September 1993, was not

experienced by any other major State. This is shown in Figures 2 and 3.To possibly labour the point, this decline represents, over the period of one year

starting in September 1993,falls - that is, actual reductions in dollar amounts - inprivate sector average earnings in Queensland of about 3 per cent compared withthe corresponding quarter of one year before. There is simply no collaborativeevidence for tllis. It did not happen in the real world.

6 Economic Analysis & Policy Vo1.27 No.1, March 1997

FIGURE I

EARNINGS AND EMPLOYMENT, QUEENSLAND(% annual change - quarterly)

40,-------------- --,

30

20

10

o-10

~-- .-------,

-20 ~'-;;;:-;o_J=-;,._L;:;:____;__'_;,:__:7_J.,._;:_.,,_'_;;;:-,,_l_=___;,.__L;,-;-_;_:~Mar 89 Dec 89 Sep90 Jun91 Mar92 Dec92 Sep93 Jun94 Mar95

- Private gross earnings

- - _. Private wage and salary earners

Source: AES Employed Wage and Salary Earners, Australia (Catalogue No. 6248.0)

FIGURE 2

SEE - PRIVATE SECTOR AVERAGE EARNINGS, MAJOR STATES(% annual change - quarterly)

15,-----------------------

, , ,.

10

5

o

I \

~ I~,'... ........ I ... '.... A _ I ...,-- ~ ,

,/

It

tI \

, t \... , I ...

\., ... ,.../ /," - ~ .::; ... '

-5 ~;;;;-~j=---;:--"-:::---~_:___;_;_'=__;::__'=____::,__J__;,,____~,_;___;_;_'_;,!Mar 89 Dec 89 Sep 90 lun 91 Mar 92 Dec 92 Sep 93 lun 94 Mar 95

- Queensland --_. New South Wales • - _. Victoria

Source: ABS Employed Wage and Salary Earners, Australia (Catalogue No. 6248.0)

Economic Analysis & Policy Volo27 No.1, March 1997 7

FIGURE 3

SEE _ PRIVATE SECTOR AVERAGE EARNINGS, MAJOR STATES(% annual change - quarterly)

15 ,--------------------------,

\ ' /, ... / /

\ /,{

0-

-5 \--

-10 I

Mar 89

I

Dec 89

I I

Sep 90 Jun'91

I

Mar92 Dec92

,Sep93

,Jun 94

,Mar 95

-- Queensland •••. South Australia - - ~. West Australia

Source: ABS Employed Wage and Salary Earners, Australia (Catalogue No. 6248.0)

Interestingly, it may be speculated that similar phantom falls in private sectoraverage earnings occurred in Victoria in 1991-92, and in South Australia in 1994-

95.There was no evidence of labour market trauma and recession in Queensland

during this period of substantial annual declines in average earnings. (Indeed, noother Queensland or Commonwealth Government data support the conclusionthat such a fall occurred). As well, as was stated in the June quarter 1994 issue ofthe Queensland State Accounts, this decline in Queensland average earnings isnot supported by any other evidence. For example, while there are importantdifferences in concept and scope of the two surveys, growth in State averageweekly earnings from the Australian Bureau of Statistics Survey of AverageWeekly Earnings remained strong during that time. Put simply, there is noevidence (statistical or other) which can corroborate the major decline inQueensland average earnings recorded by the SEE.

Furthermore, analysis performed for that June quarter 1994 issue ofQueensland State Accounts showed that the fall in average earnings cannot beexplained away by compositional changes in the labour force.

The return to annual growth (of 5.6 per cent) in the September quarter 1994,following four quarters of negative annual growth, in SEE private sector averageearnings is of course fully consistent with Treasury's view that a structural breakoccurred in Queensland private sector average earnings commencing in theSeptember quarter 1993.

Accordingly, re-estimates of the Australian Bureau of Statistics figures forprivate sector average and gross earnings, and wages, salaries and supplements for

8 Economic Analysis & Policy Vol.2? No.1, March 1997

FIGURE 4

PRIVATE SECTOR GROSS EARNINGS($ million)

6000,-------------------------,

5000 I-

4000 f-~ '-.-­

3000 I-

2000 f-

1000 l-

I ' , I I I I ' ,o

Mar 89 Dec 89 Sep 90 Jun 91 Mar 92 Dec 92 Sep 93 Jun 94 Mar 95

- Original - - - - Rc-cstimate

Sources: Queensland TreasuryABS Employed Wage and Salary Earners, Australia (Catalogue No. 6248.0)

both Queensland and Australia have been required since June 1993. Chart4 showsthe actual, and Treasury's re-estimated, values of the levels of SEE private sectorgross earnings for Queensland up to the March quarter 1995.

It may be noted that, following Queensland's strongly expressed concerns, aswell as other ex.pressions of concern from both within and without the ABS aboutthe validity of the SEE, the ABS undertook a major review of the SEE, andsubsequently ceased publication of the SEE series in March 1995 subject to a urgentreview of the Survey's methodology. It is expected that the Bureau will resumepublication of Ibe series in December quarter 1996. I look forward to seeing thispublicaton and, hopefully, a revised series which will address this major flaw inAustralia's and Queensland's official measures of economic activity.

I shall now quickly explore the treaunent of tourism in a economic accountingframework. The treaunent is often confused or misunderstood by a failure toappreciate that tourism transactions are inherently balance of trade or paymentstransactions. This was not a point missed by Colin Clark. In an article which I feelsafe in attributing to him, in the August 1938 issue of Economic News, on the"Queensland Balance of Payments", he explicitly specifies and estimates theexports and imports of "immigrants and tourists".

The essential characteristics of tourism transactions are that they are:internal or domestic consumption transactions or intennediate productiontransactions, and, importantly,balance of payments transactions (when tourism transactions involve foreigners,or agents from outside the domestic territory where the transaction takes place).

Economic Analysis &. PolicyVol.27 No.1, March 1997 9

It is common, and in my view misleading, to refer to the "tourism industry".One of the key points in defining what is meant by an industry is the concept ofhomogeneity. When I visualise tourism, I think of a host of diverse goods andservices being produced and sold; hotels, restaurants, international, interstate anddomestic air travel, buses, retail activity etc; all very different and unique conceptsin their own right and all already forming part of various existing industries. Tryingto form meaning out of a "tourism industry" is equivalent to forming a mixture ofall these things. :I would suggest that it is far more meaningful and useful, from aneconomic analysis and policy point of view, to think of tourism exports or

exporters, and not a tourism industry.The Queensland State Accounts has gone some way in elaborating tourism

within the stan,Jard accounting framework by taking this approach, althoughfurther refinements are being studied in Treasury. While satellite accounts fortourism as preferred by the SNA, when they are developed, will probably also bevery useful, I believe that Treasury is correct in following Colin Clark's examplesby statistical clear thinking and ingenuity, in developing quick, simple and usefulestimates of tou.rism transactions within the domestic production account.

His pioneering work in developing regional economic accounts in 19497

hasof course been followed by a grand tradition in this State. In particular, the work ofRod Jensen and Guy West of this University in input-output table construction andanalysis has been very much in Colin Clark's economic accounting tradition. Aswell, official State and regional input-output tables are now produced by theGovernment Statistician's Office, using, I am pleased to say, the balancingtechniques developed by Richard Stone and by Ray Byron (of Bond University inthis State), which enforce congruency amongst the accounts. I note that RichardStone was able to contribute an article on his balancing technique to the 1988

Volume of Essays in Honour of Colin Clark.AIl of this contributes to better information. Better information eases friction.

It helps marke::s to clear and improves policy making. Patinkins

provides us witha quotation which is probably safely attributed to that well known economist, JohnMaynard Keynes _ "How can economic science become a true science, capable,perhaps, of benefiting the human lot as much as all the other sciences put together,so long as the economist, unlike other scientists, has to grope for and guess at the

relevant data of experience?"One of the attractions to Colin Clark of taking up the Queensland Premier's

offer in 1938 must have been the promise of resources to develop his accounts andperform his research. Patinkin9 provides a sobering view of the degree of difficultyin commanding resources in the 1930s, noting"...such minor things as the addingmachine which the [HMJ Treasury refused to buy for Colin Clark..."! I am verypleased to note, at least with respect to Queensland Treasury, that resources are

somewhat more available today!

May 1949 Economic News- Regional Production and Wealth

Patinkin (1976, P 1108).

Patinkin (1976. P 1115).

10 Economic Analysis & Policy Vo1.27 No.1, MaTch 1997

3. PRODUCTIVITY IN THE QUEENSLAND ECONOMY

The construction ofeconomicaccounts and questions ofproduction and productivitywere issues of constant interest to Colin ClarklO

For many years productivity and per capita incomes in Australia have beengrowing relatively slowly. in comparison with the Organisation for EconomicCooperation and Development average and, in particular. with the dynamic Asianeconomies. Within Australia, Queensland has performed poorly compared to therest of Australia with gross state product per employed person in Queenslanddeclining from 94.0 per cent of the rest of Australia figure in 1979-80 to 88.6 percent in 1994-95, with gross state product per employed person growing by only 14.8per cent in Queensland over the period, compared to 21.8 per cent in the rest ofAustralia. The gross state product per employed person in Queensland comparedto the rest of Australia is presented in Figure 5.

This represents a significant challenge for Queenslanders. While part of theexplanation for these discrepancies may lie in differences in industry structure,capital stock, unearned income and proportion of part-time employment, it isnevertheless dear that, if these data are correct, Queensland's response to changingeconomic circumstances has not been adequate.

The human capital version of growth theory argues that human capital isfundamental to the growth process and that society depends on high value-added,high productivity jobs. Such jobs are increasingly dependent on innovativeknowledge and information-intensive industries, or application of knowledgeacross industries. Overall, this suggests that economic success will be in large partlinked to the quality, extent and relevance ofeducation and training in an economy,and to a framework which allows firms and individuals to make best use ofavailableknowledge and skills.

What can and should be done to address this productivity deficiency inQueensland?

