Boring auditors-general our last defence against dodgy governments

You may be appalled by the ever-declining standards of propriety as the two main parties chase each other to the bottom of the barrel, putting career advancement ahead of their duty to voters. But recent events show our courageous auditors-general haven’t lost their commitment to upholding honest behaviour.

Which, particularly in the absence of a federal independent commission against corruption, is one thing to be thankful for.

Just last week in NSW, state Auditor-General Margaret Crawford issued a highly critical report on the Stronger Communities grants program established by the Berejiklian government before the 2019 state election.

The report said there was “little or no [defensible] basis” for the selection of grant recipients, with 95 per cent of all grant money flowing to 22 local councils belonging to Coalition electorates. These decisions were made by the former premier and her deputy, Gladys Berejiklian and John Barilaro.

This is reminiscent of federal Auditor-General Grant Hehir’s equally critical 2020 report on the “sports rorts” grants made by the Morrison government before the 2019 federal election. He found that the Australian Sports Commission’s carefully evaluated recommendations for grants were overridden by the minister’s office.

More than 61 per cent of the grants awarded failed to reach the commission’s merit cut-off. Rather, the grants went predominantly to sporting organisations in marginal electorates held by the Coalition.

When announcing tax cuts, Liberal politicians in particular love making speeches about how they’re only returning taxpayers’ own money. But in their attitude to pork-barrelling – it’s not illegal and everybody does it, in the immortal words of Saint Gladys – pollies on both sides act as though it’s really their money, to be spent as best suits their interests.

We’d know much less about their misuse of our money were it not for our auditors-general. The pollies want to keep it dark, but they can’t stop the auditors doing their duty. Scott Morrison was so grateful to the Australian National Audit Office he cut its funding. (More proof he regards taxpayers’ money as his own.)

As an accountant who was glad to escape auditing and become a journo, I’m pleased to acknowledge our debt to the auditors-general’s diligence. But I’m particularly impressed by the fearless Crawford’s blow against that great blight on budget honesty, “creative accounting” – using loopholes in the rules of public accounting to make the budget balance look better – or less worse – than it really is.

Some years ago, some bureaucrat in the NSW government (I doubt if any pollie could have come up with it) got the bright idea of making the budget look better by transferring the state’s railway assets to a new off-budget body, the Transport Asset Holding Entity.

This way, the cost of additional annual spending on rail infrastructure could be removed from the budget and treated “below the line” as an equity investment in a government-owned business. But this turned into an almighty and long-running battle between the state Treasury and the state Transport department.

Treasury prevailed and the Transport boss was dismissed without explanation. Enter the Auditor-General. Crawford declined to issue an audit report for the government’s 2020-21 accounts until she was satisfied all was in order.

In particular, she required evidence that the new holding entity was genuinely independent of the government and a genuinely profitable business. This would require higher annual payments from the budget for the use of the rail assets, thus reversing the engineered improvement.

Treasury delivered that evidence on December 23, allowing Crawford to issue an unqualified audit report about three months’ late. Soon after, Treasury secretary Mike Pratt, a former banker, announced his return to the private sector.

In another report last week, Crawford accused Treasury of obstructing her investigation into the holding entity by dragging its feet, withholding critical documents and overestimating the expected budget benefit from the transaction.

NSW Treasury’s reputation for probity has been damaged by evidence about the imbroglio given to a long-running parliamentary inquiry. Treasury regularly struggles to extract full and timely information from other departments. Now it has given them a master class in misbehaviour.

The parliamentary inquiry’s hearings have also damaged the reputation of KPMG – one of the big-four auditing firms moving into the more lucrative field of consultancy – which was revealed to have given opposing advice to Treasury on one side and Transport on the other.

The new NSW Treasury secretary is the highly experienced state and federal econocrat Dr Paul Grimes. Grimes has the distinction of having been sacked as head of the federal Agriculture department by Barnaby Joyce.

Joyce claims to have sacked him to show who was boss. It’s easier to believe that “a relationship of strong mutual confidence” between them wasn’t possible. In any case, the era of NSW Treasury being run by itinerant bankers seems to be over.

The holding-entity budget fiddle has its parallel federally. Both sides of politics have exploited a loophole in the definition of the budget balance introduced by Peter Costello’s Charter of Budget Honesty in the late 1990s.

The former Labor government used the loophole to stop its massive spending on the National Broadband Network from worsening the budget deficit by treating it “below the line” as an equity investment in a new for-profit business.

The present government is using the same trick to hide spending on its Nationals-inspired inland freight railway from Melbourne to Brisbane. A profitable business to be sold off at some future date? I think not.

There was a time when Yes, Minister was a reasonably accurate depiction of the relationship between a minister and his department head. But that was in Bob Menzies’ day. These days, the term “permanent head” is hardly apposite. Department heads have renewable fixed-term contracts, but it’s relatively common for prime ministers and premiers to lop off the heads of those who displease them.

