4.4 Restoring the nation's finances

To return Commonwealth spending and the nation’s finances to a sustainable position will require a commitment from Governments to budget discipline and an acceptance by the community of the consequences.

The nation needs a credible medium-term fiscal strategy that provides certainty over the role of government and fiscal policy in the economy. This entails signing up to a set of fiscal rules that set boundaries around the activities of government while allowing governments the flexibility to implement their policy priorities, but ensuring they do so within a ‘corridor of stability’.

The current arrangements for the operation of the Federation need to be reformed. This includes clarifying the roles and responsibilities and reforming Commonwealth-State financial relations. The Commonwealth will need to quit certain areas and, in return, the States will need access to and control over a more assured revenue base. Duplication between the Commonwealth and the States should be eliminated. New arrangements are also needed for sharing the proceeds of the GST.

Major reforms to the largest and fastest growing areas of Commonwealth spending offer the only real opportunity for managing and restraining growth in overall government expenditure. The Commission has identified reforms to the 15 largest and fastest growing spending programmes to ensure they can be placed on a more sustainable footing.

The government will have to rationalise and streamline many of the things it currently does and in some areas stop doing things completely. This includes rationalising the number of bodies and agencies, ceasing many grant programmes and other ineffective programmes, limiting industry assistance and streamlining other functions.

Government needs to better apply market based and technological solutions to improve the way many government services are delivered. This includes considering opportunities for privatisation, making better use of data and information technology and a commissioning of greater private sector expertise in the design and delivery of services including e-Government services.