Category: Economy

  • John Menadue. Budget repair and private health insurance.

    Readers of this blog will be aware that I have been expressing concern about the serious consequences of the government subsidy costing $11 b. p.a. for the private health insurance industry. This subsidy has serious budget consequences:  it is skewed in favour of high income earners; it has not taken pressure off public hospitals; it has underwritten a dramatic increase in private specialist fees; it penalises country people who have very limited access to private hospitals; it weakens Medicare’s ability to control prices; it’s premium increases for over a decade have been at three times the rate of CPI increase and steadily takes us down the disastrous US health path.

    Yesterday, the Balanced Budget Commission of the Committee for Economic Development of Australia (CEDA), outlined various options to increase revenue and to reduce outlays

    . In its options, CEDA suggested ‘removing the private health insurance rebate exemption’. In my blog of 19 November, I estimated that the government loses about $3 b. p.a. as a result of the revenue foregone through exemption from the Medicare levy surcharge.

    CEDA also suggested ‘cutting the private health insurance rebate’. In my blog, I estimated that the cost of that rebate in the last budget was $6.3 b.

    The CEDA Balanced Budget Commission which made these recommendations includes Paul McClintock, former Howard government Secretary of Cabinet; John Edwards, Reserve Bank of Australia board member; Professor Rodney Maddock from Victoria University; Michael Keating, former Secretary, Prime Minister and Cabinet and Finance; Terry Moran former Secretary Prime Minister and Cabinet,Ian Watt,former Secretary Prime Minister and Cabinet and John Langoulant, former WA Under-Treasurer.

  • Ian McAuley. The government says that tax cuts are good for workers!

    Arthur Sinodinos’ suggestion of a cut to the corporate tax rate doesn’t seem to be the smartest way to start an election campaign.

    For a start, it’s not clear how such generosity would be funded. Earlier this month there was a flurry of excitement when iron ore prices rose. For a few days the idea that higher commodity prices might boost the government’s tax revenue was getting kicked around. But that commodity price rise was short-lived.

    Even conservative economists don’t necessarily call for a cut in corporate taxes. They believe that if the government can find any spare cash its priority should be to reduce the budget deficit.

    Other economists, who advise against haste in cutting the budget deficit, suggest that any increased spending should be directed to economic areas neglected by the Howard and Abbott governments – education, transport and communication infrastructure, and environmental repair.

    Contrary to the claim of the Business Council of Australia that our 30 per cent corporate tax rate makes Australian companies uncompetitive, our effective tax on profits is much less than 30 per cent because of dividend imputation, which credits the investor receiving dividends with company tax already paid. An investor in a company distributing half its profits as dividends would be facing an effective tax on profits of only 15 per cent, one of the lowest among all developed countries.

    Of course imputation is available only to domestic investors, and it’s hardly surprising that the strongest voices for a corporate tax cut come from those representing foreign investors. Our “open for business” approach to foreign investors, however, has hardly been an economic blessing. The exchange rate escalation associated with the mining boom has wrecked many trade-exposed industries (most notably our car industry). And we are now paying the price of dependence on foreign investment as we see profits from the mining boom go out of the country. That’s why, while our per-capita GDP is showing modest growth, our per-capita gross national income (GNI) – a more accurate indicator of living standards – is going backwards.

    Furthermore, as is becoming abundantly clear thanks to the Senate’s inquiry into corporate tax avoidance, for footloose multinationals our corporate tax rates have about as much meaning as a speed limit sign on an outback road.

    Perhaps Sinodinos is moved by compassion for the Liberal Party’s corporate sponsors, because as any stock exchange investor (direct or through superannuation) knows, corporate profits have been sluggish over the last few years. As a share of GDP corporate profits have fallen from 26 per cent in 2008 (before the GFC crash) to 23 per cent now.

    But we need to put that into a longer perspective, and below is a graph of the corporate profit share of GDP over the last 55 years. It has simply fallen back the level it had over the time of the Howard-Costello government, and even that was much higher than its level in the 1960s when our economy was growing very strongly.

    Also notable in the same graph is the fact that financial corporations – banks and insurance firms – are doing very well.  (Dbl click on image to enlarge)

     

    ProfitsGDPbig

    Sinodinos’s public argument for a corporate tax cut isn’t based on generosity to struggling corporate executives and foreign shareholders, however. Even the Murdoch press would baulk at putting a pro-Coalition spin on that line.

    The basis of Sinodinos’s argument, one commonly put by those who still cling to a belief in “supply-side economics” is that lower taxes allow companies to retain more of their earnings to invest in new ventures, thus fuelling economic growth and providing well-paid employment.

    When that philosophy was pursued in America in the name “Reaganomics” in the 1980s it failed – its consequences are still being felt in the American economy – and it is even more likely to fail in Australia in 2016.

    In our present situation, although profits are down a little, companies are awash with money, and they don’t know what to do with it. Lacking any investment plans they are simply returning it to shareholders.

    The Reserve Bank has pointed out that publicly-listed companies are now paying out more than 70 per cent of their profits as dividends, which means they are retaining less than 30 percent for investment. That’s extremely high by Australian historical standards and by world standards. In addition, some companies are using share buy-backs and other means to return capital to investors. And Australia’s banks, rather than lending to business, have been raising capital to strengthen their balance sheets, essentially taking money out of circulation (once they have generously looked after their shareholders and executives).

    All this points to a lack of confidence, and another undeserved handout isn’t going to restore it. In the present climate some of that handout would go to foreign investors (John Daley of the Grattan Institute estimates that leakage would be around 50 per cent), some to corporate salaries, and, of course, some to corporate entertainment and other boondoggles. Whatever domestic investors gain would be lost in lower franking credits.

    Tax competition – that is the practice of governments using promises of low tax rates to bid for business – is a race to the bottom, generally resorted to by countries that don’t have much else to offer.

    If the government wants to attract real investment – the kind of investment that results in economic growth and well-paid employment – it should attend to the weaknesses in our economic structure. It should raise taxes to invest in education and infrastructure; it should impose a price on carbon and lay out a clear plan for reducing greenhouse gas emissions and transforming our energy-intensive industries; it should tax capital gains so as to discourage short-term speculation (as was the case before 1999); and it should close off tax provisions that divert personal savings to an emerging real-estate bubble.

    These measures should all have been on the agenda of the promised public debate on tax reform. Instead, we’re having an election that will be based on a take-it-or-leave-it budget.

    This article was first posted in New Matilda on 21 March 2016.

     

     

     

     

  • Michael Keating. The Outlook for Housing and Labor’s Tax Proposals

    Since the collapse of the mining boom, housing investment has been an important driver of the Australian economic performance. Furthermore, notwithstanding the rapid growth in superannuation balances, housing still accounts for over half of the wealth of Australian households.

    In these circumstances it is important to have an accurate appreciation of the likely outlook for housing, and what difference – if any – would result from Labor’s tax proposals to substantially reduce the scope for negative gearing for housing and to increase the taxation of capital gains. So far, the only modelling has been by the consultancy firm, BIS Shrapnel, and as has been widely observed, this modelling has been a source of confusion and propaganda, and certainly not of enlightenment.

    Some facts about Australian housing

    In Australia housing is a major source of capital gains, and very much a preferred vehicle for investment. Indeed, in the last 35 years since 1980, Australian house prices have risen faster than in any other developed country. Although prior to the Global Financial Crisis, there were a few other countries that experienced faster rises in their house prices, house prices in those countries have since fallen, and now over the whole 35-year period, Australia has experienced the fastest rate of price increase. Furthermore, the data for the last few years indicate that Australia’s relatively fast rate of increase in housing prices is continuing.

    On the other hand, and despite a strong preference for home ownership, housing appears to be less affordable for the typical Australian household than in other countries. For example, Australian house prices now represent a 43 per cent higher share of households’ incomes than the past 35-year average, and this currently high level of unaffordability is higher than in other countries (See Table 1). Equally house prices relative to rents are presently 63 per cent higher than their long run average (Table 1). This effectively means that the rental return on investment in rental housing is currently very poor – a gross return of only about 3 per cent in nominal terms, from which expenses such as maintenance rates, etc. have to be deducted. So unless there is a strong possibility of further price rises and consequent capital appreciation, rental housing is not a good investment. Again in this respect Australia is an outlier compared to other comparable countries.

    Indeed, some years ago the IMF and the OECD reached the conclusion that the Australian housing market was over-priced, and they both sounded warnings about the risks this over-inflation might pose for the stability of the Australian financial system. The Reserve Bank, however, has traditionally been somewhat more sanguine – and has largely been proved right, at least so far. The RBA points to supply constraints regarding available land, both for urban renewal, and for further urban expansion, and how this shortage of supply of dwellings has up-held the market. In addition, Australian housing debt is only 28 per cent of housing assets, and so even a major fall in house prices would not of itself affect the security of the loan materially. Nevertheless, the RBA has on occasions in the past expressed concern about the extent to which the investment incentives created by negative gearing have contributed to the possible over-valuation of housing prices.

    Table 1

    Measures of Housing Affordability

    Average Annual Nominal House Price Growth % Average Annual Real House Price Growth % House Prices relative to average income (long-term aver. = 100) House Prices relative to rents (long-term average = 100)
    Australia 7.43 3.11 142.8 163.1
    Britain 7.07 3.41 126.9 146.2
    Germany 1.75 -0.36 89.8 91.1
    Japan 0.50 -0.42 69.6 73.4
    Spain 7.08 2.16 104.7 111.7
    United States 3.91 0.72 91.9 107.7

    Source: Economist global house prices. Data from Q1 1980 to Q1 2015.

    The Impact of Labor’s Proposed Tax Changes

    At present capital gains are taxed after they are realised with the amount of that gain subject to taxation being discounted by 50 per cent. There is general agreement that only real gains should be taxed and that any increase in the asset value due to inflation should not be subject to taxation. Administratively this is most simply achieved by the application of this 50 per cent discount. However, experience suggests that this discount rate is excessive, and the Henry Report into Australia’s Future Tax System favoured a lower discount rate of 40 per cent. By comparison Labor is proposing a discount rate of only 25 per cent, which looks a bit low relative to the recent record of inflation.

    Labor’s proposed changes to negative gearing would remove negative gearing for all non-business related investments except for newly constructed dwellings. This removal of negative gearing would also only affect new investments, with the tax arrangements for existing investments being “grandfathered”.

    Together the proposed changes in the taxation of capital gains and negative gearing arrangements would reduce the incentive to invest, but this reduction will apply to all investments, and not just to housing investment. Thus it is unlikely that these proposed tax changes would lead to much if any switch between investments, except for newly constructed dwellings. Because under Labor’s proposals it would still be possible to negatively gear investments in new dwellings, there is likely to be a switch by investors and an increase in investment in new housing. This new housing could be in the inner city through urban renewal or in new outer suburbs as the footprints of our cities continue to expand.

    The return on housing investment would fall under Labor’s proposals, consequently it is likely that the value of existing houses would fall or rents would rise, or some combination of both would occur in order to restore the yield on housing investment to a required rate of return. In a tight rental market, it is more likely that rents would rise, and that there would be only a modest fall in housing prices.

    As has been widely recognised, many of the claims about the negative impact of Labor’s tax changes on the economy and especially on the building industry have been greatly exaggerated. As other commentators have pointed out, the claim by BIS Shrapnel that tax changes that are estimated to raise only another $2 billion a year initially will shrink the economy by as much as $19 billion a year, should have been immediately dismissed as ridiculous and not taken seriously by anyone – let alone our Treasurer.

    Instead the reality is that, as generally agreed, the housing industry is the principal industry that would be affected, and it is quite likely that these changes would actually increase the amount of investment in new housing. First, as already noted investors are likely to shift to new housing, and in addition, new housing is likely to become more affordable for first home buyers due to the likely price drop affecting all houses. In short, it is reasonable to think that these tax changes proposed by Labor, could actually lead to an increase in housing investment, and this might be sufficient to offset any reduction in investment more generally in other assets. After all, when the Hawke-Keating Government first introduced the capital gains tax thirty years ago there was no discernible impact on total investment.

    In sum, there is a reasonable probability that Labor’s proposed tax changes, affecting negative gearing and a reduced discount for capital gains, would have no significant impact on the aggregate level of economic output. These changes would, however, make a useful contribution to restoring the Budget to balance, and especially over time as the impact of the changes in negative gearing bite more strongly.

    Michael Keating AC was formerly Secretary of the Department of Finance and Secretary, Department of Prime Minister and Cabinet.

  • Brian Toohey. The $50 b. submarine purchase.

    Jon Stanford’s three-part series on the Turnbull government’s determination to spend $50 billion on big new submarines is a welcome contribution to understanding what’s at stake at a time of cuts elsewhere. The decision risks repeating the Hawke government’s disastrous mistake of rejecting a proven design in favour of the bespoke Collins class subs. Stanford’s depiction of the folly of trying to keep the decrepit Collins going until newly designed subs are ready is compelling. Contrary to the 2016 White Paper’s claim, there is no way Australia will have superior subs when it will still operate some of the Collins until around 2040.

    This extraordinarily expensive mess would have been avoided if the Rudd government had committed in 2013 to high quality, medium sized, off-the-shelf subs from Europe instead of indulging in fantasies in his 2009 White Paper about Australian subs “tearing a limb” off the Chinese giant. Rudd wanted big subs that could fire cruise missiles into China — the only problem is they would have to make the slow journey back to their Fremantle base to reload before having another insignificant go.

    No government has given convincing reasons why Australia needs much bigger subs than are currently available off-the shelf. Instead, they simply rely on assertions that big subs are necessary to achieve the navy’s specified unrefueled range of 19,000 km, Yet they eagerly buy fighter planes with a much smaller range than others available. The latest medium-sized German subs bought by Israel and Singapore are the most advanced conventionally power subs in world. They can go the19,000 km as could versions of France’s medium sized subs.

    But big does not guarantee a longer range. The existing Japanese Soryu subs that Tony Abbott wants displace 4200 tones submerged, but can only go 12,000 km. Australia’s Oberons (the Collins’ predecessors) had a 19,000 km range yet were only a little over half the Soryu’s size, as are Israel’s German subs. A newly designed Soryu will have to be much bigger and costlier to achieve this range.

    A particularly disturbing aspect of the government’s specifications for the new subs is they don’t need to have independent propulsion – the technology that lets them operate ultra-quietly in a target zone. The French and German contenders have no trouble including AIP in much smaller subs than the existing Soryu and still going the required range if needed. The current Soryu has AIP. Excluding it from newly designed, bigger Soryus would save some weight but at a potentially dangerous cost.

    AIP can’t be used for an entire trip to and from an operational area. This is one reason some analysts argue AIP’s importance is overstated, but all modern subs have it. One powerful advantage is it increases the survival chances of a sub and its crew in wartime. Relying in future on using new lithium ion batteries that have to be charged by diesel engines will not make a sub quieter than one using AIP at a crucial stage, even though these batteries won’t have to be used as often as lead acid ones. The comparison may be too strong, but no one would suggest removing ejector seats from fighter jets to reduce weight.

    China is relatively weak militarily and well contained. The combined strength of its potential adversaries in waters near China will be enough to counter Chinese subs, especially when they are supported by an extensive array of seabed sensors in the South and East China seas. There is no strategic requirement for Australia to operate subs in either of those seas – even though medium-sized ones could do so. Nor is there any longer a reason for our subs to go on dangerous missions trying to gather relatively minor intelligence around China when closer countries have developed the capacity to do so. Moreover, subs have little role in gathering intelligence these days that overhead platforms don’t do more effectively.

    Stanford makes a plausible case that nuclear powered subs would be a better buy if “big” is what is really required. “Nukes” have some advantages, but are not particularly stealthy – when travelling at high speed they create a wake on the surface that can be detected from above. Better sensors and much faster data processing speeds mean that bigger subs, regardless of how they are powered, are becoming easier to detect and destroy. The future for subs lies in smaller, not bigger, ones, particularly drones.

    Subs have a useful “sea denial” role in deterring a potential adversary from entering waters countries want to protect. Australia would enhance deterrence for itself and its allies by operating low-cost, medium-sized subs to its immediate north and in the east Indian Ocean. In these circumstances, there is no need for nuclear subs, as the are ill-suited to operating in the shallow archipelagic waters to our north.

    In any event, it is absurd to spend $50 billion on the proposed big new subs when more versatile, highly capable combat aircraft cost a lot less.

    Brian Toohey is a columnist with the Australian Financial Review specialising in policy, politics and the economy.

     

     

  • Jon Stanford. Technology, economics and Australia’s future submarine. Part 1 of 3

     

    Part 1: Technology risk

    Introduction

    The most important acquisition included in the government’s Defence White Paper, released in February 2016, is the decision to procure twelve new submarines for the Royal Australian Navy (RAN). With an acquisition cost of at least $50 billion (and with a much higher through life sustainment cost), this is by far the largest defence programme in Australia’s history.

