Should Economic Mismanagement Be a Crime?
No – but we do need better safeguards.
Australia should create an independent fiscal sustainability commission, modelled on the best examples from overseas, to provide compulsory transparent assessments of long-term government finances at the Commonwealth, state and territory levels.
Future generations need protecting from failed fiscal management.
The National Anti-Corruption Commission is very clear about what constitutes corruption.
Corrupt conduct includes a breach of public trust, abuse of office, misuse of official information, or conduct that causes a public official to act dishonestly in the performance of their duties.
It is equally clear about what corruption is not. Errors, mistakes, negligence, poor decision making and maladministration are not of themselves corrupt conduct.
That distinction between corruption and negligence is important. Democracies cannot function if every failed policy, poor decision or bad judgment call becomes a criminal matter. Governments make mistakes. Ministers get things wrong. Policies that seem sensible at the time can fail spectacularly. Elections are supposed to be the mechanism through which voters judge those failures.
But given the level of government debt across Australia, in the ACT and Victoria in particular, at what point does poor decision-making become so serious and damaging that an election no longer feels like a sufficient consequence? And we have seen governments re-elected in those jurisdictions basically because the opposition was considered as a worse option.
Businesses face a very different accountability framework. Directors can be held personally responsible for failing in their duties. A company board that repeatedly ignores warnings, accumulates unsustainable debts and leaves shareholders carrying the losses would face serious scrutiny from the likes of ASIC and APRA.
Governments must deal with competing priorities, economic shocks, natural disasters and national security concerns. They cannot be expected to get every decision right.
Still - governments also control resources that belong not just to today’s taxpayers but to future generations.
The recent review of ACT finances by economist Saul Eslake provides an interesting case. Eslake did not accuse anyone of corruption. He did not suggest public officials had acted dishonestly or improperly. Instead, he concluded that the deterioration in the Territory’s financial position was the result of “conscious policy decisions” and was “entirely attributable to policy decisions” made over many years.
So, the level of debt is from amazingly poor decisions - which is not corruption.
Yet if a government knowingly adopts policies over many years that generate structural deficits and long-term financial pressures, despite repeated warnings from economists and auditors, what form of accountability should apply?
Politicians can make decisions today that impose costs on taxpayers decades into the future. By the time the consequences become fully apparent, those responsible may have long since retired. Future generations have no vote in today’s spending decisions, despite being asked to pay the bill.
This creates a large grey area between corruption and ordinary policy failure.
A government does not have to be corrupt to be fiscally reckless or feckless. It does not have to break the law to leave behind unsustainable debts. It does not have to misuse public office to make decisions that future taxpayers will regret. It just has to be uncaring or lacking in the IQ needed.
The answer? Stronger accountability mechanisms. Stronger requirements for governments to explain how today’s spending will be funded tomorrow.
Other democracies have grappled with this problem. Sweden established an independent Fiscal Policy Council, after financial crisis in the 1990s, to publicly assess whether governments are living within sustainable fiscal limits. Britain created the Office for Budget Responsibility to independently scrutinise government forecasts and debt projections. Germany went further, embedding a constitutional debt brake designed to limit structural deficits. These countries recognise that democratic accountability works best when voters have access to independent institutions capable of identifying fiscal recklessness before it becomes a crisis.
Australia has some safeguards. The Parliamentary Budget Office independently costs policies, while auditors-general scrutinise government spending and administration. Yet unlike Sweden's Fiscal Policy Council or Britain's Office for Budget Responsibility, Australia lacks a dedicated independent institution charged with publicly assessing whether governments are maintaining long-term fiscal sustainability. Nor do we have anything resembling Germany's constitutional debt brake.
Our system relies heavily on elections, credit ratings and financial markets to impose discipline after problems emerge rather than institutional mechanisms designed to identify risks before they become crises.
It is time to change that as the future deserves more protection than the hope that the next election arrives before the bill does.
Let’s get our version of those nations’ economic maturity in place ASAP.
The federal government could look very good indeed if it developed and imposed fiscal policy safeguards on itself and on the states and territories. So they don’t have to rescue them at some future time.
Do it before it is too late.