The Queensland Commission of Audit was established by the CoalitionGovernment in March of this year, with Dr Vince FitzGerald as Chair, andProfessor Jeffrey Carmichael, Mr Barry Thornton and Mr Daryl McDonough asCommissioners. The terms ofreference were to examine thecurrentand prospectivestate of the Queensland Government's finances, and to make recommendationsrelating to policies to promote improved service delivery and infrastructureprovision in the State, while maintaining Queensland's low tax environment andstrong fiscal raljngs.

The Queensland Commission of Audit found that Queensland has under­invested in education and training, and has the lowest level of qualifications in thelabour force, compared to other States and Territories. Queensland is simplyunderachieving in terms of skill formation and labour productivity performance.

Consider. for example, the article "Productivity in Major Industry Groups" in theOctober-December 1946 issue of Economic News.

Economic Analysis & PolicyVol.27 No.1, March 1997 11

FIGURES

REAL GROSS STATE PRODUCT PER EMPLOYED PERSON(1989.90 constant prices) ($'000)

55,000 ~-----------------------

50,000 I-------

-------

45,000 f--- -- --

40,000 I- --.-~/-~~

1978-79 1980-81 1082-83 1984-85 1986--87 1988-89 1990-91 1992-93 1994-95, , " I'"35,000 L-L-._----L__L-_--L---L----L--.L----'------'-J

_ Queensland __ - - Rest of Australia

Source: Queensland Treasury

While admittedly much further research is needed on the productivityperformance of the State economy, a quick mental check provides a worrying clue.Queensland specialises in what are commonly regarded as high productivity, highefficiency industries, These include agriculture, mining and the manufacturing ofminerals and agricultural commodities. Ifso, this implies quite serious performanceproblems in trre 75 per cent of the Queensland economy which is in other areas ofindustrial production, that is, mainly services,

As I said, what can be done?The answer is, I would suggest, in the Report of the Queensland Commission

of Audit.

4, PUBLIC FINANCESThe first task of the Queensland Commission of Audit was to address the question

of proper accounting for the State Government.Reporting by Westminster-type governments has historically been on a cash

accounting basis. This has been driven by accountability for compliance withparliamentaIy appropriations, narrowly conceived as cash appropriations from aTreasury or a consolidated fund, with accountability focused on comparisons ofoutlays against appropriations, rather than broader accountability for performance

considering outputs as well as all inputs,In contrast, the common form of financial reporting by businesses, even most

small businesses, is on an accrual basis, capturing all accruing resource use.The development of accounting standards for government by the Public Sector

Accounting Standards Board has been a major factor in focusing attention on the

12 Economic Analysis & Policy Vo1.27 No.1, March 1997

need for improved financial reporting by and within government since the mid1980s. In March 1995, the Board released an exposure draft of a proposedAustralian Accounting Standard on Financial Reporting by Governments. A keyelement of the Standard is the recommendation that governments move to anaccrual accounting framework. The previous State Governmentcommitted itself toadopt this Standard in its Financial Management Strategy and Queensland Treasuryhas based its interim 1995 Statement of Assets and Liabilities on this Standard.Several Australian States are well along the way towards eventual adoption ofaccrual accounting consistent with the Standard.

At the heart of the issue is the purpose for which reported information is used.While estimates of cash flows are necessary for cash management, even in thebusiness world, the fundamental measures of financial health, for almost any otherpurpose, are nel: worth (the difference between the value of assets and liabilities)and the operating result (the difference between revenues and expenses) whichincreases or decreases net worth.

Cash based accounting fails to provide a measure of net worth (the stock) or anylink between net worth and the operating budget (the flow). Accrual accountingprovides both these measures as well as consistent linkages between the two.

Comprehensiveaccrual-based accounting systems can provide the informationnecessary to support the objectives of government. Without an accurate measure ofnet worth, there is no basis on which to assess whether or not the government ismeeting its most fundamental objectives. Without accrual accounting there is noobjective basis on which to make assessments about the state of economic andsocial infrastructure or the costs and benefits of public and private provision ofservices.

The traditional cash accounting basis of government financial reportingcontains other inherent biases. In particular, as has become common in recentCommonwealth Budgets, underlying deficits can be masked by asset sales or byswitching expenditure from the budget sector to the off-budget sector. Deferringbudgeted maintenance and capital expenditure is another common way of dressingup actual budget outcomes to appear to be more fiscally responsible. In all thesecases, the current reported operating budget is improved at the expense of futurebudgets.

Lack of tr:illsparency in financial reporting by government can mask anunsustainable position and the need to contain growth in spending to that which thegovernment and community can afford.

The Commission very strongly supported the adoption of the accrual basis ofreporting in accordance with the proposed Australian Accounting Standard toprovide a transparent and undistorted view of its finances to external users. Thisshould be supported by the use of accrual budgeting, management and reporting atall levels, as a fundamentally far better method of planning and controlling servicedelivery costs than the traditional framework.

What are the alternatives? There has been some attention paid recently in thepress in Queensland to the State's financial position, with a surprising anddisappointing degree of focus on wrong measures.

Economic Analysis &. PolicyVo1.27 No.1, March 1997 13

A number of measures can be and are used in reporting the results ofgovernment financial operations. They include the Budget result, the GovernmentFinance Statistics result and the operating result.

The 'Budget result' has traditionally been measured in terms of the excess oftotal cash receipts paid into the State's Consolidated Fund over the total cashpayments made from the fund in a particular year. A 'balanced Budget' meant thatthere was no significant surplus or deficit in that fund.

A balanced "1994-95 Budget outcome was reported for Queensland on the basisof an accumulated cash surplus of $51 million. Similarly, a balanced Budget wasforeshadowed for 1995-96 on the basis of an estimated accumulated cash surplus

of $2 million.This measure of the Budget result has been widely used in the past as an

indicator of a government's financial performance in a particular year. Despite itslong-standing use in Queensland as the main indicator of State Governmentperformance an,j of fiscal responsibility, the Budget result has extremely limited

usefulness for this purpose.Its major shortcomings are:

partial coverage, it does not extend to the very substantial activities transactedthrough the State's trust funds and by the general government entities whichoperate outside the public accounts;incompleteness as a measure of resource use, particularly as it ignores assetdepreciation;lack of a clear distinction between current and capital items, allowing capitalreceipts, such as the proceeds ofprivatisations and other asset sales, to be countedas revenue and asset purchases to be expensed;non-disclosure of 'out-year' financial impactofobligations incurred, for example,changes to the level of employee entitlements; andsusceptibility to artificial bookkeeping, through shifting items 'off Budget' to or

from other f',nds.The more comprehensive GovernmentFinance Statistics result extends coverage

of the Budget to entities which the Australian Bureau of Statistics classifies, for thepurposes of its Government Finance Statistics, within the general governmentsector and provides a more consistent year-to-year measure of financial performancedivorced from the vagaries of fund accounting.

For this and other reasons, it was agreed at the Special Premiers Conference in1991 to use ulis approach to facilitate more uniform reporting across States.Queensland now reports its Government Finance Statistics result, in addition to the

Budget result.However, the Government Finance Statisticsresult still suffers from the major

shortcomings of not measuring depreciation and 'out-year' effects of current yearobligations. The GFS is based on the IMF Manual of Government FinanceStatistics, which is a cash based system for general government. It is not, as is theUnited Nations System of National Accounts (SNA), an accrual based system.Economic accounts, the national accounts, the Queensland State Accounts, theaccounts of Colin Clark, are accrual based accounting systems in concept.

14 Economic Analysis & Policy Vo1.27 No.1, March 1997

Admittedly, the Government Finance Statistics result can be further improvedas a measure of fiscal performance and responsibility by separating out capitaltransactions to show the current surplus (deficit) as the difference between currentreceipts and payments. Capital transactions include items such as the proceeds ofasset sales, borrowings, on-lending to other sectors and investments. This result canbe further refi'ned by accounting for employee entitlements (for example,superannuation liabilities) as they are incurred rather than when they are paid out.

However, this measure still makes no allowance for the consumption ofdepreciable assets and other non-cash items.

A preferable method is to move to a SNA congruent system of governmentaccounting.

The 'operating result' is the measure of an entity's basic financial result usedby the private and not-for-profit sectors. By using accrual accounting methods tomeasure revenues earned and expenses incurred and the differences between them,rather than cash receipts and payments, it brings to account all resources derivedand used in a particular year, regardless of when cash is received or paid.

By doing so, it shows whether an entity has created, maintained or eroded thecapital under its control. The operating result is a key measure of financial health,as no entity, whether profit seeking or not, can sustain losses of capital year afteryear.

The operating result (surplus or deficit) for the year is the difference betweengovernment revenues and expenses and shows the extent to which net worth hasincreased or decreased.

The major differences between the general government operating result andthe budget result (whether surplus or deficit) are:

the treatment of capital expenditure and depreciation for entities operating withinthe public accounts;the treatment of certain general government activities which operate off-Budgetor through trust funds;the treatment ofsuperannuation-related transactions within the consolidated fund;andthe cash accounting treatment of financing items and capital items within thepublic accounts.

For governments, the excess accumulation of capital or, as is more likely thecase, the run-clown of capital, transfers the burden of paying for the delivery oflevels of s~rvieesbetween current and future generations of taxpayers which is incontraventlon of the principle of intergenerational equity.

In cons.denng whether its net worth should be maintained, a government willalso need to refer to such factors as whether:

pas~ .adrni~istrations may have over-invested capital. whether in commercialentltles or m traditional service delivery areas;new technology may be reducing the cost of assets; ormore capital-efficient practices may be found in service delivery.

The Qverndmg concern for a government is to measure its costs and revenuesat least on an annual basis, so that it makes decisions on the level of services:

Economic Analysis & PolicyVo1.27 1\0.1 ,March 1997 15

taxation, user charges, etc, knowing the effect those matters will have on theoperating result and, COnsequently, on its net worth. This then enables a governmentto report on and be held accountable for this result.

No method is without methodological and practical problems, however. Forexample, private sector-type accounting practices, as they stand at present, do notnecessarily provide the best measure of capital maintenance, as they do not requireall costs to be measured in current dollar values. This can be particularly problematicin the public sector where the balance sheet contains a large proportion oflong-lifeassets. Unless these assets are revalued to current values, the cost of depreciation(that is, the consumption of asset service potential in any particular period) andtherefore the costof service delivery in the particular period will be understated and

the full cost of service provision not revealed.To gain an overview of the State's financial position, the Commission engaged

Arthur Andersen, Chartered Accountants, to assist with the finalisation of aConsolidated Statement of Assets and Liabilities (or 'balance sheet') for the Stateas at June 1995, based on an interim statement which had been prepared byQueensland Treasury. Arthur Andersen were also commissioned to assist with thedetermination of the operating result for the general government sector.

