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JOINT SELECT COMMITTEE ON THE PARLIAMENTARY BUDGET OFFICE - 28/02/2011 - Role and functions of the Parliamentary Budget Office

CHAIR —Welcome to the hearing. I know that you are aware of your obligations, which you can confirm before parliamentary committees. You will also of course appreciate that your evidence today is going to be recorded by Hansard and, as you know, attracts parliamentary privilege. We have received a supplementary submission and we thank you for that. It is something that you flagged to the committee when you appeared before us previously. Before we ask you questions did you want to make any further submission to the committee or make any opening statement?

Mr Thompson —I have just a couple of quick comments. The primary comment that I would make is that, as it happens, at the time of the first hearings I was engaged in learning a bit more about some overseas parliamentary budget offices or their equivalent. It was a very useful experience. It would be fair to say that one key message I learnt is that these agencies prepare reports about the future and frequently, in the eyes of the stakeholders, those reports are contentious. They will typically please one side of politics and displease the other side. These agencies live in a regular environment of discussion and controversy simply for that reason alone.

The issue of the size and scope of responsibilities of an Australian PBO is one for the committee to wrestle with. It is not an easy issue but, clearly, there is a spectrum. It ranges from a very modest operation, which could simply deal with policy costings for individual members and for parties, through to much more elaborate models like the one in the Netherlands or the US where they produce quite major benchmark papers which almost set the direction for the country’s finances and economy. As you move through that spectrum, in my view you move through a range of desirable homes for the PBO. If it were a modest operation, then I would stand by my suggestions in my preliminary report that it would be comfortably located in the Parliamentary Library. If it were a larger, more robust body producing major reports, then I would say I have revised my view about where it might have its home. It might be better for it be a more stand-alone body, although I do believe there is merit for it to be seen as part of the Parliamentary Service rather than the Public Service, simply because of the clear accountability that the Parliamentary Service Act has to serve the parliament rather than the government of the day. I will leave my opening remarks at that. I am very happy to take questions.

CHAIR —Thank you very much, Mr Thompson. On reading your supplementary submission, I wondered if you had not had an epiphany between the time you produced your first submission and the second one!

Mr Thompson —If you like, it was very interesting to meet some of the people who either run these bodies overseas or have run them in the past—the way they described how they need to operate, how they are regularly in the spotlight and how it needs to attract a very special class of person. In my view, at that contentious level, it is probably more durable for it to be a body that has reasonable stand-alone capacity.

CHAIR —One almost gets the impression that you are in reverse gear from your original submission. On page 6 of your submission you have outlined three reasons—and they are strong reasons; I am certainly not taking issue with the argument—for recommending the joint select committee considers a stand-alone agency. This is much more forthright advice to us than when you and the Parliamentary Librarian appeared before the committee previously.

Mr Thompson —I refer back to Mr McPhee’s comments. They, like us, had done a lot of reading, had checked out the situation on the net and had one or two phone calls to contacts in Ottawa and elsewhere. It was quite illuminating to go and meet people, not just the people in the offices but people who work alongside, and to learn how they operate.

CHAIR —Did you discuss this issue with the Presiding Officers?

Mr Thompson —Only briefly, just because they have been very busy since I returned.

CHAIR —So you have given a report on the findings of your trip?

Mr Thompson —Yes. They are aware. They have the same content.

CHAIR —Did the Speaker go with you?

Mr Thompson —The Speaker and I visited one of these places together, and that was the Netherlands, the Central Planning Bureau, where we met the director, Professor Coen Tuelings, and his deputy. That was a very useful day. I went to the other offices by myself. I reiterate: I believe the Department of Parliamentary Services can be very supportive and we would certainly be willing to host the body, but I am very conscious of the need for this body to be seen to be clearly independent. I guess the message is—

CHAIR —My point is: you seem much more conscious of that now than you were when you first came before the committee. That is not a criticism. Obviously you have been researching this issue very thoroughly between then and now. It is not necessarily a criticism.

Mr Thompson —I did not come to the last committee meeting. That was my deputy, David Kenny.

CHAIR —Sorry; you, the Department of Parliamentary Services. But you signed the submission.

Mr Thompson —Absolutely—and I take a lot of ownership of that first submission. That was based on the very best information we had as of mid-January. An awful lot of the two submissions are highly compatible with each other, but I must say it was quite interesting to meet these people and learn about the environment in which they operate and the level of debate about there findings, particularly on the major reports that some of them produce.

