Privatising the Sunshine State

On February 10, something almost unprecedented happened in Canberra. At the Council of Australian Governments all the state Labor premiers (and their territory colleagues) agreed with the Liberal prime minister on a national economic reform agenda designed to improve health and education outcomes, increase competition in the energy, transport and ports markets, and reduce the regulatory burden on businesses.

So, with reform supposedly in the air at all levels of government, and the emphasis on increasing competition, what are the implications for state governments - and particularly the Queensland Government, which is the subject of a report I have prepared on the role of government in that state.

Maximising the private sector’s role in providing services that have traditionally been regarded as the responsibility of governments is in the Queensland Government’s own interests - even if it means a smaller government sector.

Providing services through a competitive framework will benefit the consumers - that is, most Queenslanders. Whether assessed in terms of economic prosperity or social well-being, such a framework provides a more efficient and higher quality way of delivering essential services wherever that is practicable.

And because an increased private sector role offers potential for lower taxes and better services, it is difficult to see that any government implementing a pro-private sector role would fail electorally.

A deliberative policy of increasing the competitive environment for service provision can be implemented in two ways: first, by acting directly to improve the performance of services retained within government and second, by taking steps to encourage a major increase in the proportion of such services provided by enterprises outside the government sector.

The direct approach can be implemented by giving effect to the 1996 Queensland Commission of Audit purchaser-provider recommendation that the government:

... strongly separate its role as a demanding purchaser of services … from the role of service provider; that it fund providers only against service outputs or results; and that it ensure that providers face competitive pressures to improve performance continuously.

In short, while the government would retain full responsibility for funding, the actual delivery of major services by the state would be opened to competition from the private sector.

Queensland could implement the purchaser-provider approach over a period, proceeding initially on a step-by-step basis. For example, hospitals policy could start by giving public hospitals greater autonomy and the right (and financial incentive) to contract out discrete services such as pathology and certain types of surgery.

Victoria has already built a major new public hospital under a purchase-provider arrangement, and the government is reportedly moving to implement a similar arrangement to redevelop another major public hospital.

The New South Wales Government also has had a private sector firm finance, design and construct nine schools. According to a NSW Treasury analysis, these schools were built for much less, and two years earlier, than would have been possible under a traditional public sector contract. The contractor has also effectively taken over the administration of the schools for 30 years.