A second firm of Chartered Accountants, Ernst & Young, was engaged toprovide opinions as to the methodologies employed in finalising the balance sheet

and in developing the operating result.These reports provide basic financial indicators against which the State

Government's operational performance can be assessed in financial terms andcompared to that of other jurisdictions, at least in the future, and for which it should

be accountable.They establish a framework for extension of strategic financial policy into thearea of balance sheet management. Coupled with service output information, andregular assessment of outcomes, this financial framework can be extended toembrace departmental-level corporate and business planning, performance review

and output benchmarking.Having adopted this accounting system, what did the Commission find was the

state of Queensland's finances" The estimated financial statements are contained

in Tables I and 2.The SUlte has an extremely strong balance sheet, with net assets of over

551 billion. This represents approximately 515,500 per capita in Queensland andmay be compared with net worth per capita of about $11,500 in NSW and 54000per capita for all Australians with respect to the Commonwealth's position.

The operating position showed a surplus of more than 5300 million in 1994­95, but, using the estimates and forecasts available and the policies prevailing atMarch 1995, a deterioration to less than negative 5300 million in 1995-96.

TheCommission also, using similar methodologies to other StateCommissionsof Audit, and information drawn from Treasury and other Departments, projectedthe State's operating result ten years into the future. On a 'no policy change' basisand on present planning assumptions, including realistic assumptions regarding thelikely future levels of Commonwealth funding, the Commission found that the

16 Economic Analysis & Policy Val.27 No.1, March 1997

StateGovemment's finances are facing an unsustainable deterioration. In particular,the State's operating result is projected to reach a deficit of $2.7 billion by 2005­06. To put it another way, the outlook is for the State's financial position todeteriorate progressively further, by around $200-250 million (in round figures), inevery year.

Without significantly raising taxes, or introducing new taxes, and in theabsence of a new and well balanced federal fiscal settlement in Australia, there isessentially only one way open to the State which is capable of delivering

TABLE 1

THE GOVERNMENT OF THE STATE OF QUEENSLANDCONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES

AS AT 30 JUNE 1995(preliminary and unaudited)

S million

CURREl\T ASSETS

Cash 104Receivables 5,420Investment.s 13,236Inventories 226Other 185

Total Current Assets 19,171

NON-CURRE\'rf ASSETSReceivables 7,230Investments 1,618Inventories 2Property. plant and equipment 57,392Intangibles 4Other 301

Total Non-Current Assets 66,547

TOTAL ASSETS 85,718

CURRE!';T LIABILITIESCreditors 3,852Borrowings 4.296Provisions 1,555

Total Current Liabilities 9,703

KON-CURREl\"'T LIABILITIESCreditors 671Borrowings 20.954Provisions 3,326

Total Non-Current Liabilities 24,951

TOTAL LIABILITIES 34,654

NET ASSETS 51,064

Source: Anhur Andersen Repon and Queensland Commission of Audit.

Economic Analysis & Policy

VoL27 No.1. March 1997 17

improvements in the balance between its revenues and the costS of its services, yearafter year, to an extent which might offset the underlying deteriorating fiscal trend.

That way is to organise the State's affairs so as to deliver all the services forwhich the State is responsible constantly at maximum efficiency, and so as to keepmaking improvements in efficiency every year, year in and year out, always

matching the cunent best practice benchmarks.To put this in perspective, the underlying annual deterioration in the State's

operating position, looking out over the next ten years, of around $200-250 mil1ionper annum, is equivalent to approximately twO per cent of the State'S annual gross

service delivery costs.Achieving a two per cent across-the-board improvement in the productivity ofservicedelivery every year in areas of service provision which are relatively labour­intensive wouldbe challenging (althoughexperience in most Australian jurisdictionssuggests that a smaller figure of, say, 1 per cent per annum may be quite readilyachievable). Nevertheless, the nature of continuouS productivity improvement isthat it does directly alter the trend in the balance between cost of service andrevenues, and not just the level of that balance. Therefore this course can directlyaddress the nub of the medium-term fiscal problem facing the State. If it succeedsin delivering sufficient continuous improvement in service delivery, the State will

Note 1994-95 1995·96(est)

REVENuECommonwealth payments

22a 4,537 4,847

Taxes, fees and fines22b 3,930 4,115

Property and orner income22c 689 676

Public enterpris,e payments22d 679 800

Service user charges22e 835 786

Total RevenUE:10,670 11,224

EXPE.NSESEmployee-relaled expenses

5,032 5,345

Supplies and other expenses2,212 2,569

Grants and subsidies1,626 2,064

Interest

353 206

Depreciation

1,122 1,138

post-Budget a:l.justment (unable to be attributed)

239

Total Expenses10,345 11,561

OPERATING SURPLUS (DEFtCtn325 (337)

Source: Arthur Anderson Report, Queensland Treasury.

TABLE 2

THE GOVERNMENT OF THE STATE OF QUEENSLANDOPERATING STATEMENT _ GENERAL GOVERNMENT FOR 1994-95

AND 1995-96 (EST.)(preliminary and unaudited) ($ million)

18 Economic Analysis & PolicyVo1.27 No.l,March 1997

also succeed in defeating the adverse fiscal trend.To the extent that it does succeed, Queensland can maintain and, over time,

enhance the level and quality of the public services it provides to its citizens, andthe services used by those who do business within its borders-while remainingfinancially strong and passing on intact to the future Queensland community the'estate' represented by the present public net worth of the State.

5. COMMONWEALTH STATE RELATiONS AND ASSIGNMENTS OFRESPONSIBILITY

One of the key reasons for the likely future deterioration in this State's financialoutlook - in common with all Australian States - is the current nature of our federal

system.Since 1942, when the Commonwealth assumed sole income tax power, the

States have been heavily reliant on Commonwealth grants. These are given in theform of general revenue assistance or financial assistance grants, which the Statecan use according to its own priorities, or as specific purpose payments, which aretied to uses and criteria specified by the Commonwealth Government.

In addition to forcing the States to continue their reliance on their own narrowand inefficient tax bases, the extent of the present degree of vertical fiscalimbalance and the States' consequent heavy dependence on Commonwealthfunding (particularly an increasing proportion of specific purpose payments) tosupplement their own revenue sources, has:

severely lim'ted the budgetary flexibility of the States; andblurred the accountability of both Commonwealth and State Governments to their

electorates.Colin Clark was an early critic of the Commonwealth's erosion of the powers

and responsibilities of the States, and an early cynic with respect to the likely degreeof fiscal responsibility of the Commonwealth. In the April 1942 issue ofEconomicNews, it is likely that he was the author of the following passages:

"TheCommonwealth Treasurer,by proposing the cessation ofState incometaxation, has raised the whole question of the division of powers betweenthe Commonwealth and the States. For, as he has somewhat incautiouslystated, he desires uniformity of taxation as a permanent and not merely asa war-time measure. Indeed, his present proposals cannot honestly beclaimed as a war emergency measure at all, in view of the fact that they willsubstanitally reduce the rate of taxation payable by practically everytaxpayer in Australiaexcept those in the high income ranges in Victoria, andwill only represent an infinitesimal increase in their case.

This matler can only be reasonably discussed as a proposal for thepermanent transfer of powers from the States to the Commonwealth.

Such a tr'msfer of powers is often proposed on the supposed grounds thatAustralia (in peace time) is over taxed and over governed. Widely heldthough this belief is, it will be seen that Australia spends less of its nationalincome on government than any of the other countries shown except

Economic Analysis &: PolicyVolo27 No.1. March 1997 19

Sweden and Switzerland. The number of public officials in Australia is thesame or a slightly smaller proportion of the population than in England.

No country has asingle taXing authority and most countries raise substantialsums by local taXation, which is very light in Australia. It may be askedwhether it is not possible to combine centralised collection of taxes withState and local administration. This is not conducive to good or economicalgovernment. A government will always be more careful about spendingmoney which it has had to raise by taxing its own electors than it will beabout spending grants received from another government.

It will not suffice if the States are left with taxing powers such as deathduties, land taX, etc. It is a necessary condition for the responsibility of ademocratic government, that the majority of its electors should be affectedby its taXation. This requirement is met by (i) income taXed with a lowexemption limit, as now levied by the Australian States, (ii) taxes uponarticles of universal consumption, such as the petrol taxes which provide theprincipal revenue of the American States and Canadian Provinces, and (iii)rates or taxes upon real property and buildings. The twO latter types oftaXation are regressive, ie., they fall with greater severity on low incomesthan on high. Rates on real property have the additional disadvantage (asshown by American and British experience) ofplacing undue burdens uponagriculture and building, helping to cause both rural depopulation andurban overcrowding. Rates upon unimproved land values, as levied byQueensland municipalities, are not harmful, but can only yield a limitedrevenue, barely enough even for their present responsibilities.

Income ta:< is increasingly coming to be recognised as the most desirableform of ta:<, not only for central, but also for State and local governments.Municipal income taXes are the principal form of local taxation in France,Holland, Switzerland, and all of the Scandinavian countries. AmericanStates and municipalities are now rapidly abandoning real property taxes infavour ofincome and sales taxes, and the substitution ofamunicipal incometaX for the present rating system is being widely discussed in England. Toconfine income taX collection in Australia to the Central Governmentwould be a retrograde step. The most economically administered country,and one of the truest democracies, is Switzerland, whose citizens are liableto three separate income taxes - federal, cantonal, and municipal.

In apport:iOning duties between governments we should go on the principleofonly assigning aduty to the larger unit when we haveproved that it cannotbe efficiently performed by the smaller unit, not vice versa. 'It is aninjustice, a grave evil and adisturbance ofright order, for alarger and higherassociation to arrogate to itselffunctions which can beperformed efficientlyby smaller and lower societies.' Decentralised government can keep incloser touch with the needs of the people and avoid the delay and red tapewhich are the inevitable features of any large and complex organisation.