    Australia has made some extremely costly errors in defence procurement in the last few decades, particularly naval acquisitions. The Hawke government’s decision to specify a unique requirement for the Collins class submarines and to build them locally has caused very considerable problems related to cost and availability. It is over ten years since the Howard government awarded the air warfare destroyer (AWD) project to ASC and still not one ship has been delivered, with the cost per vessel in excess of $3 billion and still climbing. As Hugh White has pointed out, if Australia had ordered three Arleigh Burke destroyers from the US at that time, they would have cost around $1 billion each for more capable ships and been delivered long ago.[1]

    In this context, the proposed acquisition of the future submarine (FSM) raises a number of complex issues and involves substantial risks. Because of the extremely high cost of the project, these issues should be thoroughly evaluated before any binding commitment is made. The fundamental issue concerns the high risks involved both in the decision to develop a unique Australian submarine and in the possible government disposition to build it locally. We also need to remember that these issues involve not just financial risks but also the risk of sending service personnel into harm’s way using inadequate equipment.

    This article is in three parts. This first part contains a brief discussion of the main technical risks involved in the acquisition of the FSM. Major economic and financial risks around the proposed investment are evaluated in Part Two. Finally, the implications of the analysis, including a proposal for an alternative, less costly and risk-minimising approach to delivering advanced submarine capability, are addressed in Part Three.

    Technological superiority in the Asia-Pacific

    In order to compensate for its numerical inferiority, a traditional objective for the Australian Defence Force (ADF) has been to maintain a level of technological superiority in its equipment relative to potential adversaries. The White Paper states that: “maintaining Australia’s technological edge and capability superiority over potential adversaries is an essential element of our strategic planning.” [2] In relation to the FSM, “the Government has determined that regionally superior submarines … are required to provide Australia with an effective deterrent… The key capabilities of the future submarine 
will include: anti-submarine warfare; anti-surface warfare; intelligence, surveillance and reconnaissance; and support to special operations.”.[3]

    In the light of previous statements and given the requirement for a very long range, it seems clear that operations in the South China Sea would lie at the heart of the FSM’s mission. Activities in those congested waters would include reconnaissance, intelligence gathering and, perhaps, special operations, moving to anti-shipping and anti-submarine interdiction should hostilities break out. The question then is, will the FSM embody the advanced technologies required to discharge this mission?

    Will the FSM embody ‘regionally superior’ technologies?

    The statement in the White Paper that the FSM will be regionally superior in terms of its technology is highly contestable. In general terms, a conventional submarine (SSK), however advanced its design, will be inferior to a nuclear submarine (SSN), particularly in prosecuting a force projection role in distant, contested waters.

    First of all, a nuclear boat is a true submarine; it will not need to refuel during its service life and its underwater range is limited only by the endurance of its crew. A SSK needs to come to periscope depth from time to time to run its diesels (‘snorting’) and recharge its batteries; this ‘indiscretion’ makes it much more vulnerable to detection. For a conventional submarine like the Collins without air-independent propulsion (AIP), the indiscretion rate ranges typically from around seven to ten per cent on patrol at four knots, and 20 to 30 per cent in transit at about eight knots.

    Secondly, a SSN has a high underwater speed (over 35 knots) and can withdraw from any threat very quickly. A SSK can only generate a burst speed of about 20 knots submerged for a short period of time, less than one hour, and then, using AIP if fitted, its speed underwater is limited to around three to five knots.

    Thirdly, the size and power of a SSN means it can carry much more kit (such as torpedoes, anti-ship missiles, cruise missiles and mines) than a SSK.

    A very important attribute of a SSN is the ability to generate sufficient electrical power so as to run today’s advanced electronic sensors and systems for as long as is required. Already the power hungry sensors in the Collins class, including the vital combat system (of US origin and originally designed for nuclear boats), make a heavy demand on the available power, requiring the submarine to undertake more frequent snorting to recharge the batteries, thereby raising the indiscretion rate. This will become increasingly important as submarines are required to carry more and more sophisticated electronic equipment.

    On the other hand, although contemporary SSNs are extremely quiet compared with legacy designs, the one advantage still possessed by a SSK is its ability to run very quietly underwater. Once detected, however, every submarine skipper would exchange this advantage for the very high speed capability of a SSN. As a US expert notes, “AIP does not give … the sort of high-speed power which saves a submarine once it is being pursued. Only nuclear power can give that…”.[4]

    In terms of the White Paper’s goal of regional technological superiority, it is true that potential adversaries in the Asia Pacific (with the important exception of Russia) do not currently deploy many nuclear submarines and the ones that are operational are not particularly effective. It may well be that the new submarine, if it were in commission now, for a few years could boast technological superiority in the South China Sea, where it is clearly designed to spend most of its time. While China already has nuclear submarines, they are crude by contemporary western standards, noisy and not considered a significant operational threat. On the other hand, if it realised its potential, Australia’s new submarine would be very quiet and its AIP system (or alternatively substantial banks of lithium-ion batteries) would allow it to patrol submerged, albeit at a slow speed, for around a month.

    But the problem is that the FSM is not in the water now. The first boat will not be available for at least fifteen years. This makes it highly unlikely that it would be technologically superior even when it is introduced and much less so in the out years to 2050 when the final FSM will be commissioned.

    Even by 2020, the FSM would find it difficult to counter the submarine fleet deployed by China. The White Paper states that: “By 2020 China’s submarine force is likely to grow to more than 70 submarines”.[5] Yet the White Paper is coy about the fact that this total will include up to nine modern SSNs and up to five nuclear powered ballistic missile-armed submarines (see Tables 1 and 2 below). 
By 2020, therefore, it would be difficult to argue that the FSMs, even ten years before the first one will be available, would be ‘regionally superior submarines’.

    Table 1: China Submarine Fleet,2000-2020 [6]

    Type 2000 2005 2010 2015 2020
    Diesel Attack 60 51 54 57-62 59-64
    Nuclear Attack 5 6 6 6-8 6-9
    Nuclear Ballistic 1 2 3 3-5 4-5
    Total 66 59 63 66-75 69-78

     

    Table 2: China Submarine (Attack) Fleet, percentage modern, 2000-2020 [7]

    Type 2000 2005 2010 2015 2020
    Diesel Attack 7% 40% 50% 70% 75%
    Nuclear Attack 0% 33% 33% 70% 100%

    Beyond 2020, the technological development of China’s navy is likely to continue apace. Both India and China now have nuclear submarines with the ability to launch long-range nuclear missiles, at the least in second strike attacks. While intensively developing its indigenous nuclear submarine capability, India is actively seeking Russian assistance in developing an advanced SSN capability. It already has commissioned one capable Russian SSN of the Akula class. It is inevitable that China, perhaps with technological support from Russia, will step up its SSN development. Other countries in the region (Indonesia?) may seek to acquire SSNs by the 2030s. At the very least, Australia needs to consider these possibilities in determining the FSM acquisition. The absence of any discussion of this in the White Paper constitutes an important omission.

    Improvements in detection technologies

    In recent times, the rapid growth in computer processing power has enabled the use of technologies such as undersea laser detection of foreign objects and sound monitoring to enhance substantially the ability to detect submarines underwater. Add to this the improvements in low frequency sonar to detect submarines at very long range, and the playbook has changed very considerably. Also, constant improvements to radar (such as the US equipment that Australia deploys in its fleet of P3 Orions), and SSKs are in much greater danger of being detected when they come to periscope depth in order to snort. Larger submarines, of the kind that Australia is seeking to acquire, are more vulnerable to detection because of their larger footprint and acoustic signature.

    Andrew Davies, a naval specialist at the Australian Strategic Policy Institute (ASPI), has analysed future trends in anti-submarine warfare in terms of the FSN acquisition:

    “The net summary is that future submarines will need to:

    • operate away from chokepoints and contested spaces but be able to project influence into them
    • have a low indiscretion rate
    • be a hub for a suite of long-range sensor and weapon systems
    • be networked with other units, including electronic warfare platforms and systems
    • be able to manoeuvre quickly in response to a rapidly changing threat environment.” [8]

    Davies goes on to say: “of course, that list pretty much says ‘SSN’, but that’s not going to happen”.

    Davies’s conclusions are of critical importance for the FSM. He states that “the design of the future submarine has to be cognisant of these trends, which will make penetration of adversary space or operations in contested chokepoints by the submarine itself very much harder. Basing our investment around traditional ideas of submarine operations isn’t likely to be a winning strategy a couple of decades from now.” Australia needs “to decide whether our subs are going to play in the highest end operations. If we decide we need to, we’re necessarily going up the risk reward curve for a conventional boat.” One approach, in the absence of the nuclear option, would be to “temper our ambitions and settle for a fleet that can still operate effectively in less than the most challenging situations.” [9]

    Other roles for the FSM

    These less challenging situations suggested by Davies would include sea denial in the approaches to Australia and the littoral, where the RAAF may control the airspace and could operate in support. They would also include the other roles assigned to the FSM in the White Paper, namely reconnaissance, intelligence gathering and special operations. To the extent that these can be conducted closer to base and away from contested chokepoints, these are standard roles for a conventional submarine (SSK). They have been at the centre of successful operations of the Collins class and, before that, the Oberon boats. Over the last half century, Australian submarine crews have spent substantial time lurking underwater and reporting shipping movements around Vladivostok or monitoring mobile phone calls on Java.

    A conventional FSM with the ability to spend a long time underwater without snorting would be well capable of undertaking all these roles, although there is likely to be an advantage for the submarines in being smaller than the size required by Defence for the FSM. As a former commanding officer of Collins class submarines puts it, “I do not believe an SSK significantly larger than Collins is possible, much less a good idea. There will always be some missions that can’t be achieved; let’s focus our solution on the ones which can.”[10]

    Jon Stanford is a Director of Insight Economics.  He had a significant career as an economist in the Australian Public Service, ultimately in the Department of Prime Minister and Cabinet.  He has worked extensively on economic and policy issues around defence procurement and naval shipbuilding.

    [1] Hugh White (2015), “Naval shipbuilding in Australia: a strategic necessity?”, The Strategist, Australian Strategic Policy Institute, August, http://www.aspistrategist.org.au/naval-shipbuilding-in-australia-a-strategic-necessity/

    [2] Australian Government (2016), Defence White Paper, Canberra, page 16.

    [3] Ibid, page 90.

    [4] Asia Pacific Defence Reporter (2010), “Submarines – The Future”, 21 December, http://www.asiapacificdefencereporter.com/articles/102/SUBMARINES-THE-FUTURE

    [5] Defence White Paper (2016), op. cit., page 42.

    [6] US-China Economic and Security Review Commission (2014), “Chinese Navy extends its combat reach to the Indian Ocean”, Staff Report, March, page 12.

    [7] Ibid.

    [8] Andrew Davies (2014), Trends in submarine and anti-submarine warfare, Australian Strategic Policy Institute, Canberra, http://www.aspistrategist.org.au/wp-content/uploads/2014/04/ASPI-submarine-conference-2014-Davies.pdf

    [9] Andrew Davies (2014), op. cit.

    [10] James Harrap (2012), “Reflections of a Collins submarine captain”, Asia Pacific Defence Reporter, 3 May, http://www.asiapacificdefencereporter.com/articles/226/Reflections-of-a-Collins-Submarine-Captain

     

     

  • Carol Richards, Bree Devin. Supermarkets and food waste.

    In this blog on 25 February, I noted that the French parliament has voted to ban large food stores from throwing food away.  In the story below, Carol Richards and Bree Devin highlight the way powerful supermarkets in Australia push the cost of food waste onto suppliers and charities.  John Menadue

    At a time when one billion people globally experience hunger, as much as 50% of all food produced – up to two billion metric tonnes – is thrown away every year. In Australia alone, as much as 44 million tonnes of food is wasted annually.

    Last year, French supermarket chain Intermarché launched a highly successful campaignencouraging consumers to purchase “ugly” food. This year, France became the first country in the world to implement laws cracking down on food waste, with new legislation banning supermarkets from throwing away or destroying unsold food. Under this new legislation, supermarkets are required to donate any unsold food to charities or for animal feed.

    While there is no law in Australia requiring supermarkets to donate any unsold food, both Coles and Woolworths have aligned with food rescue organisations to donate unsold or “surplus” food.

    This surplus food is distributed amongst those experiencing poverty and food insecurity and is done voluntarily by the supermarkets under the banner of corporate social responsibility.

    But our research into the issue of corporate social responsibility and wastage of fresh fruit and vegetables has identified a number of tensions and contradictions, despite leading Australian supermarkets’ zero food waste targets.

    First, the strict “quality” standards required by the Coles and Woolworths duopoly means that a large volume of food does not reach the supermarket shelves. This is produce that does not meet size, shape and appearance specifications – such as bananas that are too small, or apples that are too red. If producers do not agree to meet these standards, they will lose access to approximately 70-80% of the fresh food market in Australia.

    Second, the two major food retailers do not take ownership of produce until it passes inspection at the distribution centres. It is here where suppliers, such as farmers and growers, are “invited” – under the supermarket’s corporate social responsibility initiatives – to donate rejected food to rescue organisations at their own cost, or otherwise pay for further transportation or dump fees.

    Thirdly, in an effort to reduce the high levels of food wasted at the farm gate, Australian supermarkets have followed France’s lead by marketing “ugly” food, (or what Intermarché termed “Inglorious Food”) – food that does not meet strict cosmetic standards, but is still perfectly edible.

    While a step in the right direction, this “apartheid” between beautiful and ugly food was criticised in this study for reinforcing values that perfection comes at premium and ugly food, which is often the way nature intended, should be price discounted. Growers are also concerned about the lower prices that “ugly food” attracts, and the flow-on effects to them in reduced profits.

    A final tension regarding food waste is “who is to blame”? Supermarkets attribute their high quality standards to consumer demands – however, consumers can only buy what is available at the supermarket. Supermarkets have also been criticised for marketing tactics that encourage household food waste, such as “buy one, get one free” campaigns.

    Despite the lack of transparency regarding food waste in the supply chain, supermarkets – with their powerful market position at the end of the supply chain – are in a good position to transfer the problem of waste elsewhere.

    They do this by setting cosmetic standards in the procurement of food which results in high level of wastage, not taking ownership of produce that does not meet their own interpretation of the standard, claiming corporate social responsibility kudos for donating to food rescue organisations (while at the same time saving on dumping fees) and differentiating between “beautiful” and “ugly” foods – reinforcing difficult-to-attain standards of perfection.

    Much of the food wastage and transfer of blame for food wastage can be attributed to the market power of the duopoly. Most significant, are the proprietor-driven private standardswhich require produce to be perfect.

    Although donating to food rescue organisations may be positive for people in need, it does not address the structural problems of the supply chain. This raises the question of state-led regulation, as with the case in France, to restrict food wastage at the retailer level. However, more is needed. Food waste is one symptom of excessive market power, something that needs to be addressed to steer mass food retail in a more sustainable direction in Australia.

    Carol Richards is Vice Chancellor’s Senior Research Fellow, Queensland University of Technology.  Bree Devin is Lecturer in Public Relations, Queensland university of Technology. This article first appeared in The conversation on February 29, 2016.

  • Jeffrey Knapp. Big four accounting firms avoid scrutiny in multinational tax avoidance.

    The Senate Inquiry into corporate tax avoidance is due to hand down its final report by April. One of the lesser-mentioned groups appearing before 2015’s Senate hearings are Australia’s big four accounting firms.

    Multinational companies like Apple, Chevron, Google, Microsoft, and News Corp have dominated headlines, but little has been said of the role of PwC, KPMG, Deloitte and EY. After all, it is the big four firms that audit the accounts of leading multinational companies and render assistance with their taxation affairs.

    The big four firms claim they are supporters of transparency because it is fundamental to building public trust and confidence in the accounting profession.

    But when asked about the accounting practices of their multinational corporate clients during the November 2015 Senate inquiry hearings in Sydney, the big four firms were far from transparent.

    Senators questioned the firms about why at least 20 leading multinational companies had switched from general purpose accounts to special purpose accounts, resulting in fewer financial disclosures and lower transparency.

    The switching multinationals (with auditors in brackets) include Bupa Australia (KPMG), News Australia (EY), JBS Holdco Australia (KPMG), Serco Australia (Deloitte) and Johnson & Johnson (PWC).

    Whereas general purpose accounts comply with disclosure requirements across 40 plus accounting standards, special purpose accounts can follow as few as five standards. Special purpose accounts also allow multinationals to avoid audited disclosures of transactions and balances with related parties in foreign jurisdictions including tax havens.

    Why it matters

    Users that might rely on the information in general purpose accounts for making and evaluating resource allocation decisions are not limited to shareholders. It is reasonable to expect that other stakeholders of super-sized multinationals depend on general purpose accounts for decision-making.

    The operations of multinationals like Bupa, News, JBS, and Serco touch the lives of a significant number of Australians. Company stakeholders such as contractors, employees, customers and government agencies should have access to general purpose accounts.

    These multinational companies have dominant or powerful market positions with revenues and assets in the billions of dollars, government funding or contracts and creditors including thousands of employees. In switching to special purpose accounts, the companies and their big four auditors have undervalued two key indicators that general purpose accounts are required.

