While the Australian Government Future Fund has proven highly successful unfortunately the returns are swallowed by previous governments fiscally reckless decisions on treatment of Civil Servants perks and benefits of employment. However, the use of Sovereign Wealth funds has proven effective world wide in generating funds for Government services.
Manage Australia recommends the creation of the following funds to help cover Governments core service responsibility’s;
- Welfare – 2016/17 expenditure $158.61B*
- Health – 2016/17 expenditure $71.41B*
- Education – 2016/17 expenditure $33.67B*
- Defence – 2016/17 expenditure $27.16B*
Of course under the current trend of budgetary deficits ($16.6B in 2016/17), burgeoning debt, and debt repayments, this will be a very difficult target to achieve. Manage Australia accepts there will be non-core government service cuts required, as well as stringent budget control (see post here) to eliminate waste, and so called “middle class welfare” will need to be significantly scaled back.
The model for the funds will be the allocation of budget surpluses to funds listed in order. A Target of $20B surplus to be deposited in the funds, in order, per year up to:
- Welfare – $200B ($20B Years 1 to 10)
- Health – $100B ($20B Years 10 to 15)
- Education – $60B ($20B Years 15 to 18)
- Defence – $60B ($20B Years 18 to 21)
Interest from the funds will be distributed 50% to offset the budget and 50% to be reinvested into the fund.
To protect the funds from potential raiding from future governments we recommend a change to the constitution to protect the funds in perpetuity.
Manage Australia recognises this is a difficult policy to implement, with many self-interested bodies likely to object. However, we believe the general public will recognise the long term benefits of such a policy, despite the potential short term discomfort.
It is clear the current practice of budget formation and management within Government is both clumsy and uncontrolled in any realistic sense. Manage Australia recommends the use of Zero-based budgeting to regain control and management of the governments budget process.
Zero-based budgeting (ZBB) is a repeatable process that organisations use to rigorously review every dollar in the annual budget, manage financial performance on a monthly basis, and build a culture of cost management among all employees.
The ZBB process is based on developing deep visibility into cost drivers and using that visibility to set aggressive yet credible budget targets. The annual budgeting process does in fact start from zero and is very detailed, structured, and interactive in order to facilitate meaningful financial debate among managers and executives.
Throughout the year, multiple owners are tasked with managing performance and continuing the healthy debate on cost management. Through new system and process controls, and aligned incentive programs, all employees make cost management a part of their daily routine.
In order to achieve this 3 important cost elements need to be captured at a micro level
- Forecasts – How much do we anticipate the cost of the element will be on a monthly basis. This forms the basis for the budget bid. It will be revised on a monthly basis as Actuals are realised.
- Approved Budget – This is the considered amount of funding allotted to the cost element.
- Actuals – A tracking of funds on a monthly basis to inform managers of performance vs forecast.
Some may argue that is process exists within government organisations and departments now, this is half true. Two key elements are missing from the current practice:
- Granular low level monitoring – Government deals in aggregate costs and details pertaining to those costs are invisible, unmeasurable and therefore unmanageable.
- Yearly Ground Up budget formation – Government works on a “Last year + x%” method of estimating (forecasting) budget requirements, this method fails to review the relevance of cost elements in achieving the governments stated goals.
Manage Australia believes that these reforms would result in not only a much more effective and efficient benefits driven Government, but will remove redundant Government budget burdens resulting in less cost for government overhead for the Australian Tax Payer.