20 Economic Analysis & Policy VoI.27 No.1, March 1997

Between governmental units there prevails that benevolent rivalry which isthe bestgumantee ofprogress; and small units can attempt bold experimentswhich would be impossible under centralisation."

Furthermore, his views of the post-war fiscal policy of the Commonwealth weresuch that, in co:,junction with A.F. Trueman (in an article entitled "The High Costof Government"), he wrote in the Apri-May 1947 issue of Economic News that:

" ... This last alternative is what will in fact happen if the CommonwealthGovernment continues to take the line of least resistance and to avoid thenecessary but unpopular task ofcutting its expenditure programme. In otherwords, the main part of the burden will be quite unfairly placed onpensioners and other fixed income recipients. Attempts to compensate themfor rising p:cices outofthe Budget will merely start a fresh cycle ofinflation.No amount of financial ingenuity will make the Australian people in peacetime pay 30 per cent of the country's entire national income in taxation."

Now, the Australian Constitution is important in the service delivery context inestablishing some limits on the respective roles and responsibilities of both theCommonwealth and State Governments in Australia. Within the Australianfederation, financial as well as political authority and responsibility are sharedbetween the Commonwealth and the States, with each level of government raisingrevenue and undertaking expenditure within its own jurisdiction.

As it has evolved, the financial interrelationship between the Commonwealthand State level, of government has come to exhibit, by comparison with those inother major federations, an extreme degree of vertical fiscal imbalance, i.e.mismatch between respective revenue raising powers and expenditureresponsibilities. Reflecting this mismatch, the States now rely heavily on a varietyof financial an:angements with the Commonwealth Government to supplementtheir own limited revenue sources, and thereby discharge their expenditureresponsibilities. TheCommonwealth has also exercised its powers to act concurrentlywith the States by operating through them to supplement their efforts and pursueits national public policy agenda, over the past decade, reflected in increasing useof specific purpose payments.

Increased use of specific purpose payments allows the Commonwealth, withits superior access to revenue, to concentrateresources on its own purpose spendingand to limit the funds which it makes available to the States. In this regard, theCommission noted that the proportion of gross domestic product directed towardsthe Commonwealth's own purpose outlays increased from 16.2 per cent in 1981­82 to 20 percent in 1994-95. This is equivalent to an addition of between $9 billionand $17 billion. By contrast, over the same period, the proportion of gross domesticproduct allocated as payments to the States was reduced from ten per cent to sevenper cent, equivalent to a reduction in funding of $12 billion to $16 billion.

Since FedeTation, the States traditionally have been responsible for the deliveryofservices in such areas as education, health and police, while the Commonwealth'sexpenditure responsibilities have related primarily to national matters such asdefence, social security, and so on. Over a long period of time, however, the

Economic Analysis & PolicyVo1.27 No.1, March 1997 21

Commonwealth Government has become more heavily involved in pursuing'national' policie" in areas of service delivery which had been largely theresponsibility of the States. Consequently, there has been a clear trend towards anincreased reliance on specific purpose payments funding from the Commonwealth

Government over an extended period of time.Figure 6 shows thepercentage composition of total payments to the States from

the Commonwealth from 1980-81 to 1994-95.Australia has a higher degree of vertical fiscal imbalance between

Commonwealth and State levels of Government than other comparable federations.Table 3 provides aTl international comparison of vertical fiscal imbalance in 1989­90. In Canada, West Germany and the United States, there is a much lower degreeof imbalance between revenue and expenditure responsibilities at both the nationaland the State or provincial levels of government, than occurred in Australia.

One argument in favour of some degree of vertical fiscal imbalance is the needfor reasonably equitable provision of services within a diverse federation. However,if this was the only reason for vertical fiscal imbalance, it has heen estimated thata total Commonwealth grant pool of only $6.6 billion would be required, compared

to the actual level of$33.9 billion.If the Commonwealth were to vacate the fields of wholesale sales tax and

FIGURE 6

PERCEl\TAGE COMPOSITION OF TOTAL COMMONWEALTHPAYMENTS, ALL STATES, 1980-81 TO 1995-96

18

56

54;, -

52

~

;

50 ;

:E 48, ;

/ - ... --_/46

44 --42>­

40 !

1980-81 1082-83

! I

1984-85 1986-87 1988-89 1990-91 1992-93 1994-95

_ General Purpose Payrnenls

___ " Specific purpose Paymenls

Source: Commonwealth Budget Papers (1995-96), Commonwealth Financial Relalions with Q/her

Levels of Governmenl , Budget Paper .No.3.

22 Economic Analysis & Policy Vo1.27 No.1, March 1997

TABLE 3

VERTICAL FISCAL IMBALANCE, INTERNATIONALCOMPARISONS, 1989-90

Level of Government

Country Federal State/Provincial Local

Australia 1.5 0.6 0.8Canada 1.1 0.9 0.5Gennany 1.1 1 0.8United States 0.9 1.2 0.7

Source: Derived from International Monetary Fund data.Note: Vertical flseal imbalance is measured by the vertical fiscal imbalance ratio, which is the ratio

of own~s()urcerevenue to own-purpose outlays.

If the Commonwealth were to vacate the fields of wholesale sales UlX andpetroleum excise and allow the States to expand taxation of these bases, and withCommonwealth grants reduced by the same overall amount, Commonwealthgrants to the States would still be ofthe orderof$ 10 billion perannum, which wouldbe more than adequate to achieve the current degree of equity. Such a reform wouldrecognise growing demand for State services, with an improvement to the growthcharacter of the States' tax base. It would also give individual States scope to varythe level ofan existing fuel tax to serve as a source offunding, for example for roads,where it could form a good proxy for a user charge.

There are significant gains to be reaped by reduced duplication and overlap,and a clearer delineation of the roles, responsibilities and financial arrangementsbetween different levels of government.

Reforms to Commonwealth-State relations to redress vertical fiscal imbalancehave been proposed by the States for many years and remain an issue high on theagenda of meetings of the Council of Australian Governments. Such reforms havestalled because of a range of political and legal impediments. Improvements in theefficiency, effectiveness and accountability of government service provision arelikely to be gained from fundamental structural reforms to present Commonwealth­State funding aJTangements. These include clearer delineation of the respectiveroles and responsibilities of the various levels of Government in the AustralianFederation and state taxing powers to meet appropriately determined stateexpenditure responsibilities. The Commission has proposed reforms to only twoUlXes. This would largely achieve the necessary structural reform on the revenueside. Can it be done? I wonder

6, ORGANISATION AND MANAGEMENT OF GOVERNMENT

The Commission of Audit, in making its recommendations, both for the State'soperations in general and for each of the major areas of its activity, focused moston how the State can adopt a leading edge public sector management framework.

Economic Analysis & PolicyVoL27 No.1. March 1997 23

That is, one which will be capable of delivering services of high quality, whilemaximising the efficiency with which that is achieved, in relation to the resources

used, on a contin.uOuS basis.Such a framework:

starts with a strategic vision for the State's economic and social development, set

out at the highest level of the Government;recognises that the key responsibility of the State to its citizens is to ensure thatquality public services, within that vision, are provided equitably and efficiently;

anddemands top perfomnance from the State's own service providers, but does notnecessarily require it to provide all services directly on its own account.

This framework requires that the State very clearly separate the communityinterest it upholds in obtaining quality public services efficiently, from the quitedistinct interest of the providers of those services, whether they be in the public

sector or the private sector.Essentially, the State may assist citizens to access services at their own choice,

or it may purchase services on the community's behalf; but to ensure that the bestservices possible are provided with the available resources:

government must fund providers only in exchange for outputs or results, underservice agreements or 'contracts', and not in respect of inputs; andproviders must be exposed to the constant stimulus of competition, in some fomn,have control over the resources needed to respond to demands for services, and beheld rigorously accountable for efficient and effective performance.

For both plOviders and government itself, it is a most important aspect, on thegrounds of fiscal responsibility (protecting the future community's interest) andtransparency (bringing all accruing resource costs fully to account) that theframework be 'Dased on the use of comprehensive accrual accounting at all levelsof government, in planning, budgeting, management and reporting.

This type of public sector management framework is now the internationalstandard for achieving best performance in delivering quality public servicesefficiently. As articulated by the Commission, it extends to integrating planningand budgeting and to better coordination of planning, including importantly at the

regional level within the State.The coordination role is an essential, although not adirective one (which would

simply transfer responsibility and risk back from providers or other parties to theGovernment). Rather, through good organisation of the process, and efficientexchange of planning information, it should ensure that providers themselveseffectively take responsibility for detailed service planning for their own clientgroups, and for their own investment decisions.

At the broad strategic level, government needs to provide a clear statement ofits economic and social objectives and priorities for the economy as a whole and forparticular regions or groups of the community. The government's Strategic Plan

should identify clearly:its economic and social objectives;

• the functions, infrastructure and services needed to achieve those objectives;

24 Economic Analysis & Policy Vol.27 1\0.1, March 1997

the precise role that government should play in providing those benefits to thecommunity; andthe level of public resources needed to deliver the objectives.

The impoltmce ofproviding clear policy directions within a strategic planningframework is that individual Ministers and Departments then have the basis forestablishing priorities and allocating resources consistent with the overall objectives.Without this framework, policy proposals and initiatives tend to be developed inisolation and with resource requirements that can be inconsistent with the overallobjectives; inconsistent polices can lead to duplication of functions, inefficientallocation of resources, lower service quality, incompatible goals, and a generallack of confidence in the direction and predictability of government policy.

The pany platform of the Government of the day is a good starting point for aStrategic Plan, although the platfonn is unlikely to provide sufficient detail about theapproach to panicular issues OrtO coverthe full range ofissues that governments dealwith. The process should therefore be iterative, with deparunental advice involved aswell as Ministerial input, and be conducted at each appropriate level (eg regional). Acollective approach is more likely to generate ownership and coherence. It is alsomore likely to generate community acceptance. The importance ofconsultation in thedevelopment of specific policies and service delivery strategies is particularlyrelevant to corporate planning, especially where planning must involve a number ofservice providers and authorities, eg at the regional or sub-regionalleve!.