    The greater the economic or political importance of an entity, the more likely it is that there will exist users dependent on general purpose financial reports as a basis for making and evaluating resource allocation decisions. (Statement of Accounting Concepts SAC 1 paragraph 21)

    Financial characteristics that should be considered include the size (for example, value of sales or assets, or number of employees or customers) or indebtedness of an entity. The larger the size or the greater the indebtedness or resources allocated, the more likely it is that there will exist users dependent on general purpose financial reports as a basis for making and evaluating resource allocation decisions. (Statement of Accounting Concepts SAC 1 paragraph 22)

    No reason was given for switching to special purpose accounts. No disclosure was made of why fewer disclosures had become appropriate. The omission of this disclosure appears to be at odds with the following black letter requirement in accounting standards:

    When a voluntary change in accounting policy has an effect on the current period or any prior period … . an entity shall disclose: (a) the nature of the change in accounting policy; (b) the reasons why applying the new accounting policy provides reliable and more relevant information; (Accounting Standard AASB 108, paragraph 29)

    The unstated premise of the big four firms is that users who had previously relied on general purpose accounts were no more. In truth, there is no logical way to defend this vanishing because the super-sized multinational companies were still teeming with stakeholders.

    Consider the employees (shown in brackets) at Bupa (11,295), News (8,564), JBS (7,721), and Serco (6,000) when the switches to special purpose accounts occurred.

    Asked about the switches at the Sydney hearing, representatives of the big four firms stuck to the confines of their individual roles as tax partners. They claimed to be unable to shed light on the issue because it was dealt with in a different section of their firm – that is, audit and assurance.

    Not a single person in these leading multinational companies or the big four firms has subsequently presented a single cogent reason to explain the switching to special purpose accounts.

    At least the Australian Accounting Standards Board (AASB) made something of an effort to come up with an explanation at the Sydney hearing, albeit not a particularly salient one. AASB chief executive, Kris Peach said:

    “What we are saying is that there is an accounting concept which is a reporting entity concept. It is quite subjective in how it is applied… I do think that economic significance is important, but it is very hard to actually determine what economic significance is, and that is why there needs to be some good consultation around that . .. .Where we need to get to is that the end criteria are very objective.”

    Apparently, the concept is to blame for leading multinationals being less transparent. The concept is too subjective. The concept relies on substance over form and professional judgement. But aren’t accounting concepts supposed to be like that? What is an asset? Isn’t that subjective too?

    The truth is that there is nothing wrong with the existing user-based concept for general purpose accounts. The concept has applied since 1990. The switching to special purpose accounts by leading multinationals and their big four auditors is a relatively recent phenomenon.

    The accounting evidence at the Senate inquiry into corporate tax avoidance is cause for public concern. It gives an impression that the big four firms are prepared to overlook generally accepted accounting practice for multinational clients with deep pockets.

    The partners with gravitas at the big four firms need to take stock of the accounting practices that have emerged from their leading multinational clients. Priority number one should always be keeping faith with the concepts and standards of the accounting profession. Public confidence is not a trifling matter. Audits and auditors will soon be obsolete if standards are not maintained and enforced. Professional judgement of subjective accounting concepts is the key thing that auditors have done for time immemorial.

    In December 2015, the Parliament introduced new tax laws so that significant global multinational corporations must henceforth furnish general purpose accounts to the Australian Taxation Office. In effect, the Parliament had to bypass the AASB and the big four firms to get a better outcome.

    Most chartered accountants place great value in their designation and are careful to protect the legacy and reputation of the professionals that have gone before them. The big four firms are not immune from this vigilance. If the big four firms wish to remain prosperous over the long run, then they need to support transparency in what they do not just in what they say.

    Jeffrey Knapp is Lecturer/Accounting, UNSW.  This article was first published in The Conversation on 25 February 2016.

     

  • Peter Hughes, Arja Keski-Nummi, John Menadue. Part 3: Settlement Policy and Services.

    This is a repost from 27/5/2015.

    3.1 Overview

    The migration process starts in earnest after a visa is given to a migrant. Its success or otherwise is determined after the person arrives in Australia and becomes part of the workforce and community.

    Australia, along with the other great traditional migration countries, has sought to smoothly integrate migrants into its multicultural society, by assisting them to become quickly productive through specialised assistance if necessary, and providing a relatively.

    3.2 Settlement Policy and Services

    Supporting migrant settlement is a cooperative effort between the Australian government and State/Territory and local government. The Australian government needs to work closely with other spheres of government to ensure that they are fully informed about migrant flows and their characteristics, especially the characteristics of new communities, so that they can make appropriate provision within their own jurisdictions.

    Although most permanent migrants are selected on the basis of qualities that will enable relatively quick and easy integration into the Australian economy and our multicultural society, some (such as humanitarian entrants and family stream migrants) will require specialised assistance for a short period to help them get started in Australian society.

    Australian governments should continue to maintain a suite of specialised services aimed at ensuring migrants who need assistance in acquiring English-language skills, dealing with initial settlement problems, connecting with mainstream government services and gaining employment get such assistance.

    English language capability is well recognised as being essential to gaining employment and wider social integration into the Australian community. Settlement programs need to give special emphasis to English language acquisition, especially soon after arrival, with a variety of access opportunities to suit the needs and circumstances of individual migrants. The programs should aim to bring migrants to a level of English consistent with their capability.

    More intensive services should be available to assist refugee and humanitarian entrants who may bring with them the legacies of war or other conflict and incarceration in refugee camps for years or decades. Such services might include on-arrival accommodation, initial orientation to Australia, and support for other refugee-specific health issues, including torture and trauma.

    For non-English-speaking migrants who are still acquiring English-language skills, and are unable to access commercial translating and interpreting services, governments should continue to provide targeted translating and interpreting assistance.

    The migration process progressively introduces people from many different national, regional, ethnic and linguistic backgrounds into Australian society. Initially, they may be relatively small communities dispersed across the Australian continent. It is important that settlement policy recognises and supports new communities in establishing themselves in Australia. Past experience has shown that effective leadership within new communities is absolutely vital to their quickly becoming productive. Settlement programs should provide financial support to develop community leadership and problem-solving to accelerate integration.

    There is considerable goodwill in the community towards new migrants in keeping with Australia’s long tradition of acceptance of migration. The Australian government should seek to harness the willingness of community groups to extend the hand of friendship and support with appropriately designed programs.

    Australian governments should continue to explore ways to introduce new migrants to Australian laws and social norms at appropriate parts of the visa, settlement and citizenship process.

    Ultimately, the benefits that any migrant gains from settlement services flow on to the wider community by making migrants more productive participants in the workforce more quickly and hastening their integration into a socially cohesive society.

    The effectiveness of migrant settlement programs should be regularly reviewed and evaluated to ensure that they are properly targeted and are having real impacts in improving the individual migrant settlement process.

    Specialised migrant services should operate as a bridge to broader mainstream services. The Australian government should continue to promote Multicultural Access and Equity[1] to ensure that its agencies are able to engage with Australia’s multicultural society effectively.

    3.3 Australian Citizenship Policy

    Since Australian citizenship first came into being on 26 January 1949, it has played an important role both as a national symbol for the Australian-born and in integrating millions of migrants formally into the Australian community. This parallels the citizenship policy approach taken by other great migrant receiving countries – the USA and Canada.

    Australian citizenship policy should continue to embody the following principles:

    • Australian citizenship, and the values that go with it, should be a unifying national symbol.
    • Australian citizenship policy should actively encourage the acquisition of Australian citizenship by permanent resident migrants, without unnecessary barriers, as part of building a cohesive multicultural society.
    • Acquisition of Australian citizenship should be based on close association with Australia, either through birth in Australia to an Australian citizen or permanent resident parent, descent from an Australian citizen parent or physical presence in Australia as a permanent resident.
    • Concessions to standard residential requirements should be permitted to permanent residents who have spent at least some time physically present in Australia, but only on a limited basis in special circumstances.
    • Australia should continue to permit its citizens to retain their Australian citizenship if they acquire another citizenship, in order to retain beneficial links with an Australian diaspora of over one million people.
    • Australian citizenship is strengthened by certainty; no citizen should be deprived of it except in circumstances where they are convicted of obtaining it by fraud and deprivation would not result in statelessness;
    • The process of deprivation of Australian citizenship should not be used as a substitute for criminal law to punish naturalised citizens for crimes committed after becoming an Australian citizen.

    The take-up rate of Australian citizenship by eligible permanent residents is estimated to be about 80%.[2] This is high by OECD standards and comparable to the citizenship take-up rate in Canada. Nevertheless, take-up rates vary between nationalities and there are significant numbers of eligible people who, for various reasons, have not yet taken up Australian citizenship.

    Australian governments should promote the values of Australian citizenship and its acquisition by permanent residents on an ongoing basis, with major promotions every few years in order to maintain the high Australian citizenship take up rate.

    Recognising that permanent residents are able to, and mostly do, stay and contribute to the Australian community throughout their lives, governments should resist the temptation to increase the existing limited differential between the rights of Australian permanent residents and citizens as a basis for promoting citizenship.

    Testing on aspects of knowledge of matters relating to Australian citizenship has been in existence since 2007 as a preliminary to the acquisition of Australian citizenship by migrants. It is uncertain whether this has had any concrete benefits or indeed adverse impacts on the take-up rate of Australian citizenship. Australian governments should ensure that any testing regime does not become a barrier to the acquisition of citizenship to people who will spend their lives in Australia and make an ongoing contribution to Australian society. Alternatives to testing should be made available to those who are uncomfortable with it and should be geographically accessible throughout Australia.

    The acquisition of Australian citizenship should continue to be made a celebratory event through public citizenship ceremonies conducted by local government or the Australian government.

    3.4 Australian Multicultural Policy

    Australian governments from both major political parties have endorsed broadly similar Australian multicultural policies since the 1980s, as have all Australian states and territories. Some states and territories have given multicultural policy legislative status.

    For a society as diverse as Australia’s, and largely built on immigration, a continued focus on multicultural policy is vital to social cohesion, migrant integration and community relations.

    Broadly speaking, all multicultural policies stress as a foundation that all Australians should be committed to the basic structures and principles of Australian society – our Constitution, democratic institutions, respect for the law and English as the national language. At the same time, the policies stress the right of all Australians to express their own cultures and beliefs, within the law, and the need to accept the right of others to do the same.

    Australian governments should continue to provide active leadership in articulating and disseminating multicultural policy as the foundation for a productive and harmonious society. This will not only make us a better society, but a more resilient one in resisting externally generated stresses and pressures. 

    3.5 Conclusion – Immigration, Refugee and Settlement Policy

    The policy approaches outlined in Parts 1, 2 and 3 constitute an integrated approach to future Australian immigration needs.

    They aim to enable Australia to continue to harness the opportunities of the global movement of people to its own national economic and social development. At the same time, they should better position Australia to deal with the growing challenges of forced and irregular migration by making a significant humanitarian contribution to contribution to global displacement, including through a generous refugee resettlement program.

    Pursuing these policies should also reinforce a united and resilient Australian society capable of resisting external and internal challenges to a harmonious community.

    They will contribute to a:

    • growing and prosperous Australia with a critical population mass to support the governance overheads of modern society
    • a skilled labour force attuned to Australia’s economic needs
    • a closer relationship with Australia’s regional neighbours
    • better management of displacement and irregular migration, including humanitarian solutions
    • a culturally diverse, confident and united society

    Peter Hughes is Visiting Fellow, Crawford School of Public Policy,

    Visitor, Regulatory Institutions Network, Australian National University

    Arja Keski-Nummi was formerly First Assistant Secretary of the Refugee, Humanitarian and International Division in the Department of Immigration

  • Peter Hughes, Arja Keski-Nummi and John Menadue. Part 2. Refugee Policy

    A repost from 26/05/15

    Part 2: Refugee Policy 

    2.1 Overview

    The current and future global environment for irregular migration is extremely challenging.

    Many more people are on the move globally to gain protection from persecution, security from conflict or greater economic opportunity – or a mixture of these things.

    The movement of people is being accelerated by growing awareness of the opportunities to move, new communications technology, cheaper transport and active facilitators.

    The United Nations High Commissioner for Refugees (UNHCR) states that global forced displacement of some 51 million people (17 million refugees, 33 million internally displaced persons and over one million asylum seekers) is at the highest level since the Second World War. There are many millions more people seeking migration opportunities for employment over and above the forced migration figures.

    Australia’s traditional engagement with this issue has been through our offshore humanitarian resettlement program, but over the past 15 years national policy debate has centred almost exclusively on the management of smuggled maritime asylum seekers. Australia experienced a flow of some 10,000 maritime asylum seekers, mostly from outside the region, in the period 1998–2007 and 50,000 in the period 2008–2013.

    The debate has divided Australian society and the net result has been the adoption of the harshest possible measures to disengage Australia from this flow of people.

    In the context of growing world displacement and people movement, Australia will remain an attractive destination.

    Policy responses by successive governments to date have focused on ‘quick fixes’ driven by political and community pressures. A more measured approach will be needed.

    One choice, advocated by many, would be to maintain open access for maritime asylum seekers and to accept the consequences. Experience in Australia and Europe indicates that this approach will attract very large numbers of both asylum seekers and economic migrants facilitated by people smugglers. The numbers coming to Australia reached 4,000 people in a single month in July 2013. There is no reason why they could not go much higher. Exploitation and deaths at sea, corresponding to the size of the movement, go with this inherently disorderly and unsafe movement. If significant flows of maritime asylum seekers to Australia resume from troubled developing countries, it is unlikely that many would return to their country of origin, irrespective of whether or not they are found to be refugees.

    If Australia does not want to accept renewed flows of maritime asylum seekers, it will need to make a long-term investment in global and regional management of protection and the movement of people. Australia cannot escape the phenomenon of global displacement and must re-engage with it.

    Existing solutions, which are heavily dependent on naval interdiction and small Pacific island nations, may not be sustainable in the long term.

    The demand for migration opportunities, whether forced or economically based, to Australia and other (developing and developed) countries is unlikely to be satisfied. Priorities will need to be set as to those most in need and how they can best be assisted.

    2.2 A Formal Policy on Refugees and Displacement

    At a strategic level, Australia needs to develop a formal policy on refugees and global displacement. The policy should integrate our responses to global and regional refugee issues, bringing together foreign policy, aid policy, the offshore humanitarian resettlement program and domestic asylum policy (including for both maritime and visaed arrivals). Interventions under this policy should tackle the root causes of refugee flows as well as their consequences.

    The global asylum system is under extreme pressure with host countries in both the developing and developed world struggling to cope. Many refugees are unable to get protection close to home and are subsequently exploited by people smugglers who fill a vacuum left by States. The situation is complicated by mixed flows of refugees and economic migrants.

    Australia can play a role at the global level in working with UNHCR and partner countries to develop new, more orderly and effective responses to the modern dynamics of people movement.

    At a regional level, Australia needs to be much more active in engaging regional partner countries to better manage the movement of people and develop a sense of collective responsibility in dealing with protection issues. Australian and regional partners should develop habits of routine consultation and action, based on agreed principles, in response to forced migration and other irregular movements of people in the region. This is a long-term task, as few countries in the region are parties to the 1951 Refugee Convention and few have strong national institutions for migration management.

    The regional policy aim, in partnership with UNHCR, would be to tackle root causes of displacement as well developing an improved system of refugee protection. An orderly regional system of protection should encourage asylum seekers to seek protection in a secure environment in countries of first asylum, closer to the country of origin, and have their future determined in those countries (whether it be local integration, international resettlement or return home).

    The policy should seek to provide protection and migration opportunities for those most in need and, by stabilising those populations, to minimise exploitation opportunities for people smugglers and irregular migration.

    In fostering and developing such a system, Australia should look beyond its own immediate interests and be willing to take an active role in solving the displacement problems affecting its neighbours. Australia should also recognise that its regional partners are unlikely to become parties to the Refugee Convention. Cooperative arrangements will need to be based on practical measures consistent with Refugee Convention practices.

    The Bali Process on People Smuggling, Trafficking in Persons and Related Transnational Crime has been an important vehicle to date in putting questions of protection, people smuggling and law enforcement on the regional agenda. In the longer term, Australian policy should work towards more targeted regional processes possibility involving ASEAN and/or sub-regional groupings.

    The work of government in developing better regional approaches should be complemented by a Track 2 Dialogue involving selected countries in the region and bringing together government policymakers with non-government experts in a “non-official” conversation on these matters. This will provide an opportunity for constructive dialogue and development of new policy approaches in this contested area of public policy.

    At the national policy level, Australia should draw on a range of policy tools in its interventions in global displacement.

    Foreign policy and development assistance can play an important role in tackling root causes of displacement as well as the willingness of countries in the region to stabilise displaced populations in first asylum or transit mode.

    The Humanitarian Program, which has been Australia’s traditional contribution to durable solutions, should be increased to a base, ongoing program of 20,000 places a year, reflecting growing global displacement and the need for Australia to do more. This would represent about 10% of Australia’s total annual permanent migrant intake. The program should be operated flexibly, allowing for significant one-off increases from time to time to deal with acute global crises or regional displacement of particular significance to Australia.

    The resettlement program needs to be accompanied by measures that foster good employment and integration outcomes for refugee arrivals.

