Policy Series

In January 2013, as she launched her government’s National Security Strategy, then Prime Minister Julia Gillard proclaimed that Australia’s decade of terrorism was over. Her argument was that al Qaeda had failed to regenerate after being degraded in the aftermath of the September 11 attacks, and that there were other more conventional security issues, such as the rise of new Asian great powers, that would dominate the forward security agenda. 

It was a bold call; and in the close aftermath of attacks in Paris, Ottawa, Montreal, Copenhagen, Sydney and Belgium, clearly a mistaken one. But one can admire her intent: to make clear calls, establish clear priorities, and place the management of national security within a clear, predictable framework. Gillard’s intent has not only been mugged by reality; it’s been overwhelmed by an inexorable muddying and politicization of the national security space that should be of concern to all Australians. 

It’s easy to be seduced by the parochialism of the present, but in recent decades our security policy has become tangled in a proliferation of security vectors and actors. Once security referred to defence from attack from without and subversion from within; now security can refer to a broad and widening array of concerns: pandemics, climate change, natural disasters, asylum seekers, water shortages. The acme of this process was Kevin Rudd’s national security statement to Parliament of 2008, which adopted a truly all-hazards approach to keeping Australians safe. 

The problem with applying the concept of “security” to everything is that eventually it will signify nothing at all. We have long realized how bureaucratically potent the word “security” is: a security threat is by definition existential, and therefore trumps all other policy concerns in the battle for cash, staff and bureaucratic priority. The result is a proliferation of people and government agencies responsible for national security and governments that lurch from one security preoccupation to another. Casualties along the way are an increasingly febrile media and a public that is both cynical and defensive. 

Of course our politicians have not missed the powerful political capital that national security can build. John Howard showed all his successors just how potent a well-played national security hand can be. The result has been a national security politics that is at the same time supine and pointlessly partisan. On the one hand, oppositions are petrified of criticizing the national security posturing of the government in the wrong way at the wrong time and being forever labeled “soft” on national security. On the other, they wait like coiled snakes for the slightest whiff of government gaffes or mismanagement of the national security space. The result is a national political debate that is utterly incapable of holding governments to account on the vital substance of national security policy, but poisonously partisan and divisive at the edges, where it doesn’t really matter. 

Meanwhile, in the tangled thicket that has become the national security space it is almost impossible to develop a clear sense of proportion and set of priorities. Quite simply everything slightly menacing or tragic becomes framed in a national security logic, with screaming headlines, solemn pundits and instant intelligence briefings. Governments that have played the “strong on security” card can’t afford to look slow or cautious in their responses. In a world where everything is of the highest priority, governments are finding it harder and harder to set priorities and make hard choices. How does a government plan a defence budget when Islamic State and China’s assertiveness and asylum seekers are of the very highest priority? How does it design a legislative regime when cyber crime, homegrown radicalization, Chinese espionage, foreign fighters, transnational crime, and opposition to the death penalty are all non-negotiable issues for the government? 

In this frantic atmosphere government and community seem to have lost sight of exactly what it is that national security policy is designed to keep safe. Speeches and policy documents stolidly set out what our core national values are – safety, prosperity, independence, freedoms, cohesion – but there is little sense in the day to day waging of national security that there is much awareness of the careful balance that needs to be struck between security and the fundamental values it is meant to be keeping safe. When for example the government discusses the stripping of citizenship from Australians who fight in Syria and Iraq, who is asking the questions about the effect of this on community cohesion and on Australia’s international role in playing its part in dealing with the transnational phenomenon of radicalization? 

One shouldn’t think that all of this is having no impact on public attitudes and opinions. Indeed there is a remarkable bifurcation developing, between the educated elite that is increasingly cynical about national security, and partial to hysterical conspiracy theories; and the majority that is demanding a tougher and tougher government response by the day. The result is small-mindedness among both groups: an unwillingness to contemplate different opinions among the former; a defensive xenophobia and intolerance of difference among the latter. Along the way, observe yet another paradox: despite the fevered security consciousness of the public, governments of both sides that seem unable to adequately explain national security measures and build public support behind what really does need to be done. 

