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It's Treasury that must press ahead

By Jay Somasundaram
Created 01/06/2009 - 00:07

Webdiarist Jay Somasundaram [0] writes an open letter to Dr Ken Henry, Secretary to the Australian Treasury:

Dear Dr Henry,

It's Treasury that must press ahead

I read, with some bemusement of your call to the Rudd government to press ahead with reform [1]. With respect, you yourself have the power, within your sphere of influence as Secretary of the Treasury and adviser on tax reform, to press ahead with the four most important reforms that Australia should undertake. If these reforms are achieved, then the government is virtually constrained into making good policy. Australia's prosperity will be assured, irrespective of the party in power.

Triple bottom line reporting

The first reform, Dr Henry, is to bring in full balance sheet and triple bottom line [2] reporting, for both the government and the nation. The ATO demands that even small businesses account for assets and liabilities, and it is about time that the government did so too. Such reporting is needed to account properly for government investments. For example, I am fearful that our investment in our car industry is money that will disappear from our books, only to reappear as patents in the balance sheets of US and Japanese parent companies.

When Labor claims that the Liberals allowed our infrastructure to run down we want to see the accounts that back that up. I have no problem with sometimes spending more than I earn. But, I would like to know that the deficit is because I am buying assets that will reduce future expenditure, not in plasma TVs [3], as happened with the recent cash hand-outs.

We are a mining nation living off the sale of non-renewable assets. A wise owner may judiciously sell assets when necessary, but we should not kid ourselves about the nature of our income, or our responsibility to use the income wisely. Are we replacing it with something equally valuable? We are, after all, selling off part of our estate – our grandchildren’s inheritance.

Perhaps more importantly, we are increasingly becoming a venal culture because money is the only asset that we measure and report. A recent Newspoll [4] asked the question "Is the budget good for the economy?" The question should have been "Is the budget good for the country?" We focus on the economic impact and forget the social and environmental consequences. Kevin Rudd recently admonished the banks for being too greedy. There is nothing wrong with high achievement. The problem is that the banks’ (and other corporations’) performance is measured on only one dimension. It is about time our government really led the way. Carbon trading is but a poor cousin to tackling all the environmental and social effects of our actions. Or take the online edition of the Australian. It hosts a business [5] section, which has a banner with real-time economic metrics. The US collected and reported US military deaths, but not those of civilians. The numbers we collect and report not only reflect, but drive, our values.

Impact statements

Aligned with proper accounts are proper impact statements for every policy announcement. The impact, not only economic but also on our other assets – social and environmental. My taxes are being spent to buy computers for kids. Will it improve our children's education? How much will their grades improve?

It will take more than guts to introduce such changes. It will also require a change of attitude. We currently approach such targets as individual performance indicators, as a way of shafting people we dislike. The Opposition will pick such numbers as a means of berating the Government. The real benefit of these numbers is twofold. First, they ensure that we are aligned to the right goals. The goal of a school hall is to educate our children, not to increase the grandeur of the school, or the name of the person the hall is named after. The second benefit is knowledge-building. Public policy is still an infant technology. As we prod and measure the policy, we better begin to grasp what is actually happening.

Will we be able to stop the petty criticism? I watched with compassion as the media tried to get the Prime Minister to say what the maximum deficit would be. They claim it was because he didn't want to use the word billion. I suspect he didn't actually know the number (after all, he is an arts graduate). I did not elect him for his memory of numbers, or because I expect him to be able to predict the future. My opinion of him didn't suffer, but my opinion of the media did.

Promote a culture of saving

Australia currently has a consumer culture. We spend rather than save. Such a culture has two major disadvantages. First, savings and investment go hand in hand – without the former, we cannot have the latter, as the shortage of funds for our infrastructure investments shows. The alternative is to sell our country to those that do save, like China.

The simplest tool at your disposal to increase savings is to change the tax system, taxing expenditure rather than income. Our current policies do get halfway there. Compulsory super ensures that some income is saved. Salary sacrifice, which taxes income that is saved at only 15% also helps. GST is an expenditure tax. These are, however, not enough if we wish to aim at savings rates of over 30% in order to be comparable to countries such as China and South Korea. Super accounts already provide the system. One method of increasing deposits into super would be reducing the tax as it goes in and taxing it normally when it comes out. A second method would be to allow extra deposits to be tapped for a greater range of reasons: home purchase, births or unemployment.

The second benefit is subtler. The habit of savings is a part of the habit of forgoing instant gratification for future reward. It is the habit of the student who will study before playing, and the adult who takes a poorly paying job because of the quality of the experience. We need to strengthen these habits in our society.

Educating our society

The last, and possibly most important reform is in education. As the nation's Chief Accountant it is your job to mentor and coach the nation on how to evaluate national performance. Don't complain [6] that the Budget needs to be dumbed down to be understood by the media. It's your job to educate the media, and through them, the public. Or start a blog. Contribute to Webdiary.

Use numbers, Dr Henry, to take the politics out of government. Use numbers to show us what is happening, and what should happen – how to account for and measure real progress. With respect, Dr Henry, the power is in your hands. It'll take courage, determination and perseverance. But why else did you enter the public service?

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