Professor John Quiggin finds fault with Peter Costello's Commission of Audit report findings State Treasurer Tim Nicholls receives the Commission of Audit report from former federal treasurer Peter Costello. ONE of the central policy prescriptions in the recent audit of Queensland finances is little more than "wishful thinking," according to an analysis of the 1000-page document conducted by University of Queensland economist Professor John Quiggin. The unrealistic elements he refers to are long-run productivity improvements when it comes to public sector delivery of front-line services such as health and education. Specifically, the Costello audit concludes productivity improvements in government service delivery of about 1 per cent a year are needed to maintain a stable fiscal position. This, the report says, is equivalent to reducing the unit cost of service delivery by about a third by 2050-51. Quiggin argues there is a limit to how much extra productivity you can milk out of human services. In short, unlike introducing more robotics into a car plant, bigger drag-lines at coal mines or more sophisticated computerisation, automation and outsourcing of payroll systems (which, as we learnt at great cost, does not always produce the most optimal of outcomes), front-line service delivery is a much more challenging area in which to drive productivity gains. Advances in medical technology, for example, often mean there is a requirement for even more surgeons, specialists and nurses performing ever more complex procedures. Schools - if we want to maintain education standards - still need teachers teaching manageable class sizes. Buses still need drivers and have to obey speed limits, and police services - short of introducing Robocop - still need men and women in uniform on the beat. As Quiggin notes, "because these services are delivered by skilled workers, with limited opportunities for substitution of capital or information technology, the cost of these services, relative to that of goods and services in general, has risen over time." This is not rocket science and, in economic terms, was first dissected by Princeton professors William Baumol and William Bowen some 50 years ago in a landmark study, Performing Arts: The Economic Dilemma. This noted that the "cost" of staging Richard III or Macbeth - or indeed the cost of most "arts" - is the same today as it was hundreds of years ago in that we can't perform the plays, the ballets or the symphonies with less. After all, downsizing Banquo's character out of Macbeth to boost cast productivity doesn't really work, in much the same way you can't milk more productivity out the Berlin Philharmonic Orchestra by asking them to play Mozart's Requiem faster. In this context Quiggin refers to Costello's productivity panacea as a restatement of the problem. He says "despite extensive efforts all around the world over many decades, it has proved impossible to increase productivity growth in the human services sector at a rate sufficient to prevent rising costs." The bottom line is there's a limit to how much a stone will bleed and at some point a choice must be made between either being a low-tax regime, or one with the sort of modern services that people expect today, because the two together are usually incompatible. Quiggin notes that, for years, Queensland managed to support its low-tax, balanced-Budget position by skimping on services. Until relatively recently we had one year less of schooling for our children than other states, for example, and successive reviews in the past decade or so have found areas such as health (Forster inquiry) and child protection (Forde inquiry) to have been badly underfunded. Cost cutting via staff reductions, sale and leaseback deals and outsourcing can, Quiggin says, yield apparent savings in the short run, but higher costs long term. As an example, pressure to restrict growth in the number of doctors over the 1980s and 1990s, in the hope of cutting costs, led to severe shortages by the early 2000s. Responses included a relaxation of entry standards for overseas doctors ... and a high-cost expansion of medical schools. If the community wants continued improvement in publicly provided services, it must pay for those improvements.