Finally, national security is changing the very structure of our Westminster system of government. It is hard to have watched the past two decades of national security policy and to deny that there has been a steady “presidentialisation” of our government, mainly under the impetus of national security. The Prime Minister’s Department has grown inexorably, as has the office personnel. There are very few issues even vaguely with a security tinge that the PM is not centrally involved in. He or she has direct personal relationships with the heads of all of the national security, policing and intelligence agencies. Apart from growing power and personnel, the presidential prime ministership demonstrates its sway by structuring and restructuring national security agencies: creating, spinning off, merging and co-ordinating in a dizzying display of apparent urgency. There is no one to think about and caution over the effects of this on the logic and effectiveness of these changes to a presidential prime minister. 

It is hard to watch all this and be comforted that we are safer, more cohesive, and secure in our values as a result of these trends. One wonders whether it is any longer politically feasible to put an end to this bipartisan rush for the national security mantle. If anyone is, here’s a few pointers. First, security is not an all-hazards policy space, it is about existential threats. Other issues are important, but they are not security issues and should never be framed with that logic. Second, security is a powerful but dangerous logic. Any discussion of security must include strong and reasoned debate about the balance between security and the values it is seeking to keep safe. Third, acknowledge that the national security structures and agencies have kept us safe for half a century: leave them alone and let them do their jobs. Fourth, the PM’s office and department have a legitimate role in national security, but it should never be a central, directing role. And fifth, nothing is more security-eroding than a sense of constant panic; and nothing more security-building than a sense of calm resolve. 

Real leadership, on both sides of politics, must begin with an acknowledgement that national security policy is important and potent, but ultimately dangerous to the values it seeks to protect, if not handled in a considered, calm and non-partisan way. 

Michael Wesley is the Director of ANU’s Coral Bell School of Asia Pacific Affairs

 

Policy Series

While it is important to consider our tax and transfer arrangements as a single integrated system, there are various (overlapping) parts to it: retirement incomes (including superannuation tax arrangements and the age pension), the core welfare system (pensions and benefits for people not able or not expected to work, including the aged, disabled and sole parents with young children, as well as the aged) and family assistance (family payments, childcare subsidies and related personal income tax arrangements). This article examines family assistance and the personal income tax system; an earlier article addressed retirement incomes and a separate article focuses on inequality and Australia’s welfare system.

Family assistance serves two core objectives:

• horizontal equity, to ensure capacity to pay tax (and means for the purposes of social security means tests) takes due account of individuals’ family responsibilities and the costs involved; and
• Vertical equity, to support most those families with limited resources to meet the costs of children and their care.

These objectives are supplemented by other important principles including:

• Efficiency in its widest sense including minimizing any negative impact on incentives to work and save;
• Administrative efficiency, including the costs of compliance for those affected by the system as well as the costs of government administration;
• Simplicity and certainty, including being easy to understand and presenting no ambiguity over entitlements and obligations; and
• Social cohesion, promoting mutual obligations in society which make for harmonious relations and a shared sense of democracy and social values.

And of course the tax system must raise the revenue the government needs.

The unique nature of the Australian approach to family assistance, like the rest of the ‘welfare system’, is its emphasis on vertical equity through means tests. We have one of the most targeted systems in the world – around two-thirds of family assistance is received by the poorest 40% of the overall population (ABS, 2013). . This has its strengths: in particular, support for most lower income families has increased substantially over the last 30 years, with the real value of Family Tax Benefit Part A per child more than doubling from around $40 per week in 1975 to around $90 per week in 2010 (in 2010 dollars) (Whiteford, Redmond and Adamson, 2011) . But it also leaves horizontal equity problems, efficiency costs due to high effective marginal tax rates and administrative costs and complexities. Yet most political commentators keep calling for even more targeting to reduce ‘middle class welfare’.

Looking at family assistance on its own inevitably draws attention to its vertical distribution. Looking at it, as we should, as part of a wider tax and transfer system and in particular as part of the way we treat families in the personal income tax system, leads to consideration also of horizontal equity and broader notions of capacity to pay tax, as well as of the principles of efficiency and simplicity. Debate will continue about the balance between these issues but at least this way they all get put onto the table.

Indeed, if we want an approach that preserves vertical equity but gives more emphasis to efficiency and giving mothers in particular more choice including to return to the workforce and to pursue their careers, we need to reduce the emphasis on means tests and increase the emphasis on horizontal equity. There is also a case for reconsidering the current emphasis on child care to give more weight to assistance that allows more choice about the form of care families want for young children.