    Each cohort of people moving in the region is different, reflecting protection needs, security from conflict, economic pressures or a combination of all of these. Australian government responses need to reflect the unique circumstances of each national group.

    Australian government policy should involve targeted use of other available tools to promote orderly migration, as appropriate, such as alternative migration pathways, “in-country humanitarian programs” and “orderly departure” arrangements from selected source countries.

    Asylum decision-making and review processes, whether for asylum seekers who are irregular maritime arrivals or those who arrive with visas by air, should be regularly reviewed and evaluated to ensure that they remain fair, quick and efficient. They must be tailored to deal appropriately with new protection issues that arise and the unique circumstances of different cohorts of asylum seekers.

    Irregular movements of asylum seekers by sea, following journeys across vast distances, facilitated by smugglers for commercial gain, are not in the interests of asylum seekers because of the inherent exploitation and danger. Nor are such movements in the interests of regional states. Australian policy should continue to discourage irregular movements by sea (except in the most limited circumstances where Australia is the logical first asylum country) and promote an orderly asylum system.

    Regional policy measures should help to provide satisfactory protection alternatives for asylum seekers, but the maritime people smuggling option cannot be allowed to remain open in parallel.

    Firm, but humane, action is needed here. The preferred approach would be for the Australian government to negotiate readmission agreements, under acceptable conditions, with transit countries such as Indonesia and Malaysia, which enable any people reaching Australia by sea to be safely returned to a transit country by air and have their future determined from that location. Acceptable conditions would include asylum seekers being permitted to remain in the community of the transit country, with asylum claims considered by UNHCR, and a pathway to local or international durable solutions for refugees. Such arrangements would be safer and more desirable than use of small Pacific countries and boat turnarounds on the high seas. If these mechanisms were seen to be effective, they would rarely need to be used. 

    2.3 Legacy caseload from 2008–2013 maritime arrivals

    Australia has a continuing responsibility to resolve the future the some 30,000 people who sought to arrive in Australia by sea in the period 2008-2013 and have not yet had final decisions on their refugee claim or resolution of their long-term immigration status.

    The first priority is to resolve the situation of the 1707 people in PNG and Nauru[1] most of whom are in detention in extremely difficult circumstances.

    The Australian government should work with local authorities in PNG and Nauru to expedite decision-making on asylum cases with a fixed deadline to finally decide all cases. Apart from those few people found to be refugees who may be able to settle effectively in PNG and Nauru, the Australian government should negotiate resettlement in third countries or, as a last resort, Australia. The assistance of UNHCR should be sought in final resolution of the caseload.

    A fixed deadline should also be set for primary and review decisions for the remaining maritime asylum seeker caseload in Australia. For those found to be refugees, the Australian government should recognise that it is unlikely that political conditions will improve in source countries in a way that will enable refugees to return home within the foreseeable future. It should therefore set a defined pathway to permanent residence and Australian citizenship.

    As noted in Part 1.6, the use of detention as an immigration tool should be minimised except for short periods for specified purposes. The Australian government should use its influence to ensure that detention facilities are of an acceptable standard in PNG and Nauru and that agreement is reached with those countries to enable the equivalent of Australian community detention arrangements while asylum cases in the regional processing centres remain unresolved.

    The Australian government should make arrangements for the repatriation of those found not to be refugees (or in need of complementary protection). Such returns are necessary to maintain the integrity of the protection system. Returns should be voluntary where possible, supported by reintegration assistance. In some circumstances involuntary returns will be necessary and these should be supported, where necessary, by written agreements with source countries.

    Peter Hughes is Visiting Fellow, Crawford School of Public Policy,

    Visitor, Regulatory Institutions Network, Australian National University

    Arja Keski-Nummi was formerly First Assistant Secretary of the Refugee, Humanitarian and International Division in the Department of Immigration and Citizenship 2007-2010.

    John Menadue was Secretary of the Department of Immigration and Ethnic Affairs, 1980-1983.

    [1] Department of Immigration and Border Protection, Immigration Detention and Community Statistics Summary, 31 March 2015

  • Ian McAuley. Chris Bowen and ‘The Money Men’.

    Political disunity comes in two forms. One, which we witnessed in the Rudd-Gillard years, is the subtle attack on the authority of the party leader. The other and more serious form is a conflict about policy.

    Once Tony Abbott announced his intention to hang around it was clear that the Turnbull Government would suffer the disunity of the first form. Abbott’s ridiculous claim last week that he could have won the coming election is a pretty good indication of why he wants to hang around.

    And it’s now evident that the Government is being torn apart over economic policy. The specific manifestation is about taxation of investment housing, but it’s much deeper than that issue. It’s about the conflict between attending to important shortcomings in our economic structure, namely the need to improve our public revenue and to remove unjustifiable and distorting tax rorts, and appeasing the petulant beneficiaries of those rorts.

    John Howard has now weighed in, urging appeasement, no doubt having in mind the way the Coalition successfully used the issue of “negative gearing” against the Keating Government. Perhaps he should go back to 1982 when, as treasurer, he confronted the tax evasion mechanism known as “bottom of the harbour”, which saw people shifting their tax liabilities to companies that they would subsequently liquidate. Then, as now, there was a large rump in the Coalition parties ready to defend tax rorts – with many of them crossing the floor when Howard introduced legislation to stop the practice.

    Shadow Treasurer Chris Bowen analyses these conflicts between economic and political demands in his recently-published book The Money Men: Australia’s twelve most notable treasurers (Melbourne University Press 2015).

    Throughout our 115 year history, he points out, governments have succeeded in re-shaping economic policy when there is a reasonable degree of policy convergence between the main actors – not only the Treasurer and Prime Minister, but also the Treasury and, in recent years, the Reserve Bank.

    He describes some of the most successful partnerships, such as that between Treasurer Ben Chifley and Prime Minister John Curtin. That partnership was based not only on a strong ideological alignment between the two men, but also on their willingness to seek independent economic advice, and to bring people like Nugget Coombs into advisory roles. (Bowen is too polite to draw the obvious contrast with the partisan groupthink that characterised Abbott’s and Howard’s “commissions of audit”.)

    It’s hardly surprising, then, that he acknowledges Paul Keating’s effectiveness in economic reform: there was rivalry between Hawke and Keating for the top job, but they supported each other on economic policy. And his standout case study is the deft response of Wayne Swan and Kevin Rudd to the emerging global financial crisis – a situation where Treasury was well on side.

    Bowen’s twelve biographies cover both Labor and non-Labor treasurers – including Country Party treasurers Earl Page (1923-1929) and Arthur Fadden (1949-1958). It’s revealing that in the 1950s Fadden had no great political difficulty in raising taxes to meet expenditure needs. Tough budgets were met with token protests – the tabloid headlines would scream “Beer up, cigs up” – but Australians got on with paying their taxes to contribute to the nation’s needs.

    It’s also revealing that Menzies and Fadden saw a budget surplus as politically problematic, even though Keynesian management calls for surpluses when an economy is overheating. After all, a surplus means the government collects more in taxation than it spends on services and transfers. People understandably don’t like paying for more than they are receiving.

    It was Peter Costello who re-defined a surplus as something intrinsically virtuous. Whether this stemmed from Costello’s economic ignorance or from political opportunism Bowen does not make clear. It was easy for Costello to make this connection, because over his ten years in the job the economy and therefore public revenue were thriving, thanks to the mining boom and the Hawke-Keating Government’s economic reforms.

    The idea that a surplus was the hallmark of good economic management provided Abbott with a powerful weapon against the Rudd-Gillard administration. Had they not run a substantial deficit, however, the cost in terms of unemployment would have been staggering – a repetition of the idiocy of 1929. Similarly it would be irresponsible for the Turnbull Government go for a cash surplus in this year’s budget, but there is poetic justice in seeing the deficit fetish coming back to haunt them.

    Bowen generously gives credit to Costello for his understanding of the 1997 Asian crisis (he was well ahead of the IMF), for granting independence to the Reserve Bank, and for implementing the recommendations of the Wallis Inquiry into the financial system (thus improving our capacity to cope with the Global Financial Crisis).

    While he’s critical of Costello’s failure to understand the dynamics of monetary policy, and for yielding to Howard with unsustainable tax cuts and middle-class welfare, he lets Costello off lightly. He does not mention Costello’s hash of capital gains tax, when he abolished indexation and reduced the rate to 50 per cent – a “reform” that played into the hands of bankers and speculators and is largely responsible for our real-estate bubble and housing affordability crisis.

    His coverage of Keating’s reforms is testament not only to Keating’s determination, but also to the political luck of the Hawke-Keating Government. There is a revisionist story that Keating had it easy because there was bipartisan consensus on the need for reform, and that a Liberal Opposition could hardly object to a Labor Government deregulating the finance sector, reforming business taxes, and reducing tariff protection – policies in many ways straight out of the Liberal Party platform.

    Bowen dismisses this revisionist view – the Liberal Party, then as now, fought against every one of Labor’s significant reforms. It was its 13 year run in office that gave Labor a chance to take a steady path to economic reform, because they had the luck of an opposition in disarray. Perhaps Joh Bjelke-Petersen’s greatest contribution to public life was his “Joh-for-PM” push, which destabilised the Liberal Party long enough to allow the Hawke-Keating Government to embed its reforms.

    The main value of this work is that it tells us something about the person who could well be Treasurer later this year. He’s obviously on top of his economics, and he clearly has an understanding of economic history. He establishes his conservative credentials, most notably in his dismissive treatment of Jim Cairns’s utopian socialist vision. He’s also realistic about the political processes of economic reform. It’s difficult, but it can be handled with patience – his cover of good ideas badly handled, such as the proposed minerals resource rent tax, shows that he understands the need for sound process. He’s certainly not a “crash or crash through” politician, but rather he comes across as one who would maintain the Labor tradition of responsible economic management.

     

     

     

     

  • Peter Hughes, Arja Keski-Nummi and John Menadue. Part 1: Immigration Policy and Administration.

    This article and the two following articles were part of a policy series that was posted in May/June last year and subsequently published in book form ‘Fairness, Opportunity and Security’. This is a repost from 25/5/2015.

    Overview

    This paper sets out a broad design for Australia’s immigration, refugee and settlement policies for the coming decades.

    The issues are covered in three parts:

    1. Immigration Policy and Administration
    2. Refugee Policy
    3. Migrant Settlement and Citizenship Policy

    Part 1: Immigration Policy and Administration 

    1.1 Guiding Principles

    Australia’s planned immigration program has played a major role in Australia’s development over the last 70 years – directly adding 7 million people, including 800,000 humanitarian entrants, to Australia’s population and dramatically diversifying Australia from a predominantly Anglo-Celtic community to a multicultural society with more than 270 ancestries.

    Through immigration Australia has been able to gain some of the best human capital in the world to build a nation, as well as making a humanitarian contribution.

    Governments of both major parties have in recent years set Australia’s permanent migration programs at record levels in absolute terms and continue to do so (over 200,000 permanent migration and humanitarian visas planned in 2015–16). Temporary entry programs have also risen to unprecedented levels, well in excess of permanent visas.

    At the same time, however, public debate in Australia has been diverted to, and dominated by, the relatively narrow issue of asylum seekers arriving irregularly by sea.

    Immigration still has a major role to play in building Australia. It is important to our population, our economic development, to growing the workforce in an ageing society and to providing a population necessary to fund the overhead costs of a modern nation state occupying a huge continent.

    Based on a projection of the current permanent and temporary immigration framework, Australia’s population will increase to 38 million people in 2050. Without immigration, it would stagnate at about 24 million people. It is estimated that, based on the continuation of current policy settings, migration will have added 15.7% to our workforce participation rate by 2050 and 5.9% in GDP per capita growth.[1]

    Immigration also continues to play an important role in Australia’s ongoing integration with its near region by adding cultural and linguistic skills from regional neighbours that are important to Australia’s place in the Asian century.

    The benefits achieved through migration to date cannot be taken for granted. Many other countries are competing for relatively young, highly skilled, English-speaking internationally mobile people.

    In this context, Australia’s immigration policy needs to be reaffirmed and re-articulated for the coming decades to ensure that it continues to serve Australia as well in the future, as it has in the past.

    Australian immigration policy should be guided by the following principles:

    • Australia should continue to have a planned immigration program for nation building.
    • Australia’s immigration program should be in the national interest – serving economic needs, but also including generous components for entry of people based on close family connections and on refugee and humanitarian grounds.
    • Australia’s immigration program should continue to be based on objective selection criteria, which are non-discriminatory on the grounds of race or religion.
    • Australia’s immigration program should retain a core focus on migration for permanent settlement with a pathway to Australian citizenship. At the same time, it should recognise the massive growth in international mobility and make continuing provision for large-scale temporary migration, where it can meet national interests in economic, social, cultural and foreign policy areas.
    • Australian governments should continue to set annual permanent and temporary immigration targets and planning figures, including indicative figures for forward years, but these should be administered flexibly without inefficient micromanagement to achieve rigid targets.
    • Australian government planning should continue to document an optimum figure for net migration gain and use this as a key reference point in permanent and temporary migration program planning.
    • Australia’s immigration program planning should be supported by research into post-arrival outcomes of migration.
    • Australia’s immigration program planning should be supported by regular consultation with key stakeholders – States and Territories, business, unions, migrant groups and the broader community.
    • Australia’s immigration program should continue to be supported by targeted services to those migrants who need them, particularly refugees, to assist with early, productive settlement and integration into the community.
    • Australia’s immigration program should continue to be supported by an Australian citizenship policy which promotes early take-up of Australian citizenship to ensure that migrants become full and formal members of the Australian community.
    • Australian government leadership is needed to articulate a vigorous, inclusive and unifying multicultural policy in cooperation with State and Territory governments.

    1.2 Migration for Permanent Settlement

    Australian immigration policy should continue to foster migration for permanent settlement to meet economic, social and humanitarian objectives (the latter discussed Part 2: Refugee Policy).

    Migration to meet labour market needs should focus primarily on skilled workers with high-level, recognised professional, technical and trade qualifications. Programs should be designed to meet both long-term social capital needs to build a stronger skills base in the Australian workforce as well as short-term variable demand by employers.

    The permanent migration program should be designed to meet longer term needs and remain relatively steady over time, leaving demand driven temporary entry programs to adjust up and down with the economic cycle.

    Over the past decade, skilled people working in Australia under various temporary entry programs have increasingly become a feeder group into the permanent migration stream. Australian governments should continue to foster this approach where it meets the needs of the migration program and does not introduce perverse incentives into temporary entry programs.

    Australia should permit permanent residence on the basis of business ownership or general investment in the Australian economy on a strictly limited basis, after detailed evaluation of the outcomes of previous programs. It has proven difficult to measure the concrete benefits to Australia of this form of migration. It exposes Australia to risks inherent in “selling” visas, dubious sources of capital, extradition problems with wealthy migrants who subsequently become fugitives from justice without clear offsetting migration benefits or economic gains.

    The Australian government should establish advisory bodies, drawing on the skills of business, unions, demographers and State/Territory governments to design permanent and temporary entry programs that remain attuned to labour market needs.

    Australian immigration policy should continue to make provision for migration based on close family connections, particularly spouses, parents and dependent children.

    Policies in relation to spouse migration should continue to focus closely on the genuineness of relationships to ensure the integrity of this migration category. Adequate planning provision should be made to accommodate numbers of spouse visas consistent with Australia’s population growth and the greater interaction between the Australian community and foreign communities, rather than constraining spouse migration numbers with artificial ceilings and long processing times.

    Policies in relation to the migration of parents of previous migrants should recognise the natural wish of some migrants to be able to look after their parents in Australia, particularly in their later years. Given the high costs that people in this age profile may impose on government budgets, such migration should continue to require a commensurate financial contribution from Australian-based sponsors.

    Australia occupies a vast continent. States/Territories and regions have differing population, economic, labour market and social needs.

    To be successful, migration policies and criteria must continue to be sensitive to the specific needs of particular industries and geographic locations.

    State and Territory governments, regional governments and business should continue to be given the ability to sponsor migrants to meet their specific needs, while accepting responsibility for outcomes commensurate with their sponsorship of migrants.

    1.3 Temporary Migration

    Temporary entry programs have grown to unprecedented levels over the last decade.

    There were some 800,000 temporary entrants in Australia as at 30 September 2014 (excluding visitor visa holders, bridging visa holders and New Zealanders temporarily in Australia – which bring the total to some 1.8 million)[2]. The flow of temporary entrants such as temporary skilled migrants, students and working holiday makers is well in excess of the permanent migration and humanitarian program, reflecting increasing global mobility and Australian entry programs designed to meet specific economic, social and cultural objectives.

    Australia is in a position to continue to benefit from further growth in global mobility with well-designed, and internationally competitive, temporary entry programs, provided that the risks inherent in such programs are carefully mitigated.

    Temporary skilled migration is an important tool in meeting short term, fluctuating skilled labour market needs and should be expected to rise and fall relatively rapidly in contrast to a steadier long-term permanent migration program.