Published policy statements playa key role in providing the framework forsetting priorities among government activities. In Queensland, the Government isdeveloping a State Strategic Plan and a series of sectoral plans, with an emphasison linking the strategy for service delivery and development of sectors of theeconomy with the annual Budget process. The linkage between the development ofstrategies and the Budget process is particularly important, as the allocation ofresources to implement these strategies will be detennined by the ability ofMinisters to direct resources to the highest of priorities.

An essential pan of ensuring that Ministers make decisions consistent with thegovernment's overall strategic direction is a system for submitting options andadvice to Ministers in a fonn that encompasses the views of different governmentagencies and interested community groups. In Queensland, as in other jurisdictions,the consideration of significant policy options and proposed legislation by Cabinetcollectively provides an opportunity for decisions to take account of competingviews and advice.

The seconellevel in implementing the government's strategic objectives is thecorporate planning process. While Cabinet decisions and policy documents shouldindicate the overall resources required to implement a given strategy, the functionof the corporate planning process is to identify explicitly how individual objectivescan be achieved within financial and human resource constraints.

Above all, it is critical that the planning cycle is closely integrated with theBudget cycle - that is, that agreed outputs are set in the same context as agreementon funding, and that outcomes are reviewed in the same context as operating(including financial) performance.

Economic Analysis & Policy Vol.27 No.1, March 1997 25

It is important that the Corporateand BusinessPlans ofgovernmentdepartmentsand agencies are reviewed and coordinated centrally to ensure that the objectivesand implementation strategies of the parts are consistent with the whole. Theoverall State strategy provides an umbrella under which Ministers and departments,in cooperation with other jurisdictions and other stakeholders, may developregional, sectoral and departmental service delivery and infrastructure investmentstrategies.

These various strategies provide the vision and direction that establish corporateand business planning objectives for the public agencies involved. They alsoprovide the benchmarks for follow-up review by the Department of the Premier andCabinet and otherresponsible central coordination bodies. This helps to ensure thatcorrect servicedelivery outputs are being planned for and that appropriate investmentproposals are being put forward to support these outputs.

The Deparunent of the Premierand Cabinet has the primary responsibility forpolicy planning, implementation and review. This requires the Department of thePremier and Cabinet to articulate the strategic direction of the Government andto ensure that other departments and major public and private sector stakeholdersare well acquainted with the strategy. This Department must ensure that theGovernment's policy directions are to the fore in the corporate planning ofdepartments, agencies and government-owned corporations, that theirimplementation is on track, and that the intended policy outcomes are beingachieved.

It is important to emphasise that the central role in planning and coordinationcannot be a directive one in the model of public sector management proposed bythe Commission. Government's role is to create the environmen t in which servicesare provided efficiently and effectively, its own role in this being as purchaser.Decisions on inputs, including capital inputs, are the province of providers, whomust be responsible for planning, investments and carrying the inherent risksalthough, of course, significant investments requiring government finance mustcompete for that in the Government's capital budgeting process.

Coordination in this framework is essentially a process of organising efficientinformation exchange on planning tasks among relevant providers, user groups andauthorities - as well as articulating the Government's strategic vision within whichtheir individual plans should fit.

The role of central agencies generally is to provide advice and support to theexecutive Government (and, where appropriate, the Parliament) on whole ofgovernment coordination, operations and future directions, including themanagement and monitoring processes of the State's planning, information,budgeting and accounting systems.

In particular, the Commission listed the following issues that are relevant to therole and functioning of central agencies:

establishment of an appropriate fiscal responsibility and transparency frameworkand legislation to require annual reporting against the objectives and outputsspecified in this framework;adoption of a cycle of strategic (as well as corporate and business) planning in

26 Economic Analysis & Policy VoL27 No.l,March 1997

which objectives are set, means to achieve them identified and results reviewed;coordination of planning (especially at the regional level), but not in a directiverole, and especially not so as to transfer responsibility and risk to Government;movement toaccrual budgeting (and accounting) with serviceagreements becomingthe vehicle for the system of contracts and increased flexibility in purchaser­provider arrangements, development of long run (ten year) projections of theBudget, and development of an improved capital budgeting process;establishment of a system of regular benchmarking of performance acrossGovernment;involvement of the private sector in the provision of services and supportinginfrastructure, but in transparent ways, including those in which the risks areexplicitly bome by the party best able to carry them;reporting by tlle Auditor-General on the adequacy of risk management practices;andreviewing government owned businesses, improvement in competition and removalof conflicts of interest on Boards of government corporations.

The key features of the proper role of central agencies include a whole ofgovernment role in policy, especially in terms of setting strategic objectives anddirections, and in the assessment of the progress of performance in achieving theobjectives of the government. There are also issues of leadership and of servicingthe collective Ministry.

A business analogy is appropriate: the Cabinet may be seen as the Board ofDirectors, with the Premier as the Chairman of the Board of the Government, andthe Treasurer as the Director of Finance of the Board. Parliament may be seen asrepresenting the shareholders of the business, holding in trust the votes of thepublic. Central agencies correspond to the head office or corporate headquarters,and assist the Board in setting strategic objectives and policies, in planning andoverall resource allocation, in promoting the use ofbestpracticesand in performanceassessment. Line departments and agencies correspond to the production units ofthe business. TIle key clients of central agencies are the Premier, the Treasurer andthe Cabinet who are purchasing head office services from them. The key clients ofline departments and agencies are the customers to whom they sell services-inmany cases the :"remier who purchases services for and on behalf of the public, andin others, the public itselfwhich purchases the services of the department or agencydirectly through user charges.

What would Colin Clark have thought of all of this. I leave you to consider thequestion yourselves. However, to assist you in this consideration I have provided,in Appendix 2, a 1948 memorandum of Colin Clark on this matter of role andresponsibilities of Government Departments. Enjoy.

7. WHERE TO FROM HERE?

As I noted at the start of this Memorial Lecture, Colin Clark's interests extendedwell beyond the topics I have listed.

In Appendix 4, there is a list of articles in Economic News - the Bulletin issuedby the Queensland Bureau ofIndustry - during the period from 1938 to 195 I, the

Economic Analysis &: PolicyVol.27 No.1, March 1997 27

years of Colin Clark's contributions. The issues covered are wide, and all arecuriously topical. He wrote on decentralisation and centralisation, on size andcongestion in cilies, on sugar, on the cost of water, on the building industry andvocational guidance, and many more topics. All of these topics are relevant today_ many of Colin Clark's insights are relevant today.

I am not ambitious or brave" enough to forecast the economics of 1960 as hedid in 1943, but I do wonder where this State, in particular, will be in 2016.

My strong belief is that, through the next two decades, Queensland will still bedependant on agriculture and mining, and manufacturing based on these, as well ason the production of tourism services for export. Comparative advantage and

resource endowment are strong economic forces.My hope is that the State will also have strong export diversification into, and

growth in, other services _ in particular: in education, in health, in engineering anddesign, and in other scientific services.

Furthermore, I hope that by then we do have a more responsible and wellbalanced federalism system in this country, and, dare I suggest it, a more rationaland equitable taxation system, and, even more of a dare, a more responsible and

humble Commonwealth Government.My trust, however, is that this State will lead the other States, and the

Commonwealth, in public sector productivity growth through the processesmanagement md information reforms largely identified in the QueenslandCommission of Audit, and that this catalyst will precipitate corresponding privatesector productivity improvements. If this is realised, through strong Governmentpolicy leadership, I trust that the visions of Colin Clark for economic science todeliver increased productivity, incomes, employment and standards of living in

Queensland will also be realised.

REFERENCES

Australia, House of Representatives (1940-41), Debates, Vol. HR165, pp.79-80.

Australian Bwceau of Statistics. (1994), Government Finance Statistics Australia:Concepts, Sources andMethods. Canberra: Australian GovernmentPublishing

Service, 1994.Castles, Ian (1993), Earning and Spending in Queensland: 1939-40 and 1988-89.

Paper presented to the 1993 Conference of Economists, Perth, 28 September

1993.Clark, Colin. (1940), The Conditions ofEconomic Progress. London: Macmillan.

While John Maynard Keynes may not have intended to be entirely complimentary insuggesting. when commenting on Piers Debenham's work., that he "used to think thatColin Clark deserved the V.c. for statistical courage" see Patinkin (1976, P 1114),1. forone, have always sincerely admired and respected such bravery.

28 Economic Analysis & Policy Vo1.27 No.1, March 1997

and London: Angus and Robertson.

Clark, Colin (1938), Nalional Income and OUilay. London: Macmillan.

Ironmonger, Duncan (1988), "Statistical Perspectives and Economic Stability",National Income and Economic Progress: Essays in Honour a/Colin Clark.London: Macmillan.

Kenwood, George (1988), 'The Use of Statistics for Policy Advising: Colin Clarkin Queensland, 1938-52", in Ironmonger el al. NalionalIncome and EconomicProgress: Essays in Honour of Colin Clark. London: Macmillan.

Patinkin, Don (1976), "Keynes and Econometrics: On the Interaction Between theMacroeconomic Revolutions of the Interwar Period", Economelrica, Vol. 44,No.6, November.

Queensland Legislative Assembly (1940), Debales, Vol.! 76, pAll.

Queensland Bureau of Industry (1938-51), Economic News, various issues (seeAppendix 3).

Queensland Commission of Audit (1996), Report 10 the Queensland Governmentof the Queensland Commission ofAudit. Brisbane: Queensland GovernmentPrinter.

Queensland Treasury, Queensland State Accounts, various issues, QueenslandGovernment Printer.

United Nations (1993), Syslem ofNational Accounts. New York: United Nations.

Wilson, Roland (1939),Public andPrivale fnvestmenl inAuSlralia. Paper presentedto the Australian and New Zealand Association for the Advancement ofScience, Canberra, II - 18 January 1939.

Economic Analysis & Policy Vo1.27 No.1, March 1997 29

APPENDIX 1

POST.WAR EMPLOYMENT PLANNING

30 Economic Analysis & Policy

APPENDIX 2

Vo1.27 No.1, March 1997

2nd February, /51,

MEMORANDUM TO:Public Service Commissioner,BRISBANE, B,7,

Commonwealth Encroachment on State Activities.