The personal income tax scale also delivers vertical equity (though not as much as transfers). This is primarily through the impact of the tax threshold rather than the higher marginal tax rates applying further up the scale. Some commentators have been questioning the need for such a high threshold but it is an essential component of a coherent tax and transfers system; if anything, it should be increased further. Not only is it the primary means of achieving progressivity in the tax system but, if it is set above the level of pensions and benefits, it ensures that few people fully reliant on welfare, nor anyone else on the same low income, would need to pay personal income tax, . For too long tax relief for low income people has been achieved artificially by complex ‘pensioner tax offsets’ and ‘low income tax offsets’ rather than having a simple and transparent tax threshold. Wayne Swan took some action towards fixing this but there is still further to go as the Henry Report recommended. The costs can be met by applying a standard tax rate of around 35% above the threshold rather than the lower rates now applying initially (again as recommended by the Henry Report and, indeed, as actually applied back under Malcolm Fraser’s 1978 reforms).

With progressivity in the personal income tax scale achieved more clearly and simply in this way, the next issue is how best to recognize different capacities to pay tax given family circumstances ie horizontal equity. Around the world, tax systems grapple with this issue. Some, like the Australian system, are based primarily on individuals and then make adjustments for family circumstances; others tax family units and then make adjustments for the impact on those without families or living alone. Such adjustments are not normally considered separately or as ‘welfare’ but as part of the very structure of the tax system, optimising revenue collection by ensuring tax reflects accurately capacity to pay.

Looked at this way, the tension many see between horizontal and vertical equity in family assistance arrangements is greatly exaggerated – horizontal equity should be achieved as part of the very design of the personal income tax system. Yet there is still some tension because the system as a whole is expected to give particular support to low income families and hence must balance that against all the other elements. But addressing the tension simply by means testing all family payments as the Henry Report suggests is unlikely to optimize the system: a better approach is likely to involve some modest universal assistance for tax equity, adjusting the tax scale (eg by applying the top rate from a lower level) and more tightly means-tested supplementary payments to achieve vertical equity (and to limit the numbers affected by high effective marginal tax rates).

Family responsibilities affect capacity to pay (and need) in two ways – via the direct costs of children and via the costs of their care. The first increases with the number and age of the children, the second is inversely related to the age of the youngest child.

The Henry Report rightly suggested varying Family Tax Benefit A, which addresses the first aspect, according to the age as well as the number of dependent children. That could be achieved with a universal payment complemented by a tightly means-tested supplement.

Currently, the second aspect – the costs of caring for young children – is addressed in a most complex mix of payments and subsidies which fail to address almost any of the principles of a well-designed system. These include Paid Parental Leave (set at the minimum wage, available to birth mothers for 18 weeks), Family Tax Benefit B (means-tested and, aside from sole parents, essentially limited to mothers not in paid work with a child under 18, and with a higher payment if there is a child under 5), parenting payments (means tested, with two levels of payment, the higher one designed for sole parents with children under 8 and the lower one for the carer in two parent families with a child under 6) and childcare subsidies (some universal, most means-tested, subject to various rules on the nature, amount and price of care and the extent of workforce participation by the parent).

The complexity reflects in part that the care of very young children involves additional objectives including the development of children from an early age (evidence suggests investing in development programs for pre-school children aged 3 and 4 yields significant benefits later) and the return to paid work of mothers as children begin to grow in order to sustain and build on their human capital and capacity to contribute; the latter is particularly important for disadvantaged parents in order to provide a path towards sustained independence and self-reliance.

These considerations do not however justify the current complex and contradictory measures. There is a strong case for a more uniform approach to payments based on the age of the youngest child, with highest payments in respect of the care of babies and reasonably generous payments also where the youngest is under school age; some payment where the youngest is at primary school could also be justified given the after-school care costs involved. (It might also help coherence of the system if we returned to a separate scheme for sole parents – not lumbered into family payments – that recognized their limited capacity to work when they have young children and provided a safety net consistent with that for other core welfare groups and with suitable work tests.)

There is a strong case for reducing the emphasis on means tests given the high effective marginal tax rates they impose on so many parents. A trade-off is involved between very high marginal tax rates for a small minority of families or rates around the maximum in the personal income tax scale applying to a much higher proportion of families. My preference is the former approach with modest universal payments to ensure horizontal equity.

Despite the current push to focus more on childcare, there is also a case for giving more emphasis to cash payments that offer more choice, and to supplement these with more targeted approaches to childcare subsidies and a general education/development program for pre-schoolers managed through schools and childcare centres. Much more effort is also needed to ensure employers offer flexible work options suited to help mothers transition back into paid work, and to offer continuing education and training options also.