    Immigration policy should continue to enable responsible employers to sponsor foreign workers to meet short-term skilled labour market needs that cannot be met domestically. At the same time there must be program design safeguards to ensure that foreign workers are not less costly than available Australian workers and that there are sufficient protections built in to ensure that sponsors do not exploit foreign workers.

    Immigration policy should continue to facilitate the entry and stay of people who are seeking to study in Australia and depart at the end of their studies, as part of Australia’s education export and cultural exchange. The degree of facilitation should be closely related to the immigration risk factors. A high degree of scrutiny should be applied to those areas of the education system where abusive practices are evident.

    While immigration rules should provide access to permanent stay for foreign students, on the same basis as overseas applicants, there should be no guaranteed pathway to permanent residence for international students simply because of an Australian qualification. The export of education should be internationally competitive and stand on its own merits and not be subsidised by the permanent visa system.

         International education agents are in many cases the face of Australian education overseas. For consumer protection purposes, they should be subject to quality standards, registration and sanctions for misbehaviour in the same way that Australian migration agents are regulated.

    Immigration policy should continue to foster opportunities, on a reciprocal basis, for young people from selected countries to live and work in Australia for periods of one to two years under working holiday arrangements. Domestic labour market impacts, especially on Australian youth, should be monitored and evaluated. Potential abuses need to be quickly identified and policy should contemplate annual limits on visas if required.

    More recently, Australia has, on a small-scale, commenced assisting Pacific neighbours through targeted arrangements which enable temporary entry of seasonal workers in agricultural industries (the scheme is currently available to citizens of Kiribati, Nauru, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga, Tuvalu and Vanuatu).

    Migration policy should leave scope for limited amounts of unskilled temporary migration in the context of Australia’s engagement with its region. Program design should ensure that such foreign workers are able to benefit financially from the arrangements without exploitation, that such arrangements remain competitive for employers who are unable to secure a consistent Australian labour supply and that the workers return to their countries of origin.

    As a general point, many temporary entry programs are more inherently susceptible to abuse. It must be recognised that many foreigners temporarily in Australia with work rights are more at risk to exploitation than Australian workers because of their unfamiliarity with the Australian system, lack of informed networks and/or poor English language skills. Australian government and State/Territory government authorities should cooperate to ensure that such workers are given information on their rights and access to easily usable complaint mechanisms. Workplace inspection authorities must be adequately resourced to monitor for abuses in the workplace and sanction employers. It should be a criminal offence for employers to charge temporary skilled workers for sponsorship for either temporary or permanent residence.

    Policies in relation to temporary migration should take account of the phenomenon of “circular migration” and foster this when it is in the national interest.

    Australian immigration policy should continue to facilitate genuine tourists to Australia with fast and flexible visa and stay arrangements carefully calibrated to reflect degree of immigration risk.

    1.4 New Zealanders

    Under policy introduced by the Australian government in 2001 (in the context of arrangements for a reciprocal social security agreement between Australia and New Zealand), New Zealand citizens can enter and live in Australia indefinitely without meeting globally applied visa criteria, but do not have permanent resident status. They cannot access a range of government services without qualifying for permanent residence by meeting global migration criteria.

    New Zealand citizens entering Australia on this temporary basis have an advantage over citizens of other countries in that they can freely enter and live in Australia, with access to the labour market, without meeting the permanent residence visa criteria applied globally to other nationals. As at 30 September 2014, there were over 650,000 New Zealand temporary residents in Australia[3] .

    Some of these New Zealand temporary residents are able to meet globally applied permanent visa criteria and become permanent residents with a pathway to Australian citizenship. Many others do not have the skills and other attributes that enable them to qualify. This is resulting in what is unique in Australian terms – a long-term temporary population, including Australian born children, without access to permanent residence and Australian citizenship.

    The Australian government should evaluate the outcome of the trans-Tasman migration arrangements, including the changes introduced in 2001, with a view to considering whether all New Zealanders should in future be subject to globally applied arrangements or whether existing arrangements should be retained and some concessional arrangements should be introduced to allow long-term New Zealand temporary residents to transition to permanent residence.

    1.5 Immigration Policy and Regional Engagement

    Permanent and temporary migration programs have over the years have played an important part deepening Australia’s engagement with its region.

    India and China are now the top two source countries of permanent migrants. Asia-Pacific countries figure prominently in temporary skilled worker numbers. Nine Asia-Pacific countries are in the top 10 source countries of overseas students. Four Asia-Pacific countries are in the top 10 working holiday maker source countries. Asia-Pacific countries figure prominently in overseas tourism and a number of them are given the most facilitated electronic visa arrangements which Australia offers globally[4].

    The most recent region-specific initiative has been the Pacific Seasonal Workers Scheme.

    Australia has already invested significantly in cooperative arrangements on important, but relatively narrow, border management and migration control matters with regional neighbours.

    At the multilateral level, Australia should be working to develop broader regional cooperative arrangements to ensure effective routine consultation and co-operation on management of migration within the region. This should include regular migration, irregular migration and refugee protection.

    On a bilateral basis, Australia should continue to look at opportunities to strengthen and deepen its regional ties through migration arrangements that are in the national interest – including greater facilitation of travel for citizens of selected regional neighbours, whether permanent or temporary skilled migration, working holiday arrangements, student entry, tourism or expansion of seasonal worker arrangements. 

    1.6 Program and Border Integrity

    Australia has been able to achieve high level of success and of community support for a planned immigration program (which operates at a much higher level than other traditional immigration countries on a per capita basis) over many years because of its ability to effectively regulate movements to Australia in the national interest, maintain integrity of programs and achieve a relatively low population of unlawful non-citizens.

    Well-developed entry policies, backed by a careful risk management approach, have enabled Australia to make the most of the world’s mobile talent and adjust to different potential source countries over time.

    These policies have been supported by effective border management and compliance programs. These capabilities should be maintained at a high level. At the same time, they should be regarded as “processes” in support of Australia’s global activities to gain the best social capital for Australia rather than an outcome in themselves.

    Effective intelligence, supported by domestic and international interagency cooperation is vital in responding to dynamic irregular migration, crime and security risks. Equally, domestic capability to enforce immigration law, including removal of people without lawful authority to stay, is vital to the integrity of programs and also to protecting migrants – especially temporary workers.

    Australian immigration authorities need to use a variety of tools to ensure compliance with immigration law. These tools should always be proportionate to the risk presented. The use of “held” detention, except for very short periods to deal with identity, health and security risks, or risk of absconding, should be avoided as far as possible because of unnecessarily harsh outcomes which usually follow for those held in detention. Detention of children should be avoided wherever possible and special arrangements should be made for them if short periods of detention are unavoidable.

    Alternatives to detention which enable immigration authorities to remain in touch with persons of interest who do not have authority to remain in Australia should be used wherever possible.

    Any use of detention needs to be subject to rigorous external scrutiny of detention facilities and conditions as well as case-by-case examination of the reasons for detention of individuals being held for more than a short period.

    1.7 Managing Migration – Australian Government Capability

    Effective immigration programs do not run themselves. Australia needs an ongoing national capability to achieve domestic and international goals in relation to migration.

    These capabilities include a strong policy capacity, backed by evidence based research and active evaluation of program outcomes to inform further policy. The most well-intentioned policies can have unintended consequences and these must be quickly identified and policy rectified.

    This policy capability should be supported by a strong service delivery and operational network overseas and within Australia, backed by the latest technology.

    The case for full integration of the Australian Customs functions with the Department of Immigration has never been convincingly made and no major unrealised synergies or efficiency gains identified.

    The Australian Government should revisit the existing administration model to consider whether any real gains have been achieved or whether Australian Customs should become an operational agency within the broader portfolio or separated from the Department of Immigration.

    One of the great strengths of the Australian immigration system until recently has been an integrated national administration which brings together entry policy, citizenship policy and post arrival settlement services. This has ensured a close feedback loop to entry policy based on the practical experiences and outcomes for different cohorts of migrants.

    The migrant and refugee post-arrival settlement programs transferred to other departments in 2013, including the Adult Migrant English Program, should be returned to the Department of Immigration and Border Protection.

    1.8 Australian, State/Territory and Local Government management of immigration outcomes

    Consistent with its nation building objective, Australia’s immigration program necessarily impacts all states and territories, although to different degrees.

    The Australian government should put in place mechanisms to ensure that State/Territory and local government are involved in short-term and long range migration planning. Immigration, whether permanent or temporary, brings prosperity, but it also brings with it the associated costs for expanding infrastructure. It is important that governments put the necessary processes are in place to ensure that infrastructure planning and implementation reflects population growth from migration and as well as natural increase.

    The success of Australia’s immigration program has always depended upon community confidence in the efficacy of the program and its benefits for the country. All levels of government need to take responsibility for public education on immigration and its benefits.

    Peter Hughes is Visiting Fellow, Crawford School of Public Policy,
    Visitor, Regulatory Institutions Network, Australian National University

    Arja Keski-Nummi was formerly First Assistant Secretary of the Refugee, Humanitarian and International Division in the Department of Immigration and Citizenship 2007-2010.

    John Menadue was Secretary of the Department of Immigration and Ethnic Affairs, 1980-1983.

    [1] Migration Council of Australia, The Economic Impact of Migration (2015)

    [2] Department of Immigration and Border Protection, Temporary Entrants and New Zealand Citizens in Australia as at 30 September 2014.

    [3] Department of Immigration and Border Protection, as above.

    [4] Department of Immigration and Border Protection

  • The benefits of migration.

    In this article in fivebooks.com, Ian Goldin speaks about the benefits of migration although those economic benefits are often widely and differently dispersed. He points to the disconnect between the benefits of immigration and often the political downsides where some communities feel disadvantaged. He notes that the business community often calls for more migrants and refugees when politicians are moving in the opposite direction. Ian Goldin is Professor Globalisation and Development and Director of the Oxford Martin School at the University of Oxford.

    See link below:

    http://fivebooks.com/interview/immigration/

  • Measuring the misery of those forced to flee.

    Robert Shiller, a 2013 Nobel Laureate in Economics says

    ‘Under today’s haphazard and archaic asylum rules, refugees must take enormous risks to reach safety and the costs and benefits of helping them are distributed capriciously . It does not have to be this way. Economists can help by testing which international rules and institutions are needed to reform an inefficient and often inhumane system.’

    For link to article in AFR, see below:

    http://www.afr.com/opinion/measuring-the-misery-of-those-forced-to-flee-20160126-gme8ch

  • Which country has the world’s best healthcare system?

    On 9 February, the Guardian published a report on health systems around the world. It drew particularly on analysis of ratings by the Commonwealth Fund and its correspondents around the world. The UK’s national health service was ranked number one in the world. Australia was ranked number four.

    For Guardian article, see link below:

    http://gu.com/p/4f6vb/sbl

  • Business can take lead on refugees to end ‘execution by indifference’.

    In this article, Tony Shepherd, former President of the Business Council of Australia, urges Australia to be more generous in helping asylum seekers from Syria. He says:

    ‘As I stare out the window on the plane ride home (from the refugee camps in the Middle East) I think that if history has taught us nothing else, it is that generosity is always rewarded. Our nation, Australia, was built by immigration;  it has been the secret of our success. In the aftermath of the Second World War, the nations that chose to open their hearts and invest in new people, over the decades to follow, came to dominate diplomacy and lead in the global economy.’

    See link below to this article by Tony Shepherd in the AFR.

    http://www.afr.com/opinion/business-can-take-lead-on-refugees-to-end-execution-by-indifference-20160202-gmjcyj

  • John Menadue. Wasting food in France is now illegal.

    The Australian edition of Huffington Post carried a very encouraging story on 4 February this year that it is now illegal for supermarkets in France to waste food.

    Both Chambers of the French Parliament have unanimously voted to ban large foodstores from throwing food away.

    Supermarkets must either compost or donate unsold and nearly expired goods to charity. The law also prohibits stores from pouring bleach over food items to prevent homeless people from foraging. Schools across the country must begin to educate students to overcome food waste.

    Another law which went into effect on New Year’s Day makes it mandatory for large French restaurants to provide ‘doggy bags’ or take-away containers.

    These actions by the French Parliament have been welcomed by charities and French food banks.

    According to the Huffington Post, France is the first country in the world to adopt food waste legislation of this kind.

    Hopefully other countries and the Australian states will think seriously about it

  • John Menadue. Making the Federation work better.

    The Abbott Government decided that over the next decade commencing in 2017 the Commonwealth Government would reduce grants to the states for education and health by $80 b. This is likely to produce a major and concerted campaign by the states to protect their hospitals and schools. It does provide an opportunity for more effective cooperation between the Commonwealth and the States in the health sector. I have reproduced below an article on this subject which was posted in May last year as part of the policy series co-edited with Michael Keating. I argue for the establishment of a joint Commonwealth State Health Commission in any state that will cooperate. In addition to this state by state approach, it might also be possible to build cooperation on a region by region basis. I do not think that a major change in constitutional arrangements is possible or that the Commonwealth will concede completely to the States or vice versa. But I believe that a pragmatic and step-by-step approach could be successful.  See repost of article below.

    Repost

    State governments spend about 25% of their budgets on health and another 25% on education. A cooperative arrangement between the commonwealth and state governments in one of these areas would greatly improve the operation of our federation. This article will focus on possible cooperation in health.

    A State handover of health services to the Commonwealth, as suggested by Tony Abbott many years ago, would be one way to overcome the waste and buck-passing between the Commonwealth and State governments in health. Kevin Rudd suggested that his government might take over state hospitals. Opinion polls suggested that the public would support this approach. But Kevin Rudd backed away. In passing it should be noted that the Commonwealth has no recent experience in running hospitals. It is not an easy task.

    But as a Commonwealth takeover is most unlikely, an alternative would be to establish a Joint Commonwealth/State Health Commission (Joint Health Commission) in any State where the Commonwealth and a State government can agree – a coalition of the willing, a Commonwealth/state partnership on a state by state basis.

    It is envisaged that the joint commission, with shared Commonwealth/State governance would be responsible for funding, planning and integrating all health services in that State. Consistent with an agreed plan, the Commission would then buy health services from existing providers – Commonwealth, State, local, NGO and private.

    A political agreement between the Commonwealth and any State is essential. If this political agreement is achieved, we would see a more cohesive and integrated health service, delivered much more efficiently. Once the benefit was clear in one State, hopefully other States would follow.

    I believe that this proposal would have strong public support. We are tired of the blame game.

    Either the Commonwealth government or any State government could initiate the breaking of the impasse.

    Background

    The Commonwealth Government provides about 43% of national health funding and the State Governments and territories 26 %. Another 31% of funding is from non-government sources (mainly individual users of health services).

    In both the NSW and SA health reviews that I chaired some years ago, a view was widely expressed that it’s all very well for State governments to review their health systems, but a major problem is the inefficiency, fragmentation, gaps, cost and blame shifting which results from the different roles of the Commonwealth and State governments in health’. This view was expressed, not only by those working in the health system, but also by the community generally. It was also frequently expressed by the media. The problem of divided responsibilities is well understood. The public doesn’t really give a hoot who plans and delivers health services. The public’s real concern is that the services are provided efficiently and equitably.

    Integration of commonwealth and state health functions are essential. Professor John Dwyer, in this blog, estimated   that more than 600,000 state hospital admissions per year could be saved if there was more timely community intervention which is funded by the Commonwealth.

    A solution requires a political agreement between the Commonwealth government and at least one State. The political issue cannot be avoided and attempts to get around this issue are likely to be unsuccessful, time-consuming and cumbersome. A bureaucratic or organisational response to a political problem will be unsatisfactory. The issue must be addressed politically. If there is political agreement, governance, financial, administrative and other issues could be successfully managed.

    Such an approach would not produce a unified national health system, but six (excluding the territories for the moment) joint health systems which are State-based. Nonetheless, this would be superior to the present division and fragmentation. The six State-based joint commissions may also better reflect the different history and needs of respective States. One size doesn’t necessarily fit all.

    The states may also be now more interested in what is proposed here because the 2014 budget suggests that over the next 10 years the Commonwealth will contribute $ 50 b less to state hospitals than the outgoing Labor government proposed. There was no certainty that this 10 year funding would have remained in place but I don’t think there is any doubt however that the Abbott government will attempt to shift more responsibility to the states for hospitals and schools.

    A Joint Health Commission in any State where the Commonwealth and the State could agree would have the following characteristics.

    1. Coverage of Joint Health Commission

    The wider the coverage the better to ensure real and comprehensive resource allocation and integration of services across the full continuum of care. The following programs should be included as the planning responsibility of the Joint Health Commission.

    • State Health (including Health Care Agreement)
    • High level residential aged care
    • Department of Veterans’ Affairs (DVA)
    • Home and Community Care (HACC)
    • Commonwealth Regional Health Services in rural and remote areas.
    • Medical Benefits Scheme (MBS)
    • Pharmaceutical Benefit Scheme (PBS)
    • Aboriginal Health
    • Local Government health
    • NGOs (e.g. nursing services)
    • Public health

    State Health, HACC, etc. would tender for the provision of services to the Joint Health Commission. Similarly, local government and NGOs would tender, although allocations to them would probably need to be made through the State Health department.

