COAG’s reform of federal financial relations (Whose buck is it anyway?) Mary Ann O’Loughlin Executive Councillor and Head of Secretariat 2010 IPAA National Conference 22 October 2010

OUTLINE Context Accountability arrangements Are the new accountability arrangements robust enough? The ‘bold experiment’ 2

CONTEXT 3

Australia’s federal relations Key features: vertical fiscal imbalance –States have large expenditure responsibilities relative to revenue raising capacities — rely on transfers from the Commonwealth overlapping roles and responsibilities for service delivery –associated with fragmentation, duplication, lack of coordination, blurred accountabilities. 4

ALP national platform for 2007 election ‘Many of Australia’s biggest policy challenges involve the intersection of Commonwealth and State government responsibilities. In government, reforming the Federation will be an important priority for Labor. The cost shift and blame shift between governments costs Australian taxpayers billions of dollars each year. There is too much ambiguity about which level of government is responsible for a particular government program.’ 5

Intergovernmental Agreement on Federal Financial Relations December 2008 ‘represents the most significant reform of Australia’s federal financial relations in decades’ –governs all policy and financial relations between the Commonwealth and the States. 6

New financial arrangements National Specific Purpose Payments (SPPs) - supported by new National Agreements National Partnership payments - associated with National Partnership Agreements 7

National Specific Purpose Payments Multiple payments (60+) collapsed into five new National SPPs –school education –skills and workforce development –healthcare –affordable housing –disability services Ongoing financial contributions from Commonwealth –States and Territories have full budget flexibility to allocate funds as they see fit to achieve the agreed objectives for the sector. 8

National Agreements In specific areas of service delivery: –Healthcare, Disability Services, Education, Skills and Workforce Development, Affordable Housing, Indigenous Reform Define the objectives, outcomes, outputs, and performance indicators Clarify the roles and responsibilities of the Commonwealth and the States and Territories. 9

National Partnerships New incentive payments to drive reform: –to support delivery of specified projects –to facilitate reforms –to reward jurisdictions that deliver on national reforms National Partnership Agreements define the objectives, outputs and performance benchmarks –Literacy and Numeracy –Improving Teacher Quality –Preventive Health –Elective Surgery Waiting List Reduction Plan –Seamless National Economy 10

ACCOUNTABILITY ARRANGEMENTS 11

COAG Reform Council Independent organisation set up by COAG to monitor, assess and report on the performance of governments in implementing nationally agreed reforms Reports annually to COAG on: –National Agreements –National Partnerships –aggregate pace of activity in progressing reform agenda 12

13 Structure of the National Education Agreement

Year 3 Reading: proportion of students achieving at or above national minimum standard, 2009

Contextual factorsNSWVicQldWASATasACTNTAust Population in most disadvantaged SES area (%) Indigenous population (‘000) Proportion of population Indigenous (%) Proportion of Indigenous population in remote areas (%) 5np224319npna8025 Indigenous students (%) Students from a LBOTE (%) Students in remote areas (%) na462

Average scores for Reading: change between 2008 and 2009 Year 3Year 5 NSW ▲▲ Victoria ▲▲ Queensland ▲▲ Western Australia ▬▲ South Australia ▬▬ Tasmania ▬▲ ACT ▲▬ Northern Territory ▬▬ Australia ▲▲

Average scores for Reading Year 3 by Indigenous status: change between 2008 and 2009 IndigenousNon-indigenous NSW ▬▲ Victoria ▬▲ Queensland ▲▲ Western Australia ▬▲ South Australia ▬▬ Tasmania ▬▬ ACT ▬▲ Northern Territory ▲▬ Australia ▲▲

ARE THE NEW ACCOUNTABILITY ARRANGEMENTS ROBUST ENOUGH? Conceptual basis of agreements Availability of performance information Whose buck is it anyway? 18

Context ‘The new framework for federal financial relations replaces Commonwealth prescriptions on state and territory service delivery with a new focus on the achievement by all levels of government of mutually agreed objectives and outcomes.’ (IGA, C2)

Conceptual basis of agreements Must be strong links between performance indicators and reform objectives and outcomes For public accountability, must be able to coherently report progress against agreement

Conceptual basis of agreements Challenge with public accountability is to ensure that the performance framework strikes an appropriate balance between the degree of detail reported on and the accessibility of that reporting. NHA: largest and most complex – 7 objectives, 11 outcomes, 26 progress measures, 15 outputs, 9 performance benchmarks progress measures and outputs are reported through 70 performance indicators.