Very young children require the full-time care by an adult, and there is no particular economic advantage in that adult being paid rather than unpaid. Most mothers choose to drop out of the paid workforce when their youngest is under two, and 90% report they do so not because of lack of childcare but because they want to look after the child themselves. Facilitating these choices while recognizing the costs of caring for young children (whether through direct child care costs or the opportunity costs of stay-at-home mothers) would be better and more simply achieved by generous universal payments where the youngest is under two (for example by extending the PPL to 26 weeks and having a further slightly lower universal payment while the youngest is under two) and a moderate universal payment where the youngest is over two but under five or six. This could replace much of our massive system of child care subsidies. The payments could be complemented by means tested supplements. (Consideration could still be given to targeted child care for mothers needing help to become welfare-independent.

Current arrangements are not just overly complicated: they are inconsistent and incoherent, overly means tested and having insufficient regard for efficiency or the way families and mothers in particular today want to exercise choice in how they care for their children and pursue their careers. The Government’s latest budget proposals would only increase the system’s complexity and its inconsistencies. Its proposals from the last budget, still on the table, would tighten means tests also making the system less coherent. At least its earnings-related PPL is no longer on the agenda, but the series of confusing proposals over the last year or so demonstrate a lack of careful policy analysis. But Labor too could give family assistance closer attention and develop a coherent approach that is fair and better promotes choice and efficiency.

Andrew Podger is Professor of Public Policy at ANU and former Head of several Commonwealth departments.

Policy Series

Inequality is a complex issue. It is affected by many factors, so that it can increase as a result of beneficial changes as well as socially undesirable ones, and can decrease because of changes that reduce overall social wellbeing as well as a result of socially desirable changes. A particular level of inequality may not therefore be suitable as a policy target per se as distinct from such specific objectives as alleviating poverty, increasing employment, achieving a fair taxation system or improving levels of participation and engagement in society.

In our submission to last year’s Senate Inquiry into Inequality we summarised trends in Australia over the last 30 years but suggested the Committee focus its attention on promoting employment and addressing specific weaknesses in the tax and transfer system. These might deliver some of the savings the Government has been seeking but would also involve some new expenditure priorities.

Trends in income levels and disparities

Average real incomes of Australians have increased substantially over the last 30 years, but with some periods of slow growth and others of very rapid growth. Employment patterns have also changed with periods of increasing unemployment and periods of reduced unemployment; overall, employment has grown strongly in the second half of this period, but accompanied by growth in part-time employment and casual work.

The periods of high unemployment were associated with increases in inequality. Some family changes reinforced these negative trends, and Australia developed an extremely high concentration of joblessness in households with no adults in paid employment.

The increases in real disposable incomes for Australian households since the recovery from the 1990s recession were greater than in any period since the 1960s. After Ireland – and from a much higher base – Australia enjoyed the largest real increases in mean and median real incomes of any OECD country, and since 2008 Australia has continued to move ahead at a faster rate than many countries in Europe or the United States.

The richest 10 per cent of Australian households, however, enjoyed the largest real increase in household disposable incomes of any OECD country and, since the incomes of the richest increased faster than the incomes of lower income groups, income inequality increased. The overall trend on virtually all measures of resources is towards greater inequality in the period up to 2008.

The causes of these trends are complex. The most important source of income inequality in Australia is related to access to earnings, since earnings are the largest single component of household incomes. As mentioned, high unemployment has a major impact on the level of overall inequality and disadvantage.

A related factor is inequality of earnings for full-time workers which have tended to increase almost continuously since the 1970s, as a result of modest real wage increases at the bottom of the earnings distribution, a hollowing out of middle level jobs and growth in the number and wages at the top of the distribution. This is broadly consistent with international experience.

These disparities were partly offset in Australia by rising real wages for women (although gender wage gaps have increased since around 2004, so that overall little progress has been made to reduce these gaps since the mid-1990s). In earlier periods rising employment for women tended to increase family income inequality as the growth was concentrated amongst families with a relatively high male income earner, but over the last decade rising female employment has tended to reduce overall inequality (Austen and Redmond, 2012) .

Changes in family composition and the demographic structure of the population appear to have reinforced trends towards rising inequality, but the effect is much less important than access to employment.

One of the more striking features of recent Australian experience is that after 2000 inequality in market incomes actually decreased (Herault and Azpitarte, 2014) . This positive trend appears to reflect the equalising effect of growth in employment for