The following notes refer to all activities within the field of this Department inwhich steps have been taken by the Commonwealth, in effect, to build up its ownPublic Service to perform duties which could well have been performed by theStates,

1. Industrial Arbitration

The scope of Commonwealth action in this matter purpons to be defined by theConstitution, but there does not appear to have been any adequate legalinterpretation of the phrase "Conciliation and arbitration for the prevention andsettlement of industrial disputes extending beyond the limits of anyone State",

Recently, since the appointment of a number ofConciliation Commissioners,the Commonwealth Court has attracted away from State jurisdiction in Queenslandcertain workers in the liquor and printing trades, and there has been a proposal forbringing the tramway men under a Federal Award,

It is interesting to notice that the Commonwealth Coun's claim not only toregulate wages and working conditions, but also to determine closing hours ofshops (which Queensland is empowered to do) was recently rejected by the HighCourt in a test case regarding closing hours of butchers' shops, The employers andunions, however, tacitly agreed (in Queensland at any rate) to continue as if theCommonwealth Regulation were still in force,

2. Labour Exchanges

When the Commonwealth first began to form a Department of Labour andNational Service, in the first two years of the war, ML Forgan Smith wrote to thethen Minister (ML Holt) offering to perform the work through State Agencies,This proposal was ignored, As the Commonwealth developed and made permanentits plans for Labour Exchanges, Unemployment Benefit and similar services, thesucceeding Premier (Mr, Cooper) wrote to the Prime Minister on 28th March,1944, making a specific offer to have all these duties carried out by the StateDepartment as a Commonwealth agent He pointed out that the State Officerswere experienced and had the necessary organisation and records, and machineryfor preventing imposition, The Commonwealth called a conference of StateOfficers on 24, 25th July, 1944, arising out of this letteL

The States of New South Wales and Tasmania also offered to administertheCommonwealth scheme through State offices; the outcome is known,

Economic Analysis & PolicyVol.2? No.1. March 1997 31

3. Secondary IndustriesOn 6th November, 1946, the Premieradvised the Prime Minister of the establishmentof a Secondary Industries Division in this Department. On the 16th December,

1946, I advised the Minister as follows:"Mr. A. E. Mander, Director of the State Secondary Industries Division of

N.S.W., has provided some disquieting information.The Commonwealth Secondary industries Division already has a N.S.W.

Branch and proposed in time to establish Branches in every State. TheCommonwealth Branch in N.S.W. already has a personnel ofbetween 35 and 40 areare (sic) advenising a number of further vacancies. The duplication between theState and Commonwealth services has aroused widespread criticism among thepublic and the press. The Premier of N.S.W. has written two official and twOpersonal letters to the Prime Minister on this matter, pointing out that theCommonwealth Branch in N.S.W. should be considered as a war-time emergencyinstitution only, to be closed down now that a State Office was available. The PrimeMinister gave a verbal reply only saying he would discuss the matter only with theChairman of the Secondary Industries Commission. In the same way the PrimeMinister has made no reply to Mr. Hanlon's leuer sent early in November.

In South Australia there is a joint Commonwealth State Bureau, the expensesbeing shared between the twO Governments, and the Bureau being headed by Mr.J. W. Wainwright, the retired State Auditor-General. Even this arrangement doesnot satisfy ti,e Commonwealth, who wish to displace the State Government

altogether in course of time.The Commonwealth are now advertising vacancies not only in the Sydney

Branch but for a very large Head Office staff in Melbourne."On the 20th December, 1946, the Prime Minister in a telegram to Mr. Hanlon

made it clear that he regarded it necessary to establish State Branches of theCommonwealth Secondary Industries Division, stating that "it is difficult andprobably impracticable for a Sate instrumentality to act in a dual capacity". TheseBranches have now been established in all States, and appear to be seriously over-

staffed.

4. StatistksOn this matter the Commonwealth is specifically empowered to act by theConstitution. In 1924 the Commonwealth offered to establish Statistical branchesin each Stab, displacing the State Statistical Offices. This offer was accepted byTasmania alone. All other State Governments considered, probably rightly, thatthey needed a supply of statistical information from their own Offices.

This modus vivendi continued until the war years, when the Commonwealthbegan estab1ishing, in State capitals, Statistical Branches under its own control. TheCommonwealth claimed that certain State Statistical Officers were inadequate to

perform the duties required of them.This tendency has been resisted in Queensland where we have followed the

policy of finding enough staff to carry out all statistical work that either theCommonw~lth or State might require. No remuneration has been sought from the

32 Economic Analysis & Policy Val.Z7 No.1, March 1997

Commonwealth, nor should it be. The whole basis of our policy is that an abundantsupply of statistical information on all subjects is just as necessary and useful to theState as it is to the Commonwealth.

In spite of the willingness and indeed eagerness of the State Office to undertakeall duties, the Commonwealth has undertaken two statistical collections inQueensland (Census of Retail Distribution, and Monthly Figures of IndustrialOutput) without even giving the State Office any opportunity to undertake them.

In other SW.tes the position is much worse. A large Commonwealth StatisticalOffice has been established in Melbourne, which collects all the statistics onbuilding and certain other fields. Regarding N.S.W., the Acting CommonwealthStatistician (Mr. B. R. Carver), is also State Statistician for N.S.W., and he persistsin the attempt to assimilate the State Statistical Offices to the Commonwealth, inspite of the opposition of other State Statisticians.

5. Your attention is drawn to a matter at one time within the scope of thisDepartment, now controlled by the Department of Public Instruction, namelyVocational Guidance to Boys and Girls. The duplication of Commonwealth andState activities in this field is flagranL

(Sgd.J Colin ClarkUnder Secretary

Economic Analysis & Policy

APPENDIX 3

Vo1.27 No.1. March 1997 33

13th December 1948

Dear Mr. Gair.In the enclosed I venture to make some suggestions about what appears to be aproblem ofserious and increasing importance in the relations between Deparunents,and which includes consideration of the future of the Bureau of Industry.

In suggesting a re-arrangement of Cabinet Portfolios I am aware thaI I have gonefar beyond my proper field, but I hope that you will tolerate and consider thesuggestions, because without some changes of this nature I do not see how theproblem can be satisfactorily solved.

An additional copy is enclosed.

If you agree, the memorandum could be submitted both to Mr. Kemp and to Mr.McCracken for their comments; I do not think either will be offended by anything

which it contains.

Yours truly,

[Colin Clark]Director

The Honourab:,e V. C. Gair, M.L.A.,Acting Premier of Queensland,Chief Secretary's Office,BRISBANE, B.7.(Through the Honourable W. Moore, M.L.A.)

CONFIDENTIAL 9th December 1948

MEMORANDUM TO.The Honourable V.c. Gair, M.L.A.,Acting Premier of Queensland,BRISBANE, S.7.

The Co-ordination of Government Departments

All that has been thought and said on this difficult subject must not be allowed todivert our attention from an obviolls and important truth which we are in danger ofneglecting, n,.mely, that the two institutions which have the primary responsibilityfor co-ordinating the work of different Departments are the Premier and the

Cabinet.All important decisions on the co-ordination of Departments must be 12ken by

one or both of these institutions. Any other official posts or organisations whichmay be created can only have the duty of assisting the Premier and Cabinet in

34 Economic Analysis & Policy Vo1.27 No.1, March 1997

matters which are too technical, too detailed. or require too lengthy examination forthem to handle directly. As the population of the State increases, and as scientificand technical knowledge advances, the functions in which Cabinet will requireassistance will tend to increase in number; on the other hand, when the State isdivided, as it soon may be, administration will again tend to be simplified.Observation shows that the smaller the State the more thoroughly are Ministers ableto control the administration; in large units of Government (witness theCommonwealth) an increasingly elaborate bureaucracy becomes necessary, andthe democratic principle is in danger of going by the Board.

If we are to have any provision for a co-ordination of Departments; the nextquestion which we must answer is whether our real objective is a co-ordinatedplanofstate development or co-ordination ofall Departmental activities. The two meanvery different things. It may be claimed theoretically that a co-ordinated policy ofState Development will involve every Department; but in fact it will involve veryclose co-ordination of four or five Departments, but little if any contact with, say,the Department of Justice or the Department of Public Instruction.

The Premier does exert direct control over all Departments (with the consentof the Minister concerned in each case) through the Public Service Commissionsystem of recommendations to appointments. Through his knowledge of thepersons involved, and his independence of departmental attachments, the PublicService Commissioner is often called upon by the Premier to report on problemsinvolving more than one Department. Itis clear that his responsibility is equally forall Departments and is not centred upon those specially concerned with StateDevelopment. The Co-ordinator-General of Public Works, under various Acts, isstep by step beiog given the duty ofpromoting general State Development in privateagriculture and industry as well as through public works.

It may be interesting at this stage to comment upon the system of co-ordinatingGovernment Departments which has grown up in Britain. In the first place this isdone by giving a definite priority of status to one Department, naroely, the Treasury.The Permanent Secretary of the Treasury has the title "Head of the Civil Service"and Treasury Officers are recognised throughout the Service as a sort ofaristocracyor shall we say, their relation to senior officers in other Departments is that of StaffOfficers to Line Officers in the Army. This system has now prevailed for nearly acentury and it has naturally followed that all the ablest and most ambitious entrantsto the Service try to get into the Treasury. The Permanent Secretary ofthe Treasuryperforms many of the functions carried out by the Public Service Commissionerhere, ie, dealing with matters involving more than one Department and having theright of advising the Premier on filling of Senior posts in other Departments.

During the first war, in 1917, this system was supplemented by creating a postof still higher dignity, the Secretaryship ofthe Cabinet. This post was held for manyyears by Lord Hankey, an Australian ex-Colonel of Marines. The Secretary of theCabinet was actually present at Cabinet meetings and had the responsibility ofrecording their decisions. He controlled all action on military, diplomatic andimperial affair:>, (which constitute the prime concerns of the British Cabinet) whilestill leaving all other functions to the Permanent Secretary of the Treasury who

Economic Analysis & Policy VoL27 No.1, March 1997 35

retains the title "Head of the Civil Service".Generally speaking, it is not desirable either in principle or practice, to have a

Public Servant present at Cabinet meetings. There are bound to be divisions ofopinion in a Cabinet and it is always too easy for a Public Servant to get to knowabout such divisions and to "play them Up", orto dabble in politics in various ways.Lord Hankey, in the opinion of some, becamea sort ofuncrowned King ofEngland.