    Private hospitals could probably be excluded from this coverage, as they depend on private contributions rather than direct government funding – except for occasional seed money. But provision should be made for private hospitals, along with local government and NGOs, to tender for supply of services to a Joint Health Commission, (see 3 below). The private delivery of health services should be encouraged where it is consistent with the state-wide plan and is delivered efficiently.

    Importantly, existing providers would continue to operate and provide services, and where appropriate, ministers – both Commonwealth and State – would continue to be responsible for their own services. But those services would be purchased by the Joint Health Commission as part of a state-wide plan, which I refer to under ‘functions’ below.

    2. Pooled Funding of Joint Health Commission

    The Joint Health Commission would receive a negotiated pooled allocation of funds from the Commonwealth and the State government. which reflected the coverage of programs for which it would be responsible (see 1 above), with appropriate population growth and cost indexation add-ons. As a starting point the shares of the two governments would reflect their current funding shares. Changes in the shares and total funding would be subject to the advice of the National Health Performance Authority (NHPA). That Authority would provide public advice to the two governments. The two governments would need to agree on annual funding arrangements.

    Whilst confidence in the funding formula is developed, it might be useful to consider shadow funding in the first 3 years and move to actual pooling of funds thereafter.

    3. Functions of Joint Health Commission

    1. a) Shared Resource Allocation through the purchase of various services from providers – Commonwealth, State and local government, and NGOs as part of a joint strategic plan.
    • In this case, shared resource allocation can be achieved through the establishment of a minimum set of Commonwealth and State programs.
    • The major changes associated with the JHC would provide an opportunity to move from producer dominated health care delivery to an output/patient focussed delivery system. So many of our health programs reflect provider interests; the MBS reflecting the interests of doctors and the AMA, the MBS reflecting the interests of the Pharmacy Guild and Big Pharma and public hospitals reflecting the interests of their providers, state governments. Patients are a secondary concern. We need to shift to a patient focussed health system in such key areas as chronic, acute and occasional care.
    • Funding would be allocated with agreed short and long term integrated outcomes, rather than siloed program outcomes, with specified standards and levels of performance.
    1. b) Shared Performance Management

    Oversee continuous improvement of the health system, monitor progress and establish reform targets and timelines:

    • Development of standard measurement
    • Benchmarking
    • Patient-centred best practices

    The NHPA provides an excellent opportunity for the establishment of a system that can meet the needs of consumers, community and health services. The NHPA can provide an approach that examines health status and outcomes, determinants of health, and health system performance.

    The NHPA should facilitate the mapping of progress for the population of a State, region or service. It could also be used to examine progress in tackling a particular health problem (e.g. aboriginal health), and to take a wider look at the interface between health and other government departments, the private sector and non-government organisations.

    4. Joint Health Commission Governance

    The following features could be included, and would ensure full Commonwealth and State government input into the state-wide plan:

    • Membership of the board should be high level to enable strategic decision-making on broad and longer-term issues.
    • Maximum transparency and disclosure of the Joint Commission’s work and final recommendations in order to neutralise special pleading and vested interests and to ensure public understanding and support.
    • The board of directors must have clear ‘governance’ responsibility and not a junior role. They should reflect the broad interests of the whole community and not be seen as representative of the Commonwealth or State or ‘insider interests’ that so dominate health systems in Australia.
    • Independent chair appointed by the two Ministers from a short list provided by the respective Commonwealth and State Health CEOs. It might be useful to have the chair from another State.
    • Apart from the chair, no jurisdiction to have more than 50% representation.
    • Representation could include other Commonwealth and State jurisdictions (e.g. Indigenous Affaires) and people having experience in the private sector.
    • The board would appoint the CEO who would be responsible to the board and not the two jurisdictions.
    • The board would approve the strategic plan and budget.
    • A constitution may be useful to provide more user-friendly objects, role, function and operating procedures, including engaging the private sector.
    • Subsidiarity should be an important principle for governors in developing the state-wide plan. Management and service delivery should be driven down to the lowest and most local level possible, consistent with state and nation-wide standards.
    • The Board should have a small secretariat, but rely on Joint Health Commission for planning etc. It must avoid a new level of bureaucracy.
    • Board costs would be shared by Commonwealth and State.
    • The Commonwealth and State minister would be responsible for negotiating high-level policy principles, including overall funding on the advice of the board. This would help reduce the risk of the board dividing on Commonwealth/State lines. Ministers must reach broad agreement if the Joint Health Commission is to work.
    • The board should be responsible to the Commonwealth and State minister, with one financial report to both. If there is not agreement between the two ministers, there would be a public dispute resolution procedure which would encourage cooperation and dialogue between the two ministers. This would encourage public trust in the integrity of the process. I would expect that this would produce an agreement in almost all cases. If resolution is not possible, the Commonwealth minister would prevail; given the need for a stronger national role and that the Commonwealth Government provides 43 % of national health funds compared with 26 % by the states.

    These governance arrangements could be reviewed in 5 years.

    Summary   

    A Joint Health Commission established upon agreement of any State with the Commonwealth would be a substantial improvement on the present arrangements. It would help break the impasse on federalism and better integrate health services. It requires a political decision between the Prime Minister and premier.

    The public is tired of the blame shifting and fragmentation in health and would respond to a sea change such as this. Such a joint health commission in any State that agreed would help achieve what both of them are seeking in health – a better integrated health system and a favourable community response, A committed Commonwealth government could use its financial leverage to make such an offer attractive to the states.

    A Joint Health Commission in any one State could begin to address the ‘big ticket’ problems in health delivery – the Commonwealth/State fragmentation, an eroding primary health care system, an antiquated workforce structure and obvious system failures in safety and quality.

    Of course, the fragmentation in health is not just caused by Commonwealth-State fragmentation. The two big Commonwealth programs – MBS and PBS – are not effectively integrated.

    All these big-ticket issues are lost sight of in the argy-bargy of Commonwealth/State blame and cost shifting.

    Not only would a Joint Health Commission in one State be a substantial improvement, it would also be very symbolic, demonstrating that governments can address hard political issues in a cooperative way.

    We must stop asking continually for more money or tweaking the health dollars, when many problems are structural. A lot of health spending is counter-productive – throwing money at problems to get them out of the media or for short-term political gain, rather than solving systemic problems. Any increase in health dollars must be accompanied by system change. A Joint Health Commission starting in one State is a sound way to begin breaking the impasse.

    The key is political will by ministers. If there is the political will, the governance problems can be resolved.

    There is no reason that the principles proposed above in health could not be applied in other fields such as education.

    John Menadue AO was formerly Secretary Department of Prime Minister and Cabinet, Secretary Department of Trade, Ambassador to Japan and CEO of Qantas.

  • John Nieuwenhuysen. Multiculturalism Today and the Little Evil

    According to the ABS, the proportion of Australians born overseas has reached its highest point in 120 years. At about 6.6 million people, the overseas born represent 28 per cent of the country’s total, and, since 2005, migration has contributed half of total population growth. Some 47 per cent of Australians in 2015 were either born overseas or have parents who were.

    The diversity of Australia’s population has also increased, and the days of White Australia are long since gone. The traditional major country sources of immigration remain Britain and New Zealand, which represent 20.8 and 9.1 per cent respectively of our overseas born population. But Asian migration has been rising; and, in 2015, 6 per cent of Australia’s overseas born were from China; 5.6 per cent from India; 3.5 per cent from Vietnam; 3.2 per cent from the Philippines; and 2.2 per cent from Malaysia.

    How do the Australian people view continuing high levels of immigration, and its increased diversity, at a time of record overall population growth? And how stands its opinion of multiculturalism?

    According to the annual surveys by Monash University’s Professor Andrew Markus for the Scanlon and Australian Multicultural Foundations [Mapping Social Cohesion, 2015, National Report P.41], there has been “a consistently high level of endorsement for multiculturalism.” In response to the proposition that “multiculturalism has been good for Australia,” the survey found agreement in the three years 2013, 2014 and 2015 in the range of 84-86 per cent. The proportion in the survey registering strong agreement with the proposition increased from 32.2 per cent in 2013 to 43.3 per cent in 2015.

    Since, as Professor Markus notes, the meaning of multiculturalism in Australia is open to interpretation, survey respondents were asked to indicate their agreement with five different statements on multiculturalism. The survey showed that “the strongest positive association was with its contribution to economic development [75 per cent agree] and its encouragement of immigrants to become part of Australian society [71 per cent.]”

    This positive attitude to multiculturalism has co-existed not only with a high net overseas migration intake but also temporary admissions of entrants and New Zealand citizens to Australia, totalling close to two million people.

    This persistently high net migration level and such a great number of temporary entrants would in past years have aroused heated debate. As Professor Markus notes [page 34]: “Whereas in the early 1990’s, a large majority [over 70 per cent at its peak] considered the intake to be ‘too high’, most surveys between 2001 and 2009 indicated that opposition to the level of intake was a minority viewpoint.”

    Subsequently, in the last two years, with the collapse of the mining industry, slow Chinese economic growth, and government deficits, Markus [page 34] notes that there it was expected that support for the existing level of immigration would fall. But instead the reverse has happened-in both 2014 and 2015, Markus found that around 60 per cent of respondents considered that the intake was “about right” or “too low”.

    Professor Markus speculates on the reasons for this continuing support and considers [page 35] that, among other causes, it may reflect the “…perceived effectiveness of government asylum seeker policy…” as well as possibly a misunderstanding of the numbers of asylum seekers.

    Any observer who recalls the heated debates about immigration policy in the early 1990’s, when the Commonwealth Bureau of Immigration Research provided a plenitude of both scholarly works and public forums, and compares that time with today, can note how the asylum seeker controversy dominates current media coverage. That concentration seems to have pushed aside previous issues, such as the size and composition of the migrant intake.

    In many ways, I think this is highly unfortunate. Australia has enjoyed a good reputation for its successful settlement of people from all around the globe. Now, the harshness and inhumanity of the “Stop the Boats” policy is dominating the image of the country. The obsession of both major political parties to try to ensure that Australia is absolved from facing up to the harsh reality that wars, poverty and civil strife create streams of legitimate asylum seekers, is a deep scar on the country’s contemporary history, especially since it has public support. In particular, it ignores the great success of the absorption, under the leadership of Malcolm Fraser, of such a multitude of refugees after the Vietnam war.

    The credit that Australia deserves for its overall immigration program is thus being sadly undermined by a harsh and obstinate attitude to asylum seekers, and a neglect of obligations under the UNHCR convention. Hugh Mackay [The Age, January 26] has rightly damned the policy as “…immoral, because it treats people who have committed no crime as criminals….and fails to honour a moral principle we should claim as one of Australia’s core values-fairness.”

    Perhaps political leaders think silently of the asylum seeker policy as a little evil which is compensated for by the great, enlightened good of the general immigration program. But as the author of Cry the Beloved Country, Alan Paton once wrote:

    “Consent to a little evil, and it will grow…and a great evil will overwhelm us…No shame or remorse will save us then. Therefore consent not to… evil at all.”

    John Nieuwenhuysen AM FASSA is an Emeritus Professor at Monash University

     

  • What’s holding back the world economy.

    In this article from The Guardian, Joseph Stiglitz points to the slow growth rates in the developed world and the reasons for them. He says that

    ‘In the US, quantitative easing did not boost consumption and investment partly because most of additional liquidity returned to central banks’ coffers in the form of excess reserves. … It appears that the flood of liquidity has disproportionately gone toward creating financial wealth and inflating asset bubbles rather than strengthening the real economy. … The risk of another financial crisis cannot be ignored. … [We must] begin with re-writing the rules of the market economy to ensure greater equality, more long-term thinking and reigning in the financial market with effective regulation and appropriate incentive structure.’

    See link to article below:

    http://www.theguardian.com/business/2016/feb/08/whats-holding-back-world-economy-joseph-e-stiglitz

  • Trevor Boucher. Tax principles and negative gearing.

    I just wish that current comment about negative gearing would pay some attention to tax principles. Tax principles? Yes, they do exist.

    A person who negatively gears a rental property has two objectives in mind: getting a rental return and reaping a capital gain on disposal.

    The interest paid out is in pursuit of both objectives but the difficulty of apportioning it to each of those objectives means that the whole of the interest is charged against income, even income from other sources.

    The excess interest over rents received could by legislation be quarantined to future rental income, or held for deduction against the capital gain on disposal.

    Money has a time value. Deduction of excess interest against current income provides a present benefit but the tax impact of the capital gain is deferred until the gain is realised. Meanwhile the person’s wealth increases as the property’s value rises.

    Taxing capital gains helps to redress the imbalance. But that redress has been damaged by the fiscal vandalism represented by taxing only half of a realised capital gain.

    A dollar is a dollar is a dollar. Whether a dollar receipt comes from personal exertion or from property investment it carries the same taxable capacity.

    Remove the fifty per cent capital gain discount and negative gearing loses some of its shine.

    Trevor Boucher was Australian Commissioner of Taxation 1984-93. This was followed by two years as Australia’s Ambassador to the OECD.

     

  • Paul Budde. Building Australia’s white elephant – cheap buy for white knight Telstra.

    The following piece by Paul Budde foreshadows a ‘white knight’ role for Telstra when NBN fails.  He says:

    We are now getting a second-rate network and the first signs from customers, as we heard in a recent Senate Hearing, are not good. This is in line with our assessment. An MtM network, by its very nature a mesh network, will not be able to deliver consistently good quality services to all customers. Telcos and ISPs are not happy with the second-rate system and want to bypass the NBN with their own fibre and mobile services. And there has been dead silence from the government on the potential economic role the NBN has in relation to innovation, healthcare, education and so on. Belatedly the NBN company is now arguing that the NBN debate should move from politics and focus on what we, as a nation, want from it. …

    The white elephant scenario that the government is now pursuing will see the NBN fail, as it is not future-proof and consumers and businesses will want a better network. In other words, large parts of the $50 billion+ investment in the NBN will not be valued by the market at the time of sale – that is if the government relentlessly and single-mindedly pursues its MtM NBN.

    This piece was first published in budde.com.au on 19 February 2016. For the complete article, see link below:

    http://www.budde.com.au/News/#Building-Australia’s-white-elephant-cheap-buy-for-white-knight-Telstra

  • John Menadue. Hoist with their own petard

    Private health insurance funds like NIB are complaining about high specialist fees. But these very same funds are major contributors to the problem. And it is a problem. In the last 30 years we have seen a dramatic increase in specialist fees.

    A major contributor to this increase in specialist fees is the ‘gap insurance’ that private health insurance firms offer. Gap insurance effectively underwrites specialist’s ability to increase fees and weakens Medicare’s ability to cap fees. In the AFR today, NIB gives two examples of how this is done. For prostatectomy (surgical removal of prostate) the Medicare Benefit Schedule Price is $1,939, but with gap insurance NIB offers to cover this up to $2,941. For knee replacements, the Medicare Benefit Schedule Price is $1,318, but with gap insurance NIB offers to cover this up to $2,014.

    But that is not the end of the story by any means.

    The growth of private health insurance makes it more difficult for Medicare to control fees. Instead of the Medicare Benefit Schedule Price capping fees, the Medicare price is just the first stepping stone to higher fees. Whilst NIB will pay up to $2,941 for a prostatectomy, compared with the $1,935 in the Medicare Benefit Schedule, the AMA has a recommended fee of $4,465. And on top of that AMA recommended price, NIB tells us that some surgeons are charging another $6,000. Yet we have a Royal Commission on Trade Union behaviour!

    NIB reveals the same pattern for knee reconstructions. The Medicare Benefit Schedule Price is $1,318 but that is ratcheted up to $2,014 through NIB gap insurance. And then it goes up to $3,960 to the AMA recommended fee. To top this off, NIB advises that some surgeons are charging between $4,500 and $5,500.

    There are many reasons why health costs are rising. Private health insurance companies like NIB and specialists are major contributors.

    The ‘market’ that economists talk about does not work in the health sector. Providers, doctors and hospitals, have the power to set prices as the above figures show.

    With the ‘market’ not working there are really only two ways for governments to avoid price and fee gouging. The first is through price control. That is largely the way that Japan keeps its healthcare costs down. But that approach is unlikely in Australia given our constitution and political situation.

    The second is to have a single public payer to counter the power of providers. That is generally what countries with successful health schemes do.

    Medicare was designed as a single payer. But its power has been diluted by the growth of private health insurance with gap insurance. We are steadily moving down the disastrous US path. And the Australian taxpayer is paying $11 b. p.a. to subsidise these destructive private health insurance funds.

    We should have no sympathy for NIB, BUPA and Medibank Pte about rising costs. They are major contributors to the problem. And they get bundles of money from taxpayers despite the damage they do.

  • John Menadue. Part 2. How we deliver healthcare is as important as the funding of healthcare. Medicare has degenerated into a payments system.

    In Part 1 I focussed on the importance of improving the delivery of health care and not just funding.

    In Part 2 I will focus on specific areas where costs should be reduced.

