Saturday, February 28, 2009

SATURDAY INSIGHT: Tanner on governing

"The last time I looked I had more TCF companies in my electorate than any other in the country." The speaker is about as inner-Melbourne as could be. Lindsay Tanner represents Richmond, Collingwood, Fitzroy and Melbourne itself in the federal parliament - the heartland of Australia's clothing industry.

As an officer of Federated Clerks Union in the 1980s and early 1990s he used to regularly visit one of the northern suburbs factories that Pacific Brands this week closed down.

"It's terrible," he says. "But it isn't just the economic crisis. It's also the way this company has been run; its debt levels, its acquisition strategy, its large number of brands, many of them little impact, and what we now know about very large pay increases given to management."

Australia's Finance Minister isn't completely powerless to help - the day before Pacific Brands sacked 1,800 workers he and colleague Julia Gillard ditched the 3 month waiting period for retrenched workers seeking to use government services.

And he is talking tough about executive salaries. "They've gone through the roof, they're out of control," he says at the end of a week in which Telstra revealed plans to pay its outgoing chief executive $11 million.

But he believes the best way to help is one of the least direct...

"It will always be the case that a slowdown will tend to hurt first the companies that already have problems."

"The most important thing to do is to strengthen the economy generally; to spend money on infrastructure and associated activity that helps sustain growth."

If the prescription sounds boring, the reality isn't. Tanner is part of the small group of four (the others are Rudd, Swan and Gillard) that has nutted out each of Australia's multi billion dollar stimulus packages as well as each of the other emergency measures.

Since Lehman Brothers collapsed in late September it's been a white-knuckle ride.

"It's been like fighting a series of emergencies. There are huge sums of money involved and it's not an exact science," he says.

"You have to make judgement calls based on the best advice, from the Treasury and the Reserve Bank and other places, but we're not doing physics experiments - these are highly complex constantly changing circumstances where most of the factors that are involved are external and we often don't have all the information."

"People say, you know 'here's what happened in the Swedish banking system in the early 1990s and here's how they responded, so do what they did'. Well inevitably the Swedish banking system is different from the American banking system and in turn the British banking system and our banking system, and the differences can be critical."

Does he ever wish he could just "wait to see," rather than making emergency decisions that throw around billions of dollars on the basis of imperfect information, an idea infamously put forward by the Opposition's Treasury spokesman Julie Bishop shortly before she lost the job.

Tanner was, after all the Finance spokesman in opposition who derided his predecessor as "Santa Minchin" and on taking office promised to wield "Tanner's Axe."

"Our problem is that we can't sit around staring at our navels," he says. "We have to act quickly because of the lags involved. Even when we're making bonus payments, it takes time to get the money out of the door."

"These are in unprecedented circumstances. The responsibility that is weighing particularly on the four of us is pretty heavy, but that's what we spent a lifetime aiming for."

"One of my party colleagues straight after the famous meetings of that weekend in October when we announced the stimulus pacakge and the bank guarantee, said to me, 'I hope you're taking lots of notes in all these meetings mate, this is history being made,' and I looked at him and laughed and said, you've got to be kidding - who'se got time to take notes about anything?"

"In the middle of this you don't think about things like that."

Some of what were to be Tanners biggest tasks have been put on the back burner. The results of Razor Gang Mark II, his second go at shaving spending, were expected by Christmas.

They now won't be ready until the May Budget.

"We have been forced to move away from the serene steady roll out of policy. The wider context has become so turbulant that it has become clear it is going to be difficult to deal with these things sensibly. We've been literally spending so much time on the global economic situation."

"It's one of the interesting lessons I've learned in government, he confides. "When you are in Opposition you have virtually no resources and you are used to thinking of Government and its resources as infinite; its people, resources, its brain power, its capacity to dream up ideas, to get answers, provide briefing papers, get teams working on problems."

"One of the things you realise when you are in government is that they are not infinite. You need to allocate resources to where you want your effort, and not only with the public service."

"Because it's the same small group of people at the top who ultimately have to make the decisions - who have to be informed and make decisive calls - there's only so much capacity that those people have to absorb, to think, to toss around."

Do you mean that if you are fighting a fire, you can't redecorate?

"Yes, we were about to start a budget process, and had the world been vaguely normal in September and October, then things would have proceeded as they were going to. We had got one already got one thing out of the door with the Gershon report on information technology. We thought let's proceed with that, but lets fold the rest of the razor gang into the ordinary budget process."