Likewise it must also be said that the system of appointing a Head of the PublicService may not always work well. Such a Head is bound to have a staff who willacquire a sort of aristocratic precedence over the rest of the Public Service. (InBritish governmental administration, for instance, since 1924, no Department hasbeen allowed to submit any proposals to Cabinet without the Treasury beingallowed to have a look at them first, and to make any comments they think fiLl·

It appears that the necessary duties of co-ordination could really best beperformed by a Minister sitting in Cabinet. At first sight it appears that this shouldbe regarded as the second post in the Cabinet to be held by the Deputy Premier,though circumstances might arise where the Premier might prefer to give it to a

junior Minister.Under this system any important question involving more than one Department

would first be discussed in Cabinet, and a general line of policy determined forexecution by the Minister for State Development or Minister for Co-ordination, orwhatever we call him. Having first obtained the consent of other Ministers inCabinet he would then be in a position freely to call upon their officers to the fullextend necessary for competing the line of action detennined. A Ministerial Co­ordinator in this respect is at a considerable advantage compared with a Co­ordinator who is not a member of Cabinet and who is always having to call uponofficers from other Departments in a manner which may be in danger of cuttingacross the lines of authority of the Ministers in charge.

We must now return to the questions which we left unanswered. Are we seekinga scheme to co-ordinate all Departments, or a scheme which is primarily concernedwith the pushing forward of State Development, ie, mainly concerned with co­ordinating three or four departments and only incidentally and occasionally callingupon the others? And do we ordo we not wish to create a Head of the Public Service?

The Officer who has the widest knowledge of all Departments is the PublicService Commissioner. If we want our co-ordinating organisation to cover allDepartments, he should naturally be next in authority to the proposed Minister forCo-ordination. The performance of these duties would place a greatly increasedburden of responsibility on the Public Service Commissioner, even if he were notformally desi.gnated as "Head of the Public Service" and made superior in status tothe Heads of other Departments or institutions.

Alternatively, we can conclude that the most important task of co-ordinationnow is to secure a co-ordinated, active, bold, but carefully planned scheme of StateDevelopment. This would mean a close co-ordination of policies for migration,rural development, industrial and mining development, transport and works, andwould have a lesser bearing upon the work of other Departments. Personally I aminclined to aim at this more limited objective. This will be difficult enough to carry

36 Economic Analysis & Policy Vol.2? No.1, March 1997

out properly wi,:houtattempting to set up a more ambitious organisation which shallgo over the heads of all Departments.

It appears, therefore, that we should envisage a Ministry ofState Development,to be held probably by the Deputy Premier, though possibly by a junior Minister;he would have the responsibility of submitting proposals to Cabinet on StateDevelopment, 'md recording and carrying out all their decisions on those subjectswhich involved more than one Department. He should be assisted by a StateDevelopment Council of the principal offices concerned, (kept as small as possibleto ensure efficient working), and would also need a Secretariat (likewise to be keptas small as possible). Before we go on to consider the possible composition of aStateDevelopmentCouncil we cannotbutcommenton the rather untidy organisationof the principal Departments concerned at the present time.

Thirty years ago when the population of the State was smaller and itsorganisation simpler, the scope of action of the Minister of Public Works appearsto have been in some ways similar to that now proposed for the Minister for StateDevelopment. Since then that Ministry has been deprived of many of its functions.Main Roads were created a separate department by two stages in 1920 and 1925.The functions of the Department of Labour and Industry were taken out of theMinistry of Public Works. The first and subsequent "Bureau of Industry Acts", in1930 and following years, set out to take certain major individual works, and thewhole planning of public works policy, out of the hands of the Public WorksDepartment, and in 1938 "The Co-ordination of Public Works Act" reduced thefunctions of the Department of Public Works to very limited proportions. It mayormay not be the case that the Department of Public Works ten or twenty years agowas unable to carry out its duties; it will be wrong if we are to be left permanentlywith a scattered and fragmented organisation because of something which mayhave happened in the past. We should as soon as possible aim at re-constituting areal Ministry of Public Works to handle once more as one these functions whichhave become scattered.

Likewise Ihe Department of Lands was apparently not carrying out thefunctions for which it was intended and so legislation in 1943 created the BureauofInvestigation which was charged with all the policy-forming duties ofthe LandsDepartment leaving the Department itself to playa comparatively subordinate role.

During the past generation the Public Service, which was previously headed byUnder Secretaries, has come out in a fine crop of Co-ordinators, Commissioners,Directors and Directors-General. This all helps to obscure the proper lines ofauthority and it is very necessary for good Government that Parliament and thepublic should clearly be able to see whalare the functions of each Minister, and thateach Minister should have a Public Service Head ofhis Department under him withas many sub-departmental heads as are necessary. The justification for new titleswas that the phrase "Under Secretary" implied administrative competence only,whereas Commissioners, Directors, etc., were supposed to be men of technical andprofessional competence. The old Public Service idea was that a man of sufficientadministrative competence could be completely ignorant of all the technical issuesinvolved and yet direct a number of technical subordinates. While this may be true

Economic Analysis & PolicyVol.27 No.!. March 1997 37

in certain cases, it certainly should not be taken as a basis for Public Serviceorganisation in the future. In fact, the extent to which new titles have graduallycome to the top in the Public Service shows that itis now generally recognised thateg., the Director-General of Education should be a man of academic training andteaching experience; the Co-ordinator of Public Works should be an engineer, etc.This principle may be carried further, and it would probably be generally agreedthat the Department of Agriculture, for instance, should be headed by a technicallyqualified man; and that the Director of Secondary Industries should have had

business experience.Alternatively, in some cases, Departments can be divided, eg., Health and

Home Affairs, and Justice, so thata professionally qualified man handles atany ratethat part of the Department most needing his supervision.

However, to return to the main theme, it looks as if the Departments particularlyconcerned with State Development should have technically qualified heads, andwhether they are called Under Secretaries, Commissioners, Directors, or whathaveyou, does nol. matter much, so long as the nomenclature is clear and systematic.

By successive legislation and administrative action, Parliament and thegovernment have created a Co_ordinator-General of Public Works, have given thesame individual responsibilities under "The Land and Water Resources Act", havevirtually made him responsible for nearly the whole field of rural development, andhave also given him considerable responsibilities in the field of industrialdevelopment. While Queensland is very fortunate in having these duties performedas they are now, we really cannot count on finding any successor who could carrysuch a load, and we cannot make this a permanent basis for our organisation.

A possible re-organisation of Departments might be as follows:

I. Public Works, including sub-Departments­

(a) Main Roads Commission:(b) Housing Commission;(c) Present Works Department,

with a Director-General qualified in engineering.

2. Rural Development, incorporating agriculture, land forestry and irrigation,with a Director-General qualified in Agricultural and Veterinary Science.

3. Labour and Industry, including electrical development, migrants, andpossibly also incorporating Mines, with a Director-General of commercial

experience.

4. Transport _ in this case the Railway and Road Transport Commissionersmight be independently responsible to the Minister and not to a Director-

General.

5. The Treasury

38 Economic Analysis & Policy VoL2? No.1, March 1997

The Minister for State Development would call on the Directors-General ofthese four Departments and the Under Secretary, The Treasury, to form his StateDevelopment Council, (first having agreed with other Ministers in Cabinet the lineofpolicy which he was to follow). The Public Service Commissioner wouldremainresponsible to the Premier for the staffing of all Departments and would also sit onthe State Development Council. He would be the channel through which theMinister for Slate Development would call upon the services of the remainingDepartments when required.

So far we have proposed the creation ofone new Ministry (State Development)and the abolition of two (Lands and Mines); these were both of great importancein the early stages of the State's history, but their relative importance has beensteadily declining. If it is desired to retain or increase the present number ofMinisters, there may be a division of some large Departments such as Health andHome Affairs; the offices of Premier and Chief Secretary might be separated as inNSW; minor functions of all kinds should be removed from the Ministers who arehaving to carry the major burden ofState Developmentand there-grouping of theseminor functions might create a new Portfolio. Local Government, however, is afunction which might well be taken by the Minister for State Development himself.

Under present legislation the Economic Adviser to the government is alsoUnder Secretary for Labour and Industry and if this is maintained he would take hispart in the State Development Council (which would displace the Bureau ofIndustry as at present constituted). If, however, the two posts are separated,provision should also be made for the Government's Economic Adviser or someperson trained in economic science to sit on the Council and perhaps to act as itsSecretary. In the preparation of any co-ordinated plan of State Development, thereare bound to be conflicting claims between different industries and differentprojects for limited supplies of labour, materials and money; the function of anEconomist is to try to indicate the apportionment which will be of the greatest valueto the State as .a whole.

One advantage ofthis system is its flexibility. The government can, if it wishes,give to any member of the State Development Council primacy of place and somesort ofieadership over the others, accompanied by the title of"Vice President of theState Development Council"; such primacy may be granted at one time to the headof one Department, at one time to another, according to the calibre of the men whorise to the headship of the different Departments; or the Government may prefer tokeep them on b~rms of strict equality and avoid any suggestion of creating a "Headof the Public Service".

[Colin Clark]Director[Bureau ofIndustry]

Economic Analysis &; Policy Vo1.27 No.1, March 1997 39

APPENDIX 4

ECONOMIC NEWS ARTICLES, 1938-1951

Economic News was in publication from 1932 - 1956. The Queensland Bureau ofIndustry (known as the Queensland Bureau of Economics and Statistics until 1933)published Economic News.

Colin Clark was appointed as the Director of the Queensland Bureau ofIndustry on 6 May 1938. He resigned from this position on the 18 January 1952.

The following is a list of Economic News articles from 1938 - 1951.