     

    Part 2

    Getting costs down

    • The government should abolish the subsidy for private health insurance which costs all up about $11 billion p.a. This welfare subsidy is one of the fastest growing areas of Commonwealth government health expenditure. We have never had high income welfare recipients on such a scale before .PHI is the Damocles sword hanging over our health system. PHI is the reason for the disastrous American health system. High levels of private health coverage in Australia are achieved not through the attractiveness of the products on offer but mainly through the carrot of the tax subsidy and through the stick of penalising the uninsured. The subsidy favours the wealthy, is inefficient, has underwritten rising specialist fees through gap insurance, has not taken the pressure off public hospitals and has weakened Medicare’s ability to control costs. PHI discriminates against country people where there are few private hospitals. The immediate abolition of this subsidy would do more to improve our health system than anything else. This is welfare big time- far more than the welfare we used to pay to the motor industry. The abolition of the $11 b. subsidy would more than fund a universal dental scheme. Alternatively, say $5 b. of the saving by abolishing the subsidy could be paid directly to private hospitals through an activity based funding arrangement. It is absurd that public funds should be churned through high cost private health insurance rather than being paid directly to hospitals. Before the Howard government, Commonwealth government funds were paid directly to private hospitals, but this was discontinued. Direct Commonwealth funding for both public and private hospitals would also substantially improve the integration of hospital care. But private hospitals would oppose this because they find it much easier to twist the arms of private health insurance companies. And some of the major hospital groups, particularly Ramsay, are generous donors to the Liberal Party.
    • We need a more productive workforce. Health is the largest and fastest growing sector in the Australian economy. Despite all the talk of improving productivity in Australia no-one has been game to take on the entrenched privileges in the health workforce.Where is the honesty and consistency here? The blue collar workforce is fair game but not doctors and lawyers. We need expanded roles across the board particularly for nurses, pharmacists, allied health workers and ambulance officers. The Productivity Commission in its February 2007 report estimated that a 5% improvement in the productivity of health services would deliver savings of about $3 billion p.a. This is a very conservative estimate. The health sector in Australia is rife with demarcations and restrictive work practices. eg 5 % of normal births in Australia are delivered by mid wives. In the Netherlands it is 70%, in the UK 50% and in NZ 95%. We have a few hundred nurse practitioners when there should be thousands. The work practices in most industries are light years ahead of the work practices in the health sector.
    • Fifteen years ago 45% of doctors were GP’s. It has fallen to about 35% yet we know that care is most equitably and efficiently delivered by GP’s. Specialists are reactive and we all know they have become very expensive thanks to gap insurance provided by private insurance companies.
    • We could save about $2 billion p.a. in drug costs if we paid drug suppliers the same prices that are paid in NZ. We also pay a high price for the protection of pharmacists through the 5000 limit on the number of community pharmacies and the restrictions on where new pharmacies can be located. Pharmacies cannot be established in supermarkets.
    • We need to raise productivity in our hospitals. The Productivity Commission suggests that the productivity gap in best practice in public hospitals ranges from 3% to 89%. In private hospitals the range is 22% to 37%. There are major governance problems in many hospitals with a dis- connect between management and clinical functions. Running hospitals is very difficult with clinicians coming and going from private practise like the cottage industries of old.
    • The Commonwealth/State fragmentation in healthcare results in blame-shifting, the evasion of responsibility and higher costs. If for example the Commonwealth Government or a joint Commonwealth/State body had responsibility for all health care funding in a state or region, there would be a clear incentive to focus on treatment in the community and in homes to ensure that the high cost hospitals are really a last resort. The National Health Performance Authority found that in 2013/14 over 600,000 hospital admissions for 22 conditions could have been avoided with timely interventions in the community, mainly by GP’s. But the problem in doing this is that the Commonwealth government funds general practice and state governments operate hospitals.
    • The real elephant in the room in health care cost reduction is avoidable mistakes, including deaths. They are euphemistically called “adverse events”. But Ministers, clinicians and managers do their best to avoid the issue. Based on earlier surveys in NSW and SA I estimated, very conservatively the cost of avoidable mistakes in our health sector at $5b pa (see my blog of June14, 2013). Despite a great deal of money and effort there is no sign of improvement. Insiders won’t solve the problem Good people are caught in a bad system.
    • Only last week, Medibank Private said that $800 m. p.a. could be saved if a reference pricing system with Australian and global benchmarks was introduced for prostheses such as for hip and knee replacements, plates and pacemakers. Medibank Private said that prices for identical products could be 45% lower in the public system compared with the private system. With differentials like that it is no surprise that private health insurance premiums have increased at three times the rate of inflation.

    The quality of our health care is generally good but waste and inefficiency is deep and widespread.

    We need to address waste and costs in a measured way. We should not panic, but we should get it done. Australian healthcare costs are 9-10% of GDP. This is not high by world standards. It is below the OECD average. A major reason why we have been able to do better than others is that we have Medicare as a public insurer. One lesson is clear all around the world. The countries that have high levels of private health insurance, like the US, have high costs.

    A fundamental problem in the health sector is the way we deliver healthcare. But we keep focusing only on funding. We have a horse and buggy health delivery system that is unfit for the 21st Century. Medicare takes that horse and buggy delivery system as a given.

    I have almost given up hope that the ALP will restore Medicare to what was intended, a single payer and a strong public insurer.

    The vested interests don’t want change in the way we deliver health care. They must be delighted to see how gutless the ALP is.

    More and more money will not necessarily improve the delivery of health care and neither should we expect it to. It will mainly entrench a lot of bad habits and the position of vested interests.

     

  • John Menadue. Privatising Medicare’s payments system and the erosion of Commonwealth Public Service capability.

    The government has apparently accepted the advice of the Commission of Audit that Medicare’s payments system should be reviewed with the possibility of privatisation. The payments system includes Medicare, the Pharmaceutical Benefits Scheme, Aged Care Services and Veterans’ Affairs.

    It sounds like another expression of neo liberalism, that only the private sector can be efficient and cost-effective.Let us see whether that is so through market testing. I remain sceptical.

    As a regular user of Medicare services and payments, I am not aware of problems in the payments system. But if there are problems, the government should fix them.’.

    This proposal on privatizing Medicare payments is part of the continuing trend to degrade government capability in both policy and administration of programs. The Australian Public Service is becoming short of senior people who understand the complex world of business strategy and those things required in commissioning the delivery of services or planning infrastructure investments and their delivery. In social policy it is not at all clear that the Commonwealth now has the people who understand the big systems that are so essential to a large part of what the public sector does.

    In between jobs, the new Secretary of PM & C put the problem this way in an interview with Laura Tingle in the AFR in May 2015. He said:

    ‘I think our institutions are being eroded in their capability and eroded in public trust. … Over time large parts of the public service have lost their policy development edge.’

    He has been replaced in Treasury by John Fraser, most recently a banker. Yet much of the governments’ deficits around the world have occurred as a result of governments having to bale out the banks for poor decisions and poor risk management.

    The problems that we apparently have with Medicare are common to many agencies. Good accounting in government has been abandoned and replaced with narrow financial metrics. Outside a few agencies, there just isn’t the capacity to do proper cost/benefit analysis. Many decisions are made on the run on the basis of cash outlays over four years.

    This failure of government administration suits private providers who exploit ministers’ and bureaucrats’ lack of analysis capacity and the domination of short-term cash outlays in the public presentation of the budget.

    It also suits neoliberals to get as much off the budget as possible even if the community is worse off. This is happening in the health sector. Some government expenditure is relieved by pushing business towards private health insurance, but we know that administrative costs of private health insurance are three times higher than Medicare. Furthermore we know that the growth of private health insurance makes it harder for Medicare to control fees. So whilst the budget may look a little better, the community is much worse off.

    We have had glaring examples of how government policy, capability and operations have been run down to the benefit of accounting and consulting firms who come and go with projects and their ‘economic models’, but there is little building of intellectual capital in the process.

    Staff numbers in the Australian Taxation Office have been cut back at a time when we have record tax avoidance and hundreds of our major companies paying no tax at all.

    I have rarely seen a root-and-branch criticism of a department as we saw with the Australian Public Service Commission Capability Review of the Department of Health and Ageing last year. The Secretary of the Health and Ageing at the time is now Secretary of Finance.

    The Department of Immigration and Border Protection has become securitized with a focus on border protection and control at the expense of nation-building and humanitarian programs. Senior and competent people with knowledge in nation-building and refugee programs have left the department. We see the result most graphically in the snail-pace response to settling 12,000 refugees from Syria. Less than 10 have arrived! Canada has put us to shame.

    The Attorney General’s Department failed to tell security agencies about the risk of Mann Haron Monis weeks before he entered the Lindt Café. The Attorney General’s Department has carriage of the policy and implementation of ‘meta data’ through the Data Retention Act. We were told at the time it was urgent because of the terrorist threat. But the policy cannot be introduced until the end of 2017at the earliest because of flawed implementation. AG’s department has just not been up to the job.

    One reason for the pink batts problem was the loss of  implementation capability in the Department of the Environment. That same department has bungled the approval of the Carmichael mine.

    The Department of Defence is subject to very little effective checking of its very expensive capital projects. It keeps making the same mistakes. As John Stanford put it in this blog on 11 December last year

    ‘Our defence acquisitions keep repeating the mistakes of the past, from mixing and matching systems inappropriately and accepting excessive risks, to allowing political judgements to override efficiency considerations and the proper regard for the public purse. In the new submarine acquisition, we seem to have learned nothing from the Collins Class procurement’.

    When the new submarines are delivered China and India will have nuclear submarines.

    The Department of Defence has a one-line budget appropriation which effectively denies rigorous examination of mega-dollar projects by the Department of Finance and others.

    The sorry story continues with the mega funding of roads. As Mike Keating and Lucas Fraser pointed out in the policy series in last year’s blog

    ‘A reasonable projection of planned road expenditures indicates that the accumulated stock of debt to FY 2023-24 could be of the order of $114 b. When added to the already accumulated debt, this amounts to a total accumulated road-derived public sector debt of $140 b. within a decade, a matter than until now has been entirely unreported’. Where is the Department of Transport or Infrastructure Australia when we have such gigantic and wasteful expenditures on roads”?

    There is a dismal and concerning story about how the capital of government is being deliberately eroded.

    We are paying a very heavy price for neoliberalism and the down-sizing of government that goes with it. The selling of Medicare’s payments system may be another step along this path.

    The coinage of the Australian Public Service is being seriously devalued. Can the threads of good policy development and administration be recovered? It is getting late.

  • John Menadue. Part 1. How we deliver health care is as important as the funding of health care. Medicare has degenerated into a payments system

    Part 1 of these articles will focus on the inefficient way we deliver health care, the many perverse incentives and the power of vested interests to resist reform in health care delivery.

    Part 2 will focus more particularly on examples of waste and inefficiency in health care delivery

    Part 1

    We have been told many times that our health system is unsustainable.

    To justify its case for an increase in the GST, the government was telling us that an increase was necessary because of rising costs in health and education. Now the GST is apparently off the table as Malcolm Turnbull retreats on yet another issue.

    Some premiers and commentators suggested that an increase in the Medicare levy was best because it was fairer than an increase in the GST. And we will hear a lot more from the premiers about health because the Abbott Government said it would cut $ 80 b from grants to the states for education and health over the next decade commencing in 2017

    But what is being avoided in all this confusion about budget repair and health costs is that there is no real discussion about the waste, inefficiency and low productivity in our health sector. We continue to focus on the funding of our health sector, but refuse to debate how the delivery of care – its cost and safety – can be improved. Medicare is overwhelmingly discussed in terms of funding only. It should also be about how those funds are spent to improve the delivery of health services. Basically Medicare funds an existing system of health care delivery. That needs to change.

    There are three main reasons for our failure to address the delivery problems in health care.

    The first is the power of the vested interests. These vested interests fight doggedly and selfishly to maintain their privileged position in health delivery. The principle vested interests in health are the AMA, the Pharmacy Guild of Australia, Medicines Australia and the private health insurance sector. In an earlier blog I said that the Health Ministers may be in office, but they are seldom in power. The vested interests –the providers- are really in power.

    A second reason for the failure to focus on delivery of health services is that politicians are afraid of the vested interests – doctors, pharmacists, pharmaceutical manufacturers and suppliers, and the private health insurance sector.

    The third reason is the failure of economists and other commentators to consider efficiency in the delivery of health services. These economists talk continuously about the need for appropriate incentives, but in the health sector many of the incentives are quite perverse – such as fee for service.

    As Ross Gittins put it in a recent SMH article, ‘Like so many of the interest groups, econocrats are obsessed with funding education and health rather than ensuring both systems are working in ways that have found a good trade-off between fairness and efficiency, and effectiveness.’ … See link to article.

    These economists that we hear and see so often in the media are mainly employed by the banks. They have little or no knowledge or interest in health economics. They tie themselves in knots over the need for IR reform and improvements in productivity in the workforce generally. But over the years I have never heard any of them address the appalling work practices and demarcations in our health sector which really go back to the 19th Century. Yet our health and welfare sectors employ 13% of our workforce, the largest sector by far. It is also the fastest growing. At its worst, our waterfront never had the appalling work practices and demarcations that still persist across our whole health sector. Clinicians justify our archaic work practices on the grounds of safety when it is really territory they are defending.

    Economists are yet to grasp that health consumers have little power over prices or quality of care. Power is with the providers-doctors, pharmacists, drug distributors and private hospitals. That is why a strong public insurer is essential to counter the power of providers. If there is not a strong public insurer we will follow the disastrous path of the US that has the most expensive and unfair health system in the world. But our economists who say they believe in markets will not recognise the failure of the health ‘market’.

    On 4 Corners several months back, Norman Swann suggested that waste in health expenditures could be as high as 30% of our total health expenditures. I think that estimate may be on the high side, but it is clear that there are excessive costs. – see link to article ‘Four Corners: No wonder we’re wasting money in health care – we got the incentives wrong’ by Jennifer Doggett, Ian McAuley and John Menadue.

    In a paper in July 2007 I estimated that there was at least $10 billion in possible savings and productivity improvements in health. That represented about 10% of our total health costs in that year. I think it would be nearer 20 % or $ 30 b per annum. I have spoken and written extensively on this matter.

    The lack of accountability in health

    Despite the rapid increases in costs and escalating demand in the healthcare industry, there is no accountability in any meaningful way for what the health industry delivers. Doctors are accountable for malpractice but not for their overall performance particularly in general practise. Accountability is patchy in many private hospitals. Taxpayers have a legitimate reason to ask – ‘Are we getting value for money particularly when we pay 80 % of doctor’s incomes.’ In a survey several years ago by the Health Council of Canada, 97% of over 1,800 senior respondents said that healthcare providers should be required by law to reach certain service benchmarks in such areas as patient outcomes , the use of preventive strategies like screening and waiting times. There is the same lack of accountability in Australia.

    The Council also asked the group ‘Do you believe healthcare in Canada will improve if the government spends more money on healthcare?’ 58% said ‘no’.

    Managing the demand for health services

    The demand for health services is increasing rapidly across all age groups and not just among the old. We are over-diagnosed and over-treated. In 1984-85, medical services per head were 7.1 per annum. In 2007-08 they were 13.1 per annum – about double. The trend continues.

    • We must accept that we cannot have all that we want in health and that governments, in consultation with the community, have to set priorities. Can we afford continuing existing levels of funding for IVF and end-of-life treatments at the expense of funding for mental health and indigenous health?
    • We need to rationalise our co-payments to make them efficient and equitable. We all should take more responsibility for the way we use health services, particularly as we are now much wealthier than we were 30 years ago when Medicare was introduced. A universal health scheme does not have to be free. But it must be fair and efficient. But co-payments are a dog’s breakfast! We pay about 18% of health costs out of our own pockets, but there is very little rhyme or reason in how this is done.
    • The best way to curb the long-term growth in health spending is through prevention in such areas as alcohol, smoking, junk food and obesity. Our sporting, alcohol and junk food sectors are in a joint enterprise to promote poor health. But the first action of the Abbott Government in its first budget was to abolish the Australian National Preventive Health Agency which was focussing on lifestyle risk factors.
    • We need to change the perverse incentives, such as fee-for-service, which is associated with bulk-billing. Clinicians are rewarded by the number of transactions rather than health outcomes. It promotes what is called ‘turn style medicine’ FFS is particularly inappropriate for chronic care, mental health and services with high fixed costs and low variable costs, such as imaging. The government should move away from fee for service and set budgets for general practitioners when they prescribe drugs, order pathology tests or imaging services. We need more doctors on salaries and capitation payments for caring for patients-not on a service by service basis. Hopefully, the Medicare review will grasp this nettle.
    • We need to tackle the wide variations in the incidence of clinical practice across the country, e.g. caesarean sections and cataracts. In the Australian Atlas of Health Care Variations the Australian Commission on Safety and Quality in Health Care found ‘substantial variations in health care use in areas such as antibiotic prescribing, surgical, mental health and diagnostic services’ Medicare should be much more proactive in exposing and limiting very expensive and inexplicable variations in clinical practice. .It also needs to publish the enormous variations in doctors fees and particularly the fees of specialists. Better public data for greater transparency is essential.