CHAIR —As Secretary of DPS, have you briefed the presiding officers on the change of emphasis in the two submissions?

Mr Thompson —They are both aware of it, yes.

Mr PYNE —If there were a parliamentary budget office of 25 to 35 people, would it be at all possible to physically have them in this building?

Mr Thompson —The answer is yes and no. I am not trying to be obtuse there. We will have space available in the near future for about that many people, but it would be in the basement. I think that is not appropriate, so in our initial submission—and I stand by this—to create further appropriate space above ground there would be some extra cost.

Mr PYNE —So the answer is really no because nobody really wants to be in the basement.

Mr Thompson —We currently have people in the basement. I regard it as non-acceptable, and that is why we are creating some better ground-level space just beyond the staff dining room. It just is not acceptable. So our view is that with the investment of some money we could create some further above-ground office space. We would probably do that behind the recreation area; there is another space there. Whether we put the PBO in there or put some other people in there to create space closer to the library would be for discussion. I personally think there is merit in them being somewhat close to the library, because quite a range of the queries that do come in, say, to the Canadian budget officer are often better handled by the Canadian Parliamentary Library. I had a similar comment in the US: quite a few of the queries that congressmen would like to ask the CBO and cannot they refer to the Congressional Research Service. So having them reasonably close to each other, I think, has some merit in being able to pass a request from one to the other when it is more appropriate to be dealt with by the other agency.

Mr PYNE —Of course, with email and internet physical association is not quite so important.

Mr Thompson —It is considerably less important—I acknowledge that—but, nevertheless, in the spirit of trying to make this thing work well I think there is merit in it being physically in the parliament.

Ms BURKE —In previous evidence before us from both the Parliamentary Librarian and the Clerk of the Senate there were issues around the fact that the library is no longer its own department. It has been amalgamated into DPS and, therefore, does not have the independence of being a standalone department. There was a view expressed—and we got some additional information in a supplementary—that it would be preferable to take that step back and take the library out so it would be an entity unto itself and host the PBO as a more independent body. I wonder what your view of that is.

Mr Thompson —I think this was something about editorial independence. The decision to bring the library into a larger entity happened around 1990, when the library and the Department of Parliamentary Reporting Services were essentially brought under one management. It took a further step in 2004 when the Joint House Department and those two entities were put into one department.

You would have to check with my predecessors but I certainly play no role at all in the editorial product of the library. I suppose there would be some slight disadvantages in being part of a larger department; equally, there are some advantages. We have a good project management team who assist all of the parts of the organisation with their work, including physical upgrades and IT support. It does reduce our overhead costs. Those are the positives. But I do emphasis that I have no role in the editorial content, and I do not believe my predecessors did either.

Ms BURKE —From a managerial perspective, there would be no drama in carving off the library again or would that create problems for you?

Mr Thompson —It simply moves back into a slightly higher cost structure. In 2003, when the study was done into the reasons for amalgamation, one of the significant drivers was to take some costs out. So I think you have got to be realistic. If there was a split again, then you would be adding some costs back in.

Ms BURKE —Going back to your discoveries overseas, do you think we need a PBO?

Mr Thompson —I could answer it this way. The US one has been well established now and has been in operation for 35 years. I was very privileged to meet Dr Alice Rivlin, who was the inaugural director. She is not young now but she is still very smart. She made the point that when their office was established in the Nixon/Ford era there was a complete breakdown of trust between the executive and Congress. She said that that was the environment in which her office was established. I do not believe we are in that situation at all. There is a bit of robust debate at times, but we are certainly not in that polarised political situation. That said, I can see some significant merit. I think a well structured PBO can throw light onto issues and crystallise issues very well, providing it is well setup and—to go back to Ian McPhee’s point—has a very clear mandate so it knows what it is doing.

Senator MILNE —I have been looking at your report on the various places you had a look at. The concern I have is that the only one of them that really has that very political function of pre-election policy costings and political advice to parties is in the Netherlands. And according to what you have said here, even that is a relatively restricted process. That means that we are in a brave new world because one of the motivations for doing this is to have some capacity for detailed and good independent pre-election advice. Can you just give a little bit more detail on how the Netherlands operates? You say there that they are reluctant to take on the short-term few weeks’ analysis, but they will do long-term analysis and they will give informal advice to political parties. Can you just elaborate a bit more on how that works in the context of where we are coming from—where we want independent costings in the pre-election period?

