John Langoulant: Treasury lacked the clout to keep WA in the black

By Stephen Easton

February 21, 2018

Correction: this article originally stated, incorrectly, that John Langoulant was the head of the WA Department of Treasury under the Barnett government. He in fact left the department in May 2004, four years before the Barnett government was elected. 

The former Western Australian government put the state deep into the red through “poor governance culture, lack of financial discipline and unsustainable spending decisions”, according to a politically charged inquiry by a former head of the state’s Treasury.

The report of the inquiry led by John Langoulant, who was under-treasurer from 1995 to 2004, sums up the state’s slide deeper and deeper into debt and deficit as the Barnett government failed to cut back its big spending in line with worsening economic conditions, from factors like the global financial crisis and a decline in the iron ore price.

“To avoid a repetition of this financial ‘perfect storm’ which has proved so damaging for the state’s finances, the capacity and status of Treasury within the public sector must be restored,” the report states.

“And future premiers and ministers would do the state a favour by paying greater heed to Treasury advice.

“Overall, Treasury lacked the clout – partly due to the position of Treasurer becoming a revolving door – to impose a more disciplined stance within the government. Consequently, the budget deficit and state debt started to blow out. The coveted AAA credit rating was lost.”

A point in his presentation slides places his inquiry into a long tradition — following a change of government, it’s “common” to “take stock” of the situation through a frank and far-reaching public inquiry, he suggests.

This one sets a pretty high bar for the current public service and ministry. Even if they can faithfully implement the exhaustive list of recommendations, the report might come back to bite Premier Mark McGowan, as WA reporter Gary Adshead suggests.

A key theme in the former under-treasurer’s assessment is that the department was routinely ignored. When the past government came to power in 2008, the economy was strong but the department was already warning of storm clouds on the horizon.

Langoulant writes that “the seeds for future problems were sown with generous public sector pay rises” early on, amid big spending on infrastructure to support the state’s expanding mining industry and booming population.

At state level, of course, where all the teachers, doctors, nurses, police officers, firefighters and so on are employed, public sector human resources costs are a very significant part of the budget.

While they were enjoying pay rises, Langoulant says the public sector “lacked a sense of common purpose” and the quality of financial information in cabinet submissions dropped. He adds that “capability gaps emerged in the public sector especially around project planning and evaluation” among a range of key findings.

Langoulant acknowledges “there was a lot going on which made the environment challenging” between 2008 and 2017, but after looking over 31 projects and programs, he backs up the need for major public service reform.

The new report adds to the massive to-do list provided late last year in the Service Priority Review and notes “some commonality” with the SPR recommendations.

“Some of the reviewed projects weathered the storm well and some had satisfactory outcomes,” says the former Treasury boss. “But there are underlying systemic issues that mean that most of the projects were subject to an environment needing improvement and reform.”

The list of recommendations is incredibly long, and the full report is spread over three volumes, the first of which concerns overarching findings and whole-of-government recommendations. These include “simplify and strengthen procurement practices” and “increase government’s oversight of contract development and contract management” as well as a call for more rigorous performance reviews of state-owned enterprises and “larger” public-sector entities.

Langoulant also calls for “formal evaluation of agencies’ performance on major projects” and more training opportunities for MPs and public servants in governance, business case analysis, risk management, procurement, project and contract management, negotiation and commercial and financial management.

He tells Treasury where it needs to develop its staff, improve its management and update protocols, and makes recommendations to improve the “culture and attitude” of the public service:

  • Improve transparency on the progress with major projects by requiring continuous disclosure;
  • There must be stricter adherence to Cabinet submission protocols, especially the necessity to consult across agencies in preparing submissions;
  • There must also be stricter compliance with the Strategic Asset Management Framework, including by Government Trading Enterprises;
  • Portfolio management practices must be introduced across the Transport agencies;
  • Regular reviews of the health sector’s performance (building on the current review) must be instituted;
  • Central agencies must be reinstated as whole-of-government policy makers, decision makers, influencers, educators and leaders;
  • Collaboration must be facilitated across public sector leaders; and
  • Capability in commercial and financial skills, negotiation skills, project management disciplines, procurement, and contract management must be built.

He adds that more “discipline” is required in cabinet submissions, benefits realisation reports on major projects, setting and achieving financial targets, risk management and steering committees for major projects and public works procurement, as well as data and records management.

The second volume details what could be learned from specific projects and programs.

McGowan is obviously relishing the opportunity to blame his predecessors, whom he referred to as “a grossly incompetent and financially reckless government” in a statement.

“The lessons learned from this irresponsible period of government in WA must be acknowledged by all relevant parties, to ensure the mismanagement of the state’s finances and major projects and programs is never repeated,” the Premier said.

“For those responsible, the only honourable thing to do now is to reflect on the lessons learned and apologise to the people of Western Australia.

“The damning report provides a clear guide to my government and future governments.

“My government will continue to strengthen governance, accountability, transparency and focus on the key economic and social benefits of government decisions when dealing with taxpayers’ money.”

Time will tell if those words come back to haunt him, as they quite often do in politics.

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