     

     

     

  • John Thompson. Fiona Nash and private health insurance for rural Australians

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    A few nights ago on Q&A, the Minister for Rural Health, Fiona Nash, undertook to drop out of private health insurance while she was in office. Ms Nash lives in Crowther, a small town about midway between Wagga Wagga and Bathurst. Foregoing private health insurance makes a lot of sense for her because, like most rural and regional people, she pays a large amount to private insurers and has very limited access to private hospitals and related private services in her area.

    The map above shows why rural people are especially short changed with the private health system. The brown markers indicate public hospitals and the private hospitals are shown by purple markers. Crowther is almost in the middle of the map – 180 kms from Wagga Wagga and 141 kms from Bathurst.  There is one private hospital in Wagga Wagga and one in Bathurst, and neither has an emergency department. [On my count, there are about 30 public hospitals in this area. JM]

    The private health system is one of the most expensive Commonwealth Government programs.  In 2016/16 direct outlays by the Commonwealth Government will be $6.3 billion and income tax foregone will amount to $4.2 billion, a total of $10.5 billion for the year.

    Ms Nash, as a Nationals Party representative, should recognise that the private health system is particularly costly for her rural constituents because they are getting such a very raw deal. They are paying large sums directly to the private insurers and similarly large sums in taxation to support those insurers.  And they are getting very little in return.

    Rural Australians should ask themselves what they are getting for the large sums they are paying, both directly and through their taxes, to private insurance companies, and perhaps follow the lead of their elected representative, the Minister for Rural Health.

    John Thompson is an economist with an interest in health policy.

  • Michael Keating. An Update on Tax Reform

    The Prime Minister seems to have been encouraging speculation that the Government has decided not to consider any reform of taxation that involves an increase in the GST. If true, hardly a courageous decision, given the support he has received from some State Premiers. But this posting is concerned about the consequences.

    First, in the absence of any extra GST revenue, it now is almost certain that the Australian Government will not give the States any more money. Instead the States will have to wear the $80 billion cut to health and education funding that the Commonwealth has already imposed on their budgets.

    Of course, the Commonwealth will say that the States should find the savings or tax more themselves to ensure that vital health and education services are maintained. But on any stretch of the imagination, it cannot be expected that the States will raise the missing $80 billion by increasing land tax or payroll tax, and any other State taxes are inherently inefficient as well as not raising much revenue.

    As for expenditure savings, the reality is that as readers of this blog know, there are opportunities for savings in the health budget. However, these savings will take time, and more importantly many of the savings opportunities in health are in areas of Commonwealth responsibility. For instance, long run savings could be made by more effective public health systems aimed at prevention and by keeping people out of hospital, but the relevant programs are mainly the responsibility of the Commonwealth and not the States. Indeed, the funding of hospitals, which is the principal State government health care responsibility, is now based on the efficient cost of individual services, and the principal savings have already been obtained.

    Similarly, although there are opportunities for savings in education, there is equally a need for more investment in tertiary education, and for improving the funding in disadvantaged schools. This extra expenditure has a very high benefit-cost ratio, and so it is the antithesis of “reform” if any education savings are not reinvested in better education programs.

    The second major consequence of not increasing the GST is that the Australian Government then has only limited capacity for what it deems to be “tax reform” as measured by lower personal and corporate income taxes. Instead, the only significant way of increasing the revenue to finance lower income taxes would be to broaden the income tax base, by removing or reducing some of the tax concessions. A number of such possibilities have been floated, including:

    • A fairer and less generous form of taxing superannuation contributions and earnings,
    • Reducing the possibilities for claiming deductions of interest costs through negative gearing, and
    • Reducing the taxation concession for capital gains.

    The problem with all these types of proposals is that they don’t raise much money; in fact a lot less than their proponents imagine. For example, the superannuation tax concessions have received a lot of publicity lately, and based on the Treasury Tax Expenditures Statement, some commentators have sown the idea that as much as $30 billion might be raised by abolishing these concessions. However, it all depends upon what is the standard against which these concessions are being measured. So on closer examination savings of around only $6 billion is a much more realistic figure.

    Similarly, reducing the capital gains discount and the opportunities to claim interest payments by negative gearing might eventually raise an extra $10 billion in each year. However, there would be grandfathering provisions as part of any such adjustment, so that this amount of extra revenue would not be realised for the best part of another ten years. In the short-term, these proposals could even cost the Budget, if people adjusted their investments in between the announcement of the changes and the date that they would take effect.

    In addition, a proposal to abolish claims for work expenses in return for lower taxes has also been floated. This could reduce the amount of irritating form filling, but the amount of revenue gained would hardly finance much of a tax cut. In addition, would people feel better off if it didn’t, and what they gained in one hand was taken away from the other.

    In sum, the amount of extra revenue available in the next few years from reducing concessions is likely to be not much more than $10 billion, slowly increasing further over time.

    So what should be done with this extra revenue, on the bold assumption that it is actually realised? Arguably the first call should be repair of the Budget deficit, for which according to the latest official estimate, the underlying cash deficit will be as much as $35.4 billion in the current financial year and still $33.7 billion next year. Clearly this is quite a lot more – indeed three times more – than any extra revenue, now on the horizon from likely/possible “tax reform”.

    Furthermore, the present projections of the Budget deficit rely quite heavily on fiscal drag as people move into higher tax brackets as their incomes increase, if only in line with inflation. Thus the Budget for this year was based on a projection that over five years, revenue would rise by 2.4 percentage points relative to GDP, while expenditure would only fall by 0.2 percentage points relative to GDP. Clearly revenue is expected to do almost all the work of closing the Budget deficit, and 1.7 percentage points of the 2.4 percentage points increase in revenue (or 70%) is due to fiscal drag.

    The Treasurer, Scott Morrison, has implied that his highest priority is to neutralise this fiscal drag by redrawing the tax scales, and personally I find it hard to disagree. But if the Treasurer wants to do that he will not have enough revenue to finance the necessary tax reduction, and he will add significantly further to the Budget deficit, especially as so much of the projected reduction was reliant on maintaining the fiscal drag.

    Of course, there will be some cheery souls in right wing think tanks, who have never had to depend on the state, who will then draw the conclusion that expenditure should be cut further – indeed by as much as the 5 percent of GDP necessary to achieve their agenda. But no government has ever embarked on such a draconian savaging of expenditure programs. Not even the Hawke Government cut by this amount, and although it did achieve very large expenditure reductions, the opportunities for savings were much greater then. Thus the Hawke Government savings were principally realised through more targeting and user charging, but those opportunities have now been taken up, and cannot be implemented twice.

    Indeed, the only realistic scenario is that in this election-year the Turnbull Government will not repeat the first Abbott/Hockey Budget of 2014, which was rejected as being very unfair. So we are essentially stuck with a continuation of existing policies, no tax reform worth boasting about, continuing reliance on fiscal drag, and negligible progress towards fixing the nation’s finances.

    Furthermore, it is hard to see how this situation will change until we face up to the real fact that the number one priority is to find an agreed way to increase the overall tax take by a couple of percentage points relative to GDP. On this critical issue, Jay Weatherill and Mike Baird have been absolutely right and so far federal Labor has been absolutely wrong.

     

  • John Menadue. ‘We don’t have a revenue problem, we have a spending problem’.

    Treasurer Scott Morrison has been expounding the above philosophy of his for months. But he couldn’t be more wrong. Unfortunately the Secretary of Treasury has now followed up with nonsense that Australia should have a ceiling of 25% of GDP on government spending (I assume he is referring to Commonwealth Government spending).

    Michael Pascoe (Michael Pascoe on Page 21 of February 03, 2016 issue of Sydney Morning Herald) nailed the ideological clamour and suggestion that lower levels of government spending result in improved economic performance and that Australia has a high level of government spending that should be reduced.

    In the article, Pascoe says ‘What can be clearly shown is that there is no correlation between relatively low government spending and the very best possible credit rating.’ Pascoe produces the latest figures from the ‘right wing’ Heritage Foundations 2016 Economic Freedom Index, which compiles all government spending – federal, state and local. This article points out that Australian Government spending is running at 35.6% of GDP. He adds that almost all countries with AAA status from Standard and Poor’s, Moody’s and Fitch, have higher government spending as a proportion of GDP than Australia: Australia 35.6%, Canada 40.7%, Denmark 57.1%, Germany 44.3%, Hong Kong 17.6%, Luxembourg 43.6%, Netherlands 46.8%, Norway 44%, Singapore 18.2%, Sweden 53.2%, Switzerland 33.5%.

    These figures make it clear that high levels of government spending do not necessarily result in poor economic performance. Pascoe concludes ‘It turns out that having markedly higher government spending isn’t so necessarily disastrous after all.’

    In a submission to the Senate Select Committee into the Abbott Government’s Commission of Audit, Jennifer Doggett, Ian McAuley and I contend that the problem is not that government expenditures or that the public sector is large in Australia compared with other countries. We contend that the problem is a short-fall of revenue and that on international comparison, our tax revenues are low.

    In our summary to the Committee we say …

    The Commission of Audit’s brief is based on assumptions that Australia is burdened with “big government” and that taxes are an impediment to business investment and workforce participation.

    There is no evidence for either assumption. The trend in Commonwealth expenditure has been downwards since the mid 1980s, falling from a peak of around 28 percent of GDP to a range of 24 to 26 percent of GDP in recent years. In comparison with similar prosperous countries Australia has one of the smallest public sectors.

    The problem a body such as the Commission should address is our inadequate tax base, which is the main reason the Commonwealth has had a structural deficit for most of this century. We aren’t collecting enough revenue to fund the public services needed if the economy is to thrive.

    We should not shy away from raising taxes. Evidence from international comparisons and from surveys on competitiveness suggests that reasonable levels of tax do not impede countries’ economic performance. In fact, countries which compete on the basis of low taxes do so to compensate for competitive weaknesses, such as inadequate infrastructure and poor standards of education – in other words impoverished public sectors.

    Such evidence, however, seems hard to convey to those gripped by a zeal to cut spending and taxes. Even in a “small government”/low-tax country like Australia it is possible to find areas where private funding and provision of services can displace public funding and provision.

    But such displacement is usually at high economic cost, simply to achieve an arbitrary fiscal objective. There is no point in reducing taxes if the private costs are greater than the saving in taxes, with no improvement (and in many cases a deterioration) in the services provided. We illustrate this in the case of health care funding. This is an area of significant public outlay and where, because of ongoing growth in demand, there are voices – often the voices of self-interest – calling for a shift from public to private insurance. Such a shift would be costly on all economic criteria – technical efficiency, allocative efficiency and equity.

    The rushed and secretive processes of the Commission are not the path to good public policy. There may be areas where a change in the public/private mix is justified on economic grounds, but these are not one-way towards the private sector as implied in the Commission’s brief. Because we already have a small public sector it is likely that a proper process, with research and consultation, would find a need for a net expansion of Australia’s public sector. By shutting off that possibility those who drafted the Commission’s brief are imposing a constraint which may be contrary to the community’s wishes and sound economics.

    The full submission to the Senate Select Committee can be found by going to my website. Click on ‘John Menadue Web Site’ top left of this blog page.

     

     

  • Stephen Duckett. Health in 2016: a cheat sheet on hospitals, Medicare and private health insurance.

    We start 2016 as we started 2015 – with big challenges for the health system and uncertainty as to how governments will meet them.

    The health care headaches in 2016 are, in fact, the same ones we faced a decade ago, albeit different in severity and symptoms. They include population growth, ageing and the rise of chronic disease; inequality in access to care and health outcomes; technological change (the good, the bad and the expensive) and the seemingly inexorable rise in health costs.

    Circling for landing are three major reviews on private health insurance, primary care, and low-value care. Their recommendations, and the government’s response to them, are very much up in the air.

    Adding to the uncertainty is the broader review of federalism and its consequences for public hospital funding, along with speculation around the 2016 federal election date and what each party’s Santa sack of election promises might contain.

    Private health insurance

    The number of people with private health insurance continues to creep up but the market is not in good shape.

    The rebate is one of the fastest growing areas of government health expenditure and complaints about the product abound. High levels of coverage are being achieved throughcarrots (the rebate) and sticks (penalties for the uninsured) rather than genuine consumer appeal.

    One solution being floated is for the whole subsidy framework to be thrown out. Instead of subsidising private insurers, which pay private hospitals, the government could subsidise private hospitals directly.

    Government advisers are impressed by the efficiency gains that activity-based funding (paying hospitals per procedure rather than a lump sum) brought to public hospitals and believe similar improvement can be brought to the private sector.

    The mechanism to achieve this could be a Hospital Benefits Schedule which, like the Medicare Benefits Schedule, would prescribe a schedule fee for private hospital care, based on existing Commonwealth payments for public hospital services under activity-based funding. The same schedule may later be used for public hospitals, replacing grants to the states.

    However, it will only be politically palatable if it is cost neutral for consumers or comes with reduced private health insurance sticks.

    The devil is in the detail of a new policy such as this. Will payment be to the hospital or surgeon? Will it cover the surgeon’s fee, as in public hospitals? Will it cover diagnostics? Without this information it is impossible to forecast the impact of the shift.

    Public hospitals

    This will be a challenging year for public hospitals. Major reductions in Commonwealth funding for hospital admissions – which continue to grow – will kick in from 2017, and states are likely to start the belt-tightening early.

    The cuts far exceed the productivity gains that can be made, so a reduction in services is certainly possible. Efficiency may be improved somewhat by the ongoing expansion of activity-based funding to mental health and “sub-acute” care such as rehabilitation and palliative care.

    The possible changes to private health insurance and a Hospital Benefits Schedule may be one way to put money from the federal government back into the system, but there is no sign that Treasurer Scott Morrison is keen to loosen the purse strings.

    Hospitals will also be under pressure to lift quality. Hospitals face increasingly stringent “quality standards” with tougher monitoring covering a broader scope of issues, including access and timeliness.

    Meanwhile, the increasing array of publicly available data is putting variation in hospital performance under the spotlight more and more, with commensurate calls for greater accountability.

    Medicare

    Two independent reviews of Medicare are expected to land sometime in 2016.

    The first examines primary care. It could address any number of challenges, including chronic disease management, “six-minute medicine”, co-payments, frozen rebates, and the growing corporatisation of general practice.

    Management of chronic diseases such as diabetes, heart disease and cancer poses the main challenge. The rise of chronic disease is imposing big costs on a system that wasn’t designed to provide the complex, continuous and coordinated care now needed.

    The government will have to consider far-reaching reform with only limited and equivocal evidence to draw on. Options on the table include a shift in the balance of payments to practices, with less emphasis on payment for attendances (fee-for-service) and more emphasis on payment for care over the episode of illness or year (capitation payments).

    There may be other changes in payment structures. The government’s long-standing desire to reduce perceived incentives for six-minute medicine may see a minimum consultation time imposed on the standard (level B) fee.

    If sense prevails we won’t see a resurrection of the GP co-payment policy zombie. We should, however, see an end to the freeze on medical rebates; the only question being when and with what trade-offs.

    A further issue to be addressed is the shift toward practices owned by corporate chains that profit from referrals to and provision of diagnostic services, such as blood tests and X-rays. The implications of changed ownership structures for practice are not at the forefront of practice payment redesign but should be.

    The second review looks at quality and cost-effectiveness of items on the Medicare schedule. The review got off to a rocky start with wild claims about 30% waste in the system, and release of its first list of items targeted for delisting in the sleepy period between Christmas and New Year.

    The work on modernising the schedule will come to fruition in 2016. There will be individual and group losers in this process who undoubtedly will scream loudly with varying levels of effectiveness.

    What should you expect?

    It isn’t yet clear whether Health Minister Sussan Ley’s appetite for reviews portends massive reform to the sector, or simply a politically judicious preference for treading water in a portfolio still reeling from tumultuous management by her predecessor. However, the auguries are good for the former.

    The scene for change has been set, at least with the medical profession. Respectable leaders are engaged and leading some of the review processes. Hopefully this will be the year the health system rises to meet the big challenges of 21st-century health care.

     

    Stephen Duckett, Director, Health Program, Grattan Institute.  This article first appeared in The Conversation on February 1, 2016.

     

  • John Menadue. Tax reform and vested interests.

    We are in the midst of a misleading campaign on tax and budget reform.

    Large corporations and high income groups are pressing the government to increase the GST in order to reduce company tax and taxes for high-income groups. I have seldom seen such a blatant and self-interested campaign by vested interests. And they seriously suggest that it is in the name of tax and presumably, necessary budget reform. Even Mike Baird has joined in this nonsense.

    We are told by these vested interests that the benefits of tax advantages for the powerful and wealthy will ‘trickle down’ to the rest of us, including the disadvantaged and the poor. These stories about trickle-down have been with us for years. It is claimed that the ‘trickle down’ from the wealth would encourage ‘growth’ and ‘jobs’. But there is no empirical evidence anywhere to back up this argument. Scott Morrison continues in the same vein, that if only there were more tax incentives, we would ‘work, save and invest’ more.

    See an excellent article on this issue by Ross Gittins in the SMH on February 1, entitled ‘Business-led tax “reform” won’t fly’.