STATE governments in eastern Australia are struggling financially. Economic slowdown following the global financial crisis has hit GST payments and state taxes.
Yet demand for basic services - education, health, public transport, roads, police and community services - continues to rise, mainly because of population growth. So state government debt has been rising.
We have had squeezes like this in the past, but this time around things are different. Conservative governments are using the financial crisis to reform the public service.
Six things are happening.
First, eastern state governments are cutting budgets. Then last week the Queensland government announced it would shed 13,000 public servants. This follows the announcement in June of around 10,000 public service job losses in NSW. Then last week the NSW government announced cuts to education funding totalling $1.4 billion. The government school sector will be hit hardest.
Second, government departments are being dismantled wherever possible. In NSW, health is being carved up into local health boards. TAFE institutes will become autonomous commercial enterprises. Individual schools will have more responsibility for staffing and budgets.
Third, more public services are being outsourced: the transportation of prisoners, maintenance of railways, operation of water purification plants and the provision of family and community services. Public housing is increasingly operated by independent social housing providers.
Fourth, government businesses that turn a profit are being privatised. The container wharves at Port Botany go soon. The electricity distribution network - the towers, cables, poles and wires, valued between $29 billion and $35 billion - will be next. The push to privatise prisons will continue. Non-metropolitan rail services are being looked at for sale as franchises, just like Sydney Ferries.
Fifth, internal government services are being set up as fee-for-service businesses. Specialist agencies will supply IT, HR, OH&S, financial and legal services across clusters of public service portfolios on a contractual basis. It is possible these agencies will then be sold off to multinational services companies.
Sixth, state treasury is rising above all other departments to become the Fat Controller. Treasury increasingly sets the parameters for spending. Steering funds into budget surpluses and debt repayment takes priority over public transport, education and health needs.
The state's AAA credit rating must be maintained. Thereafter, financial modelling by the treasury determines what gets done and by whom.
The evidence for these changes is found in a recent 425-page report by the NSW government's Commission of Audit. It's called the Schott report, named after Kerry Schott, the former head of Sydney Water and before that a leading treasury official.
The commission's members were lawyers, accountants and a small group of mandarins with a history of loyal service to conservative governments.
The report sets out a breathtaking reform agenda, much of which is already under way. Sure, there are many good ideas in the document for getting better value from our public service. But the document goes further than one of those internal government documents written by a Sir Humphrey.
Instead the commission's report lays out a radical political manifesto. It reduces complex public needs to simple formulas. It shows how treasury can convert government priorities into measurable outcomes and how these can be written into delivery contracts for devolved government businesses and private providers.
The days of the old government departments with head offices and career bureaucrats in charge of civic life are numbered.
Once we were citizens. Now we are customers and clients.
The Hunter Region has more than 40,000 public servants.
Nearly 60 per cent are in state government departments such as health, education, police and prisons, and in state-owned enterprises such as Ausgrid and Hunter Water. Nothing much can happen in our region without the daily presence of the public service. Our economy would collapse in chaos without a public service turning up every day to keep order.
Likewise there would be no such thing as civilised life without a public service responsible for organising education, health, police, criminal justice, community services, water, power, roads, public transport, and so on.
The two main reasons we pay taxes are to provide income support for the needy and to fund the public service and the infrastructure it operates.
There are good reasons to make sure our taxes are spent well. Efficiency in the public service is always a good idea. But tearing the public service to pieces is something else. We should be watching our government's management of the public service with greater interest.
Phillip O’Neill is professor of economic geography at the University of Western Sydney.