Availability of performance information Must have robust, comparable, timely information on performance, and be able to assess change over time.

Availability of performance information Examples of problems –For baseline National Healthcare Agreement, no data for 13 of 70 indicators or for 3 of 9 benchmarks –For baseline National Disability Agreement, ABS Survey of Disability, Ageing and Carers is a significant source of data – most recent data from 2003 –Difficulty with assessing change over time. For example, tracking progress against 90% target for Year 12 attainment on basis of Survey of Education and Work

Survey of Education and Work is the data source for target. Due to large confidence intervals, the data not a robust basis for measuring annual progress. –eg, the NT has a target of 72% of young people attaining Year 12 by SEW, 69% of young people in NT had attained it. –Reflecting the 95% confidence interval, result may fall between 59% and 79%, which means that there is a 95% chance the true value of the estimates lies somewhere in this range—some of which is above the target. Large confidence intervals are more likely to include the target within the range of estimates. They can also be more volatile. The ABS enhancements are unlikely to substantially improve accuracy for small jurisdictions and small sub-populations. Alternative data source - Information on Year 12 completions collected administratively by school systems – but not comparable. Need the development of a comparable measure of Year 12 attainment based on administrative data.

Heads of Treasuries review Review of National Agreements and National Partnerships –consistency with design principles of the Intergovernmental Agreement –clarity and transparency of objectives, outcomes, outputs, and roles and responsibilities –quantity and quality of performance indicators and benchmarks.

Whose buck is it anyway? Tensions between outcomes focus, flexibility and public accountability

Macklin gets tough with states PATRICIA KARVELAS POLITICAL CORRESPONDENT INDIGENOUS Affairs Minister Jenny Macklin has backed a plan that would strip states and territories of federal funds if they did not meet targets for Aboriginal children attending and completing school and failed to meet health targets. Remote Indigenous Services Coordinator-General Brian Gleeson has called on Julia Gillard to take money away from states underachieving in indigenous education and health, and boost payments to those improving results and retention rates. The Australian 11 October 2010, p. 2

Are the new National Partnerships becoming the old specific purpose payments? ‘There are still around 130 payments under national partnership agreements, with new payments being created on a regular basis and many payments project specific or otherwise subject to detailed conditions.’ Department of Finance and Deregulation, Incoming Government Brief, p. 3.18

Commonwealth payments to States, to : % Payments Previous payments for specific purpose 42.9—— National Partnership payments — National Specific Purpose Payments — Health & Hospital Network funding ——28.2 GST Other general revenue assistance — Total ($ m) ($ m) ($ m) Source: Commonwealth of Australia 2010, Australia’s Federal Relations, Budget Paper No. 3, p. 20

THE ‘BOLD EXPERIMENT’ 30

Leadership federalism Recognises the historical shift – and acceptance by the Australian people – of the Commonwealth’s involvement in policy areas over which technically it has no power. Maintains the advantage of federal systems that allow decisions to be made by governments closest to the people affected by the them, which also allows for policy exploration and experimentation.

Leadership federalism According to Professor Craven, under leadership federalism the States are realistic enough to let the Commonwealth set broad policy directions, but the Commonwealth has the common sense to accord the States serious latitude in adapting that vision to local circumstances.

Support for federal financial reforms There is a real risk that what TM has called ‘the bold experiment’ will be put aside. Without public accountability for results there will be many people keen to return to measuring and managing by inputs or at best outputs If States do not deliver against agreed outcomes, the States will face (again in TM words) a less amenable Commonwealth and ‘the future of the federation will change’.

Bolstering the bold experiment Bold reassessment of: –priorities for data development and collection –how the Commonwealth and States conduct their day to day affairs.

Bolstering the bold experiment The shift to outcomes calls for an equally bold reassessment of priorities for data development and collection. Also calls for a reassessment of how the commonwealth and states conduct their day to day affairs. The council has real concerns that the political follow up required to bed down these significant changes has not been consistent and the necessary cultural change and structural changes in commonwealth and state bureaucracies have been inadequate. New PM – stamp on COAG agenda – interesting times.