When Tony Abbott sacked several department heads on coming to office in 2013, he was following the precedent set by John Howard in 1996. If the objective was to discourage unwelcome advice from bureaucrats – “Sorry, minister, that would be contrary to the Act” – it seems to have worked a treat.

So, how come our auditors-general are still so diligent in telling us when ministers have been playing ducks and drakes? Auditors-general are statutory officers appointed by the governor or governor general, and report to the parliament, not cabinet. They’re appointed for non-renewable eight or 10-year terms, and can’t move on to another government job. It’s a terminal appointment.

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Our media roasts old chestnuts

If a genie appeared from a bottle and offered me one wish, I'd choose to be a columnist on a major newspaper. So I guess you could say I love my job. But there are times when I feel compelled to warn people to be careful about what they read, hear and see in the media.

Many people assume the media give them a representative picture of what's going on in the world beyond their own experience. But this is a misunderstanding of the role of the news media and the nature of "news".

The media select from all the things happening in the world only those things they consider "newsworthy" and thus worth drawing to our attention. What is newsworthy? Anything the media believe their audience will find interesting and nothing they fear the audience will find boring.

What's interesting? Anything unusual. But also anything threatening. It's perfectly clear that people find bad news more interesting than good news, which is why the media give prominence to things that are going wrong and say little about things that are going well.

Most of what's happening in the world is highly predictable and terribly ordinary. This means much news is selected because it's unrepresentative. So there's a high risk it will leave people with a mistaken impression of what's happening in the world.

Journalists like to believe everything they report is new. In truth, it's often just a new example of a familiar story, one the journos know the audience loves to hear again. Sometimes a new, offbeat angle is ignored so the story can be forced to fit a tried-and-true formula.

A lot of news is selected because it will appeal to the audience's prejudices or stir people's emotions in the way they like to be stirred. Consider some recent examples from my field of economic news.

There has been much indignation over the Keneally government's decision to change the tax on poker machines in hotels, with suggestions of undue influence by the Australian Hotels Association. About 60 per cent of hotels with pokies - those that don't make much out of them - will now pay less tax or even no tax.

You have to read the reports carefully to discover the changes are actually "revenue neutral", meaning the savings to the 60 per cent of hotels will be exactly offset by the higher tax paid by the remaining 40 per cent, leaving the government's total revenue unaffected.

Rather deflating of the righteous indignation, don't you think?

The media make no pretence of being bound by the scientific method. Economists are always being reminded not to draw general conclusions from anecdotal evidence rather than economy-wide statistics.

But the media are tellers of stories. They're the industrialised equivalent of cavemen sitting around the fire at night swapping yarns. The telling of stories about other people meets one of our most primitive human needs.

What it doesn't do, however, is give us an accurate picture of what's happening in the world. Take all the stories we're hearing about waste in the Rudd government's program to stimulate the economy by constructing a new building at every primary school.

News gathering is selective. People with complaints of waste - justified or otherwise - have had no trouble getting publicity. People without complaints don't bother approaching the media. And where reporters have encountered people saying everything was fine, these facts would have been ignored as "not news".

There have been enough anecdotes to convince me waste has been a significant problem. The real question is: how significant? What proportion of schools has experienced wastefulness? What proportion of the government's spending has been wasted?

No number of examples of alleged waste can answer these questions. What they can do is cause people who don't understand the biases involved in news gathering to gain the impression "the waste has been huge" or even "all that money has been wasted".

The one thorough report we've seen so far came from the federal Auditor-General. It was critical, but far from damning. One of his findings was that 95 per cent of school principals agreed they were confident the funds "will provide an improvement to my school, which will be of ongoing value to my school and school community".

Every year since 1997 the Reserve Bank has published an annual survey of the fees banks charge to their business and household customers. And every year the media turn the survey results into the same much-loved story: huge increase in the fees banks rip from you and me.

This year, however, the story tended to be relegated to the business section, though the same formula was used: huge increase in the fees banks charge businesses.

You had to read the reports carefully to get the real story: last financial year the fees the banks charged households grew by 3 per cent (the lowest increase since the survey began and far less than the 8 per cent increases in the two previous years), whereas fees charged to business leapt by 13 per cent (far more than in the two previous years).

Most of the growth in fees collected from households came from charges paid by the greater number of people choosing to break their fixed-rate mortgage contracts, but this was largely offset by a fall in banks' income from transaction and account-keeping fees. Much of this was explained by the banks' offers to waive fees to people who made regular deposits, part of their greatly increased competition to attract deposits.

By contrast, most of the huge growth in fees collected from business came from higher fees to existing customers now considered to be more risky and higher fees on undrawn overdrafts.

The story no one thinks worth writing is that since the global financial crisis, the banks have gone easier on their household customers but harder on their business customers.

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