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Editorial - Why No Cost-Benefit Study of Towards 2020?

Tuesday October 17, 2006

The ACT Government has failed to do a cost-benefit study of the Towards 2020 Plan despite its own policy in support of such analyses of major policy initiatives and despite the requirement of the Education Act to assess the impact of school closures proposals.

Since it was first elected, the Stanhope Government as consistently supported the use of cost-benefit analysis to assess major policy proposals and new investment projects. For example, in making the Government’s response to the Estimates Committee report on the 2002-03 ACT Budget, the then Treasurer stated:

The committee recommended that it should be standard government practice to undertake a rigorous and independent cost/benefit analysis for significant projects. Arrangements for this are already under way. The Department of Treasury is already developing a standard process for preparing financial and economic analyses of major projects. A major project analysis section has been created in Treasury to work with agencies to improve the quality of financial and economic information provided to government. [Hansard, 27 August 2002, p.2793]

While this response was made in the context of major infrastructure projects, the principle of cost-benefit analysis was to be generally applied to major policy initiatives.

In July, 2002, a report by the ACT Auditor-General on the costs and benefits of V8 car races in Canberra cited a formal response by the ACT Treasury in support of the principle of undertaking rigorous cost-benefit analysis:

[The Department of Treasury] has reviewed the draft report and supports the approach to cost benefit analysis taken by the audit. The approach conforms to good academic standards and professional practice. [The Department of Treasury] agrees on the importance of rigorous and independent cost benefit analysis as a tool in providing good advice to decision makers. This very point is often made by officers of this department in discussions with other agencies. [ACT Auditor-General’s Office, V8 Car Races in Canberra – Costs and Benefits, July, 2002, p.10]

The Auditor-General commended Treasury’s efforts to educate Territory agencies on the importance of rigorous cost-benefit analysis [p.10].

The Treasury policy in support of cost-benefit analysis is well documented. For example, in March 2005, Mr Roger Broughton, Executive Director, Investment and Economics Division of the ACT Treasury told a National Institute for Governance seminar about the importance of conducting cost-benefit analyses to inform government policy formulation [see http://governance.canberra.edu.au/our_work/recent_events/NIG_seminar-summary_March05.doc.

Indeed, it is a key function of Mr. Broughton’s division of the Treasury to “provide financial and economic analysis of policy proposals” and to “assist agencies to improve the quality of financial and economic analysis” [see http://www.treasury.act.gov.au/about/organisation/fig.shtml

The Chief Minister is an advocate of the use of cost-benefit analysis to inform government decision making. He has repeatedly expressed the need for proper cost-benefit analysis to be undertaken on major policy initiatives. Examples include options for managing the Cotter water catchment [Hansard, 9 March 2005, p.753], the Government’s overall water strategy [Hansard, 12 February 2004, p.304], the Summernats, and V8 car races in Canberra.

While Leader of the Opposition, Mr. Stanhope often lectured the then Government about the need for cost-benefit analysis of major policy initiatives. For example, he and Mr. Corbell were particularly critical of the lack of a cost-benefit study on the proposed ACTEW/AGL joint venture [Hansard, 9 March 2000, pp.764, 824].

Only last May, the Chief Minister told the Legislative Assembly that the Government was undertaking cost-benefit analyses of a range initiatives proposed for inclusion in the 2006-07 ACT Budget.

The cabinet is giving detailed and the most rigorous assessment of each of the government’s priorities. In that context it is relying on detailed briefings and advice from across our public service, as one does, on a range of expenditure initiatives and other initiatives that have been developed.

On each significant work, a cost-benefit analysis, case studies and business cases have been developed on a range of new policy initiatives and proposals on efficiencies… [Hansard, 3 May 2006, p.1111]

Towards 2020 was announced as a Budget proposal. However, a cost-benefit study was not been carried out on the Plan, despite the Chief Minister’s commitment to rigorous cost-benefit studies of the Budget initiatives.

How is this contradiction to be explained?

The answer can only be that a comprehensive cost-benefit study would not have produced the answer wanted by the Government. The Government had already made up its mind to support the closure of 39 schools and the partial closure of 5 other schools and it was not prepared to risk subjecting this decision to a rigorous assessment.

Trevor Cobbold
17 October 2006

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