Labor’s extraordinary ignorance of the Government’s cost structure

Since Labor came to power in 2007 government spending has been rising at an extraordinary rate.

In 2006-07 the Commonwealth spent $253 billion; only four years later total spending was up 38 per cent to $350 billion.

Even more troublingly, the Commonwealth is spending money it doesn’t have.  For four years in a row Labor has run massive budget deficits.

In business, when times are tough and your spending exceeds your revenue, you take urgent action.   You comb through every aspect of your cost structure, looking for ways to find savings.

Even when times are good, well run businesses keep their costs under continuous review.  Typically, a large business will have a permanent team of executives looking for efficiencies.

Of course, the starting point is to have a very detailed knowledge of your cost structure: what are you spending money on?  Typically, this means keeping a particularly close eye on ‘cost centre’ functions which do not generate revenue for the business.  These include central departments like finance, IT and human resources.

In the present environment, where costs are exploding, you would think the government would be looking very closely at the cost of such functions.

Certainly, having come from a business background, this was my assumption.

Because I was curious to know what progress the government was making in finding such savings, I asked a question in Parliament:

‘What are the costs of central functions for each department and agency of the Australian Public Service (including finance, human resources, information technology, and other functions that support the work of the department or agency as a whole) in dollar terms, and as a proportion of the total expenditure for each department and agency.”

The answer I received was extremely troubling: ‘The Department of Finance and Deregulation does not currently comprehensively or systematically track the information requested by the Member for Bradfield.’

In my view this is an extraordinary response – indicative of an organisation which does not know where it is spending money or why.  No business would dare have such a sloppy, complacent approach.

It is inevitable that in a flabby, ill-managed organisation - like the Australian government under Labor’s leadership - there is scope to make significant savings without affecting the performance of the organisation.

The Coalition has talked about a savings target of $70 billion.  That is over four years, out of total spend in that period of around $1.4 trillion.  In other words, it is a 5 per cent reduction. 

Labor Ministers have rushed to pour scorn on this target.  But no sensible businessperson would doubt that savings of this magnitude could be found – and no sensible businessperson would ever run an organisation so careless of costs that it did not even know how much it was paying for its central functions.