Saturday, March 08, 2008

Saturday Forum: Lindsay Tanner, not quite unplugged

The most revealing moment in my interview with the man charged with wielding the government’s razor came at the end.

Lindsay Tanner had been talking for the best part of an hour about his Expenditure Review Committee and the pressure on it to cut billions in order to fight inflation and avoid another interest rate rise.

I asked whether he would still be trying as hard to cut spending if he didn’t need to do it in order to fight inflation.

“Yes,” he replied, after only a moment’s hesitation.

“Why?” I asked. Cutting spending isn’t normally thought of as the first priority for a Labor administration.

“Waste,” he replied. “There has been too much of it. We have to spend public money well.”

It was clear that he meant it...

His Parliament House office is almost bare, which is probably not that unusual in ministerial suites at the moment, but in Lindsay Tanner’s case it seemed to reflect an ethos.

Behing him is a caricature. I ask who drew it. He says he doesn't know. He gave a speech at a business function ten years ago and everyone who spoke got one.

His most recent book, his forth (Peter Costello used to deride him as a member of Labor’s “book club”) deals with relationships. Possessions, it says, are not as important.

One of the former trade unionists that the Coalition’s election ads said we should fear (he ran the Federated Clerks Union in Victoria) Tanner makes the point that he is the son of an accountant.

While other kids in his small town in East Gippsland grew up with copies of the Racing Guide or TV Week he grew up reading The Taxpayer.

“It taught me a bit about financial prudence, but it also taught me of the central role of tax and financial management in the lives of ordinary working people,” he said.

“I've never forgotten an incident when I was working for the Forest Commission, when I was a kid during the fire season fighting bushfires, and I was out with a variety of characters who I didn't really know, they only knew my Christian name. They were sitting round talking about things, this was just after Christmas, and one of them said, oh, I had a pretty good Christmas, I was able to afford to buy the kids some decent presents - Joe Tanner got me a good tax refund.”

“It was an interesting insight to me, not only about what my father actually did, because I was only 17 or something, but more importantly about how critical the role of government is in delivering value for money and keeping the tax burden on ordinary people low.”

Tanner has nine weeks left in which to find $3 billion to $4 billion of extra savings. And he is finding it hard.

“It’s tough going. Particularly when you bear in mind that we announced substantial savings before the election and by definition they tended to be the low-hanging fruit.”

“Most of the easy options have been taken,” he tells me.

His Expenditure Review Committee has been at work for three weeks. Its members are Tanner, the Prime Minister Kevin Rudd, his Deputy Julia Gillard, the Treasurer Wayne Swan, the Assistant Treasurer Chris Bowen and the Trade Minister Simon Crean.

Are they it finding it more difficult than they expected?

“I don’t think any body expected that it would be anything other than tough. You see, if it was easy to cut programs and reduce expenditure then even the former government would have done it.”

He says unlike the former government in recent budgets he won’t be rescued by a unexpected surge in revenue.

Figures out from the Treasury out this morning show that in the last four budgets unexpected surges in revenue brought in a total of $334 billion. The Coalition gave away $314 in new programs. As the document says: “effectively the additional revenue from the commodity boom has been spent or provided as tax cuts.”

Tanner says there may or may not be another surge in revenue again – “there’s no indication one way or the other” – but if there is, his government is committed to banking it rather than spending it. He’ll still have to find $3 billion to $4 billion.

“We are committed to substantially reducing expenditure irrespective of what happens on the revenue side. And the important thing to keep in mind is that if there is a substantial surge in revenue that means there is a substantial surge of money coming into the economy more generally, which means there is an increase in inflationary pressures.”

He gives the impression that if there is another unexpected surge he’ll want to cut spending even harder.

“Government expenditure is projected to increase by 4.5 per cent in real terms. In an economy that’s been supercharged by mining boom revenues, that’s simply irresponsible,” he tells me.

Might his committee go even further and cut more that the $3 billion to $4 billion it needs to cut in order to deliver a projected surplus of at least 1.5 per cent of GDP?

He leaves the possibility open.

“I am making no comment one way or the other on where we may or may not head, but our public position is that, subject to the global growth circumstances, we aim to deliver a surplus of 1.5 per cent of GDP.”

In order to find the money, his committee is considering axing entire programs; news that will be welcome among nervous public servants because it means the cuts won’t fall solely on “administration”.