"1937", Vol. 7, Ko. I, January 1938."A Decade of Econontic History", Vol. 7, No.2, February 1938."Tropical Australia", Vol. 7, No.3, March 1938."Queensland Fac',ories", Vol. 7, No.4, April 1938."Sugar", Vol. 7, No.5, May 1938."The Industries of Queensland" and "The Distribution of Working Populations",Vol. 7, No.6, June 1938."Australian Banking Statistics" and "Banking Policy and Interest Rates", Vol. 7,

No.7, July 1938."Queensland Balance of Payments" and "Queensland Savings and Investment",

Vol. 7, No.8, August 1938."Butter Prospects", Vol. 7, No.9, September 1938."The Economic 'Trend in Great Britain" and "Are Costs Rising", VoL 7, No. 10,

October 1938."The Beef Outlook", Vol. 7, No. 11, November 1938."World Population" and "World Food Production", VoL 7, No. 12, December 1938."Business Activity in Great Britain" and "Wool and Staple Fibre". VoL 8, No.1,

January 1939."Interest Rates and Banking Policy" and "The Future of Commodity Prices", Vol. 8,

No.2, February 1939."International Trade" and "The American Commodity Market", Vol. 8, No.3,

March 1939."The Shortage of Skilled Labour", Vol. 8, No.4, April 1939."Sugar" and "Economic Efficiency of the Sugar Industry", Vol. 8, No.5, May 1939."The Cycle in Canle" and "Queensland Factories in 1937-38", Vol. 8, No.6, June

1939."Wool Production and Trade", Vol. 8, No.7, July 1939."Fertile Areas", Vol. 8, No.8, August 1939."The Cost of War", Vol. 8, No.9, September 1939."Queensland Direct Overseas Exports", Vol. 8, No. 10, October 1939."Revised Statistics of Employment and Unemployment", Vol. 8, No. II, November

1939."The Commonwealth Report on Nutrition", VoL 8, No. 12, December 1939."Economic Ada:?tation to a Changing World Market", Vol. 9, No.1, January 1940."'Wages and Prices in WarTime", Vol. 9, No.2, February 1940."The National Income of Queensland", Vol. 9, no. 3, March 1940.

40 Economic: Analysis & Policy Vo1.27 No.1, March 1997

"Where Shall Wealth Be Found''', Vol. 9, No.4, April 1940."Sugar", Vol. 9, No.5, May 1940."Maximum War Effort", Vol. 9, No.6, June 1940."Building - The Key Industry", Vol. 9, No.7, July 1940."Differential Fertility", Vol. 9, No.8, August 1940."American Opinions on Inflation", Vol. 9, No.9, September 1940."The Deterrnin:mts of National Income", Vol. 9, No. 10, October 1940."Expenditure, Taxation, and Savings", Vol. 9, No. 11, November 1940."Social Service Costs and Population Density", Vol. 9, No.12, December 1940."The Economic Balance of Power", Vol. 10, No.1, January 1941."World Producl:ion and Prices of Primary Products", Vol. 10, No.2, February 1941."The Many and the Few" and "Further Note on the Economic Balance ofPower",Voi. 10, No.3, March 1941."The Productiv., Capacity of the United States", VoLlO, No.4, April 1941."The World Sugar Market", VoLlO, No.5, May 1941."The Economics of Nitrogen", Vol. 10, No.6, June 1941."Soviet Economics", Vol. 10, No.7, July 1941."Economic Wac Aims", Vol. la, No.8, August 1941."The Economic Fortunes of Japan", Vol. 10, No.9, September 1941."Germany's Oil Supplies", Vol. 10, No. 10, October 1941."Marriage", Vol. 10, No.l1, November 1941."Reflections on Totalitarianism", Vol. 10, No. 12, December 1941."Dominion Representation", Vol. 11, No.1, January 1942."Taxation of War Wealth", Vol. II, No.2, February 1942."Non-Essential Production", Vol. 11, No.3, March 1942."'Commonwealth - State Division of Powers", Vol. 11, No.4, April 1942."Sugar", Vol. 11, No.5, May 1942."The End of Unemployment", Vol. 11, No.6, June 1942."Drunkenness a.nd the Drink Trade", Vol. 11, No.7, July 1942."The World's Timber Supplies", Vol. II, No.8, August 1942."The Teaching of Econonnics", Vol. 11, No.9, September 1942."The Technique ofInflation", Vol. 11, No.1 0, October 1942."As Others See Us", Vol. 11, No. 11, November 1942."The Paradox of Female Employment", Vol. 11, No. 12, December 1942."The Distribution of the Product of Industry", Vol. 12, No.1, January 1943."Margins for Skill", Vol. 12, No.2, February 1943."The Flight from the Land", Vol. 12, No.3, March 1943."The Growth of Cities", Vol. 12, No.4, April 1943."The Price of Size", Vol. 12, No.5, May 1943."Individual Enterprise and International Trade", Vol. 12, No.6, June 1943."Totalitarianism, Bureaucracy and the Constitution", VoL 12, No.7. July 1943."Agricultural and Pastoral Production 1942-43", Vol. 12, No.8. August 1943."Warning to Graziers", Vol. 12, No.9, September 1943."Cost of Water", Vol. 12, No. la, OClober 1943.

Economic Analysis & Policy Vo1.27 No.1, March 1997 41

"Pitfalls of the Last Peace", Vol. 12, No.ll, November 1943."The Difficulties of Price Stabilisation", Vol. 12, No. 12, December 1943."Economic Requirements in City Planning", Vol. 13, No.1, January 1944."High Employment and Wage Anomalies", Vol. 13, No.2, February 1944."The Rights of Small Nations", Vol. 13, No.3, March 1944."Social Secur:ty - True and False", Vol. 13, No.4, April 1944."The Future of Australian Agriculture", Vol 13, No.5, May 1944."The Spread of National Socialism in England", Vol. 13, No.6, June 1944."The Post-war Budget", Vol 13, No.7, July 1944."Agricultural and Pastoral Production, 1943-44", Vol. 13, No.8, August 1944."Problems of a High Employment Policy", Vol. 13, No.9, September 1944."The Manufacture of Motor Cars", Vol. 13, No. 10-11, October-November 1944."Architects arld Arithmetic", Vol. 13, No. 12, December 1944."Manpower and the Building Programme", VoL 14, No. 1-2, January-February1945."Australia's Counterpart", VoL 14, No.3, March 1945."De-centralisation of Manufacmre", Vol. 14, No.4, April 1945."Economic Resources in War", Vol. 14, No.5, May 1945."Agricultural and Pastoral Production, 1944-45", VoL 14, No.6, June 1945."Prices and Wages", Vol. 14, No.7, July 1945."'Housewives and Housing", VoL 14, No.8, August 1945."The Increase of Divorce", Vol. 14, No.9, September 1945."Employment in Manufacture", Vol. 14, No. 10, October 1945."Decentralisation and Centralisation", Vol. 14, No. 11, November 1945."Supply and Demand of Female Labour", Vol. 14, No. 12, December 1945."The Open Door", Vol. 15, No.1, January 1946."Nitrogen and the Food Shortage", Vol. 15, No.2, February 1946."Post-War Employment in Queensland", Vol. 15, No.3, March 1946."The Fruits of Economic Progress", Vol. 15, No. 4-6, April-June 1946."Early Marriage", Vol. 15, No.7, July 1946."Medical Services" Vol. 15, No. 8-9, August-September 1946.

"Productivity in Major Industry Groups", Vol. 15, No. 10-12, October-December1946."The Trial of Arbitration", Vol. 16, No. I, January 1946."Size of FarnLs", Vol. 16, No. 2-3, February-March 1946."The High Cost of Government" Vo1.l6, No.4-5, April-May 1947."The Distribution of the Product of Industry", Vol. 16, No. 6-7, June-July 1947."Education and Infertility", Vol. 16, No. 8-9, August-September 1947."The Density of the World fann Population", Vol. 16, No 10-12, October-December1947."Marital Fertility", vol. 17, no. 1-3, January-March 1948."The Measumment of Cultural Achievements", Vol. 17, No 4-5, April-May 1948."Economic Progress and Social Security", Vol. 17, No.6, June 1948."The Productivity of the United States", Vol. 17, No. 7-8, July-August 1948."Sickness in 'ongland and Wales", Vol. 17, No. 9-10, September-October 1948.

42 Economi,: Analysis & Policy Va1.2? No.1, March 1997

«Soviet Military Potential", Vol. 17, No. 11-12, November-December 1948."A Test of the Success of Vocational Guidance", Vol. 18, No.1, January 1949."Holidays", Vol. 18, No.2, February 1949."The Availability of Moisture", Vol. 18, No.3, March 1949."lndustrial Conscription", Vol. 18, No.4, April 1949."Regional Production and Wealth", Vol. 18, No.5, May 1949."lnventories", Vol. 18, No.6, June 1949."World Resources and World Population", Vol. 18, No. 7-9, JUly-September 1949."Sugar", Vol. 18, No. 10, October 1949."An lndex of Business Activity", Vol. 18, No. 11, November 1949."Air Transport of Fruit and Vegetables", Vol. 18, No. 12, December 1949."Climate ofth,' Queensland Wheat Belt", Vol. 19, No.1, Jannary 1950."Population and Mortality in Queensland, 1860-1947", Vol. 19, No.2, February 1950."Socially Unskilled", Vol. 19, No.3, March 1950."Municipal Milk Production", Vol. 19, No.4, April 1950.«Australia's Capital ReqUirements", Vol. 19, No.5, May 1950."Shipping -11le Torres Srait Route", Vol. 19, No.6, June 1950."Land Settlement in Queensland", Vol. 19, No. 7-8, July-August 1950."Retail Distribution", Vol. 19, No.9, September 1950."Priority Coupons - A Proposal for Simplifying War-time Controls", Vol. 19, No.10-11, October-November 1950."J. B. Brigden", Vol. 19, No. 12, December 1950."Comparative Marital Fertility", Vol. 20, No.1, January 1951."City Travel Surveys", Vol. 20, No.2, February 1951."Port Adminis!ration", Vol. 20, No. 3-4, March-April 1951."Maritime Trade and Shipping in Brisbane", May 1951."John Maynard Keynes", Vol. 20, No. 6-7, June-JUly 1951."Road Transport", Vol. 20, No.8, August 1951."Will Australia Export Coal?", Vol. 20, No.9, September 1951."The Measurement of Fecundity", Vol. 20, No. 10, October 1951."World Resoures and Industries", Vol. 20, No. 11, November 1951."An Appraisal of German Recovery", Vol. 20, No. 12, December 1951.