Mr Thompson —I must say that it is a very well-resourced office for a country of 15 million people. To have this thing called the Central Planning Bureau with 140 people was very impressive. Their principal products for the Netherlands are their regular reports. They have teams of people working on all of their regular cyclic reports. Then as a side service, if you like, they also work with the respective parties to cost various ideas. When the parties wish to fully cooperate, and not all parties do, then they start to build those up into a portfolio of political promises for that party for the next election. Their view was that they were unwilling to turn too many of their resources over into that role and away from their normal month-by-month, year-by-year report preparation. In the Netherlands that seems not to be a problem.

It was quite illuminating to learn that is the way they do it. When we got to the crunch of the election period, we put it to Coen Teulings: how does that work? The answer was they simply do not engage. What they have before the election period is on their website and it is used by the newspapers during the election campaign, but they do not do the last-minute rush that is part of our political landscape—and it appears that they have not ever.

Senator MILNE —Given what you have said, what the office’s role is is going to come down very much to the specific instructions that it is given. Indeed, many of the reports you are talking about are produced in think tanks and other places around Australia anyway. I guess they are in the Netherlands as well.

Mr Thompson —Yes. I have looked at some of their reports—some of the ones that are in English—and some of them are definitely the sort that would come out of either the Productivity Commission or perhaps a university think tank.

Senator MILNE —So there is no real guidance we can get from any of the institutions you looked at that is directly relevant to us in that role of costing election policies of political parties or Independent, non-government members?

Mr Thompson —Not in terms of the peak workload in and around the election, no. I was surprised at that, because some of the literature beforehand led me to believe that that was what they did do, including the Canadian one. But when I got there it was very clear the Canadian office is very small and the staff do a very limited amount of work for individual members. The vast majority of their work focuses on these larger reports. In Canada, though, some of that work is done for various parties by the economics section of the library. If you are a Canadian member of Commons you can go to the library and get some of that service and you would get a better service on that specific costing exercise than you would from their Parliamentary Budget Office.

Senator JOYCE —I have a query. I was looking through your report. Basically Canada has about 15 staff members for about Can$3 million, so that works out at every five staff members costing about Can$1 million. I imagine that would be about the ballpark of what it would cost here. In America there are about 250 staff members for about US$45 million, so they are a bit cheaper but still in the ballpark—about five staff members for US$1 million. We could not make the calculation for the UK as the report says ‘several million pounds’ and I do not know what that number is. What amazed me is that the Netherlands has 140 staff members and it only costs €11 million. Are they half-price there? What goes on there?

Mr Thompson —We were not fully across their salary structure. Clearly at the top level they are paid very well, but lower down—

Senator JOYCE —It seems they are not paid at all; they do it for charity.

Mr Thompson —I do not know. We were surprised about that; that was one question we did not ask them.

Senator JOYCE —Are they full-time staff members or are they people who are contracted out? How does it actually work?

Mr Thompson —For the Netherlands one, certainly some of them come in on a sessional basis to do particular pieces of work. It may be that 140 is a staff total rather than an FTE. All of these agencies do have some capacity to hire experts and/or to purchase modelling because of the very specific issues they are dealing with. It may be that we could find out more from the Netherlands, but some of them may be sessionals.

Senator JOYCE —It did not seem to stack up. Maybe I should have asked the people from the Australian National Audit Office about it. Do you think the cost for Australia would be around the same? After you have set it up and done everything you have to do, if you get five staff they would cost around $1 million a year?

Mr Thompson —Yes.

Senator JOYCE —If America can do it with 45 staff and Canada, which is bigger than us—what is the population of Canada?

Mr Thompson —About 32 million people.

Senator JOYCE —I thought Canada was bigger than that. People keep throwing a figure of 30 around, but wouldn’t we need about the same number as Canada, which has 15?

Mr Thompson —I think it all comes down to what the committee would like by way of products. I have to say—and I think you may have got this when you had your phone hook-up with the Canadians—that the officers there do work very hard but they are deeply concerned about their levels of resourcing. There have been quite public debates about that. The Parliamentary Budget Officer, Kevin Page, made it very clear to me that he believed they needed significantly more resource to do their job.

Senator JOYCE —There was only one office that was interested in pre-election commitments. Did that require a vast amount of more resources?

Mr Thompson —I think that is the point. The Netherlands one does this, if you like, pre-election process throughout the whole electoral cycle—as a party develops a policy they will develop a costing for it—but, as I mentioned before, as they approach the election period they do not gear up and do any significant further amount of work. It is different to what I had understood before I went, but that was the advice they gave us.