As Tanner sees things, his first budget as Finance Minister was about making the easy cuts, "things that didn't require a huge amount of complex groundwork," what economists call low-hanging fruit.

The cuts in his second budget will be more difficult, and by themselves won't look like much.

"It's low-profile work and it doesn't excite much interest, except in Canberra," he says. "But I'm a devotee of that old saying, look after the pennies and the pounds will look after themselves. I'm the guy looking after the pennies."

Just because the budget is expanding, doesn't mean that the budget shouldn't be frugal in the way it spends money, Tanner says.

"I see a central part of my role being to liberate resources that can be dedicated to more valuable purposes - whether in the current climate it's sustaining jobs, sustaining economic activity or whatever."

But he is frustrated that there isn't yet a good way of measuring how good he will be at that job. Finance Ministers are normally judged on the toughness of their first few budgets. The cuts expected in Tanner's first budget were toned down at the request of the Treasurer Wayne Swan who was concerned about the looming economic downturn. The cuts in the second won't be seen in a bottom line that will swell well into deficit in order to keep fighting the downturn.

"The two things actually aren't in conflict. We are very clearly now in the domain of a very substantial deficit. My work is to ensure that whatever the quantity outcome, the quality keeps improving."

"There isn't a way of measuring this yet, but it is something about which I have had initial discussions with my department. The concept is simple: for a total amount of money that the government spend in a given year, how much is devoted to it merely functioning and how much ends up as outcomes?"

"For instance what percentage of tax receipts is used up just in the administering and collection of tax? It's very low, around half a per cent. I know it is difficult and I don't know whether it has been done overseas, but I want to develop a broader measure against which our budgets can be judged."

"A classic area where I think it would be hugely beneficial is in somewhere like the ABC, to get an understanding of what proportion of its resources actually end up directly providing content versus running the organisation. That kind of metric will give you a very good idea, even though it's not capable of being done absolutely scientifically, particularly over a number of years, of whether governments and their organisations are getting flabby or inefficient and whether citizens are getting value for money."

"I try to keep my partisan sledging down to a dull roar, but the Howard government was essentially uninterested in managing government. It tried a few things early in its term and then gave up. I was dimly aware of this in Opposition, but I only became fully aware of it on taking office.

"It essentially created the government as a giant holding company or conglomerate and got individual agencies to mimic private companies. Each had a CEO with very wide responsibility, and virtually all across-government functions, purchasing and so, were abandoned. The end result was massive inefficiency."

The Gershon report, prepared for Tanner by Tony Blair's British cost-cutter Sir Peter Gershon, is one the "consultants reports" that the Opposition bagged in Question Time this week. Tanner says Gershon donated his fee to charity.

"We adopted Gershon's recommendation in full. They give you a good idea of what we are trying to do. Here's just one small positive outcome: The Department of Defence has a history of being a very good purchaser of Microsoft products and getting good deals from Microsoft because they are a big purchaser. We have reached an arrangement with Defence to lead a collective buying effort between all agencies and departments and Microsoft. That is saving us $15 million a year across departments. Microsoft isn't complaining because although its price goes down the cost of dealing with us goes down as well."

"We've decided to allow departments and agencies to keep the savings from that one because they are thinly spread. That's just one small example of where across-government collaboration, provided you don't go too far to a centralist model and try to get an intelligent balance, produces better outcomes."

"It's just a start. We have 45 data centres outside the Defence department. That's 45, wholly devoted to different arms of the Australian government. Individual agencies have been doing their own thing with no attempt to aggregate and deal with sustainability, redundancy, power supplies and so on. It's massively inefficient."

"Gershon estimated that if we develop a whole of government strategy, over 15 years we can save $1 billion - just by being more intelligent in the way we do things."

"We are methodically working through all of these areas; travel, the purchasing of office equipment, property. At the moment individual agencies compete against each other to rent office space, pushing up the price. There is no common standard on how much space an individual employee needs, as there is in the US and the UK."

"What you have is this elegant private sector theory applied completely inappropriately to government and it has produced absolutely perverse outcomes; waste, inefficiency and poor performance."

The Finance Minister is warming to his topic. It may seem a long way from helping those who lost their jobs their jobs this week at Pacific Brands, but it isn't to him. The job he does matters to him, even if much of the work is unnoticed more broadly. The Member for Melbourne is applying himself to making sure government works.

He seems to be enjoying it.

Tanner's quiet revolution

. saving money while spending more

. adopting an all of government approach

. saving $1 billion on IT alone

. extending savings to travel, purchasing

. a "value for money" scorecard

. unveiling savings in the May budget