(The $1,600 Carers’ Bonus, which the government reportedly plans to “scrap” doesn’t fall into this category. It was never a continuing program, but merely a series of one-off budget announcements never factored into forward estimates.)

Asked what is in or out as far as his committee is concerned, he replies: “We are bound by our election commitments and by contracts, otherwise there is no constraint on what we can consider. That obviously includes programs.”

Does it include programs within Defence, a department apparently protected by an election promise?

Well, yes it does. Tanner’s committee is actively looking for savings within the Department of Defence.

As he explains it: “We made a commitment prior to the election that we would maintain Defence spending at 3 per cent growth in real terms in forward estimates, so we are bound by that commitment.”

“However that does not preclude us from examining the detail of Defence spending and finding savings and efficiencies, if for no other reason that the pressures for Defence spending to go beyond that limit are significant, and therefore we will at the very least need to find efficiencies in Defence to help keep the growth in spending to that level.”

And after the Labor promise to protect total defence spending expires, will Tanner’s Razor Gang be able to attack it?

If it would like to, he won’t say: “I am expressing no view one way or the other about what happens beyond the forward estimates,” he replies.

But then perhaps he is too busy to think about it. Right now his committee also has the task of examining tax expenditures, better known as tax concessions or tax breaks.

As Tanner puts it: “tax concessions have not been arbitrary excluded from our examination.” This too is welcome news for public servants. It means that big savings might be made without big cuts in the number of people employed in government departments

The Department of Finance says right now tax breaks are costing revenue $51 billion each year, a figure that is climbing by $3 billion a year. Half of it goes to tax breaks for superannuation.

But Tanner gives the impression that his committee won’t be pushing for any completely new taxes.

“It is not my position to make any comment about new taxes. You will need to seek comment from the Treasurer on that, but I would remind you of the title of the Expenditure Review Committee,” Tanner replies.

He suggests that the razor will be applied more carefully than in the past.

“We are working on the questions of redeployment to maximize the opportunities for people whose positions are abolished to quickly get new positions,” he says.

“It is important to bear in mind that, particularly in Canberra, it is a very tight labour market. Unemployment is about 2.5 per cent. The larger agencies, we believe, should be comfortably able to absorb these things through ordinary turnover.”

“But there will be difficult circumstances in some agencies that we will need to deal with to ensure that people do have appropriate opportunities for redeployment. We are working on those matters.”

If it is all about cutting spending and not cutting the size of the public service as Tanner is now suggesting, why did he make speeches prior to the election drawing attention to the growth in the size of the public service – 25 per cent since the start of the decade not including Defence and related agencies.

“If you go back to those speeches you will see that that was being presented as evidence of spending running out of control. That was being presented as a symptom, not the problem. We are now tackling the problem,” he replies.

“We are focusing on spending levels, not on head counts. A lot of government spending occurs in ways that have very little connection with employment levels in the public service.”

“Tanner’s axe,” as Tanner himself describes it, has already hit parts of the public service. He has imposed a one-off extra 2 per cent efficiency dividend believed to be hitting some agencies hard and imposed early severe cuts on organisations such as the National Capital Authority.

How are the agencies coping? Will some find it hard to balance their books as the end of June nears?

“Look, the circumstances vary from agency to agency for all kinds of reasons, so I wouldn’t express a view.”

“But one way or another we have to achieve the outcome because government spending has been growing much too fast and this is one way of winding it back.”

What is his own department telling him about how well the agencies are coping?

“I am not going to comment on what my department may be advising me about.

Well, does he think the agencies are managing the extra efficiency dividend and the cutbacks okay?

“I have no comment to make on that I am afraid.”

The government’s chief axe wielder is determined, yet intent on delivering what he has promised in the most careful way possible.

At the start of this year he warned that “there will be pain” in the May budget, a phrase that he hasn’t repeated since and didn’t use in his interview with me.

He gives the impression that he is trying not to cause unnecessary pain.

In his book Crowded Lives Tanner writes about the importance of work and the people we work with for defining who we are.

He also talks about the importance of our children and neighbors.

He had been in Brisbane at a Cabinet meeting the day before we met. He had flown back to Melbourne to see his wife, his one year old and his preschooler overnight and then taken the early fight to Canberra for another meeting.

I asked him whether he thought it was all worth it. He told me he thought it was.