Senator JOYCE —I am curious about this. You said the room for it, if we had it at the moment in the building, would be in the basement. Whereabouts in the basement did people have in mind?

Mr Thompson —Our project people are in a couple of areas of the basement. We are trying to move them out; we do not regard the accommodation down there as at all satisfactory. We will be able to start moving them out commencing about May this year, in eight weeks time, as we finish off this extra space beyond the staff dining room.

Senator JOYCE —Those air-conditioning maintenance people corrupt them down there, do they?

Mr Thompson —No, we have various maintenance groups who are based down there but they are up and around the building each day during their work. The ones I am much more concerned about are people doing office work. Their desks and everything are downstairs—and not just downstairs in the spacious high areas; they are in mezzanines. It is a little bit like being in a submarine: you walk in and then you walk upstairs, with very low headroom. One or two of the people here may have been into those spaces. Senator Cameron, I think you have been into one and you would know what I mean.

Senator CAMERON —Yes—

Senator JOYCE —He’s down there getting union membership!

Mr Thompson —So, in my view, if it is to be in this building then this office would need to make some adjustments and find a space. My preference, regardless of whether it is part of DPS, is to have them quite physically close to the Library people.

Senator JOYCE —What happens in that area on the bottom floor that we walk past that generally used to have political posters up when we were in government, or where the monsters were—what did they used to call that area?

Mr PYNE —The aNiMaLs.

Senator JOYCE —What happens in there?

Mr Thompson —That is not our domain. It is part of the executive government.

CHAIR —I believe it was called the Government Members Secretariat during the 11½ years of the Howard government.

Mr PYNE —Is it still called that?

Mr Thompson —It was for the conservative government and now it is for the Labor government.

Mr PYNE —It is called the Government Members Bureau.

CHAIR —No, that is not right. It is actually called the Caucus Committees Secretariat.

Senator JOYCE —Are there any people who actually work in the caucus committees/government secretariat/aNiMaLs place?

Mr Thompson —I cannot vouch for that. There are certainly people in there.

Senator JOYCE —What they do you don’t know? I never knew what they did either. Did you touch base with any of these people about any review processes on the efficacy of the job they do?

Mr Thompson —What is clear about the US one—it was very useful to be able to talk to the founding director—is that it evolved over time. They have progressively adjusted how they have operated, working with a couple of the major budget committees—both the House of Representatives and the Senate committee. What I had suggested in my first submission, and I have reiterated it, is that I do believe if a PBO is to be established for the Australian Parliament we ought to build into the process a review process after, say, three years, because I just think we will not get it all right on day one.

Senator JOYCE —You are allowed to give frank and fearless advice.

CHAIR —A final question from Senator Joyce.

Senator JOYCE —If you had to lift one of these models, which one would it be?

Mr Thompson —Simply because it is the one that is closest to us, I would go for roughly the Canadian one but with more resources. That is the best I can do. And I would then ask this committee to think seriously about whether it should be nested within the Library or whatever. But, yes, the Canadian one is most similar to us, except it is desperately in need of resourcing.

Senator JOYCE —Thank you very much. That is the answer I like, Mr Thompson—straight.

Senator CAMERON —Mr Thompson, I am happy for you to take this notice if you do not have all the information before you. In your third dot point, you outline the CPB and CBO operations. It seems to me that there is duplication with the Productivity Commission. I do not mind taking some resources from the Productivity Commission. Can you just come back to us in terms of whether there is a duplication in the type of work that the Productivity Commission does and what you are proposing in this third dot point?

Mr Thompson —On which page, Senator?

Senator CAMERON —In your submission 4.1.

Ms BURKE —I think that might be our summary of his dot points.

Senator CAMERON —Yes, I am sorry.

Mr Thompson —At this stage, until the role of the PBO is fully defined, we cannot really speculate whether there will be a duplication. But, if you just span the spectrum of Australian agencies, on the one hand, the ANAO might verge just on the edge into what the PBO might do, but the closer one, I suspect, depending on how it is defined, is the Productivity Commission. It tends to be a forward-looking agency which looks into issues and investigates options for issues. That is what these PBOs often do. They look at the economy and consider various options for how the economy might grow or not.

CHAIR —Mr Thomson, thanks very much indeed for attending this evening. Sorry about the delay in your coming to the table, but we do appreciate your assistance to the committee with our inquiry and we appreciate your supplementary submission on these matters.

Mr Thompson —Thank you very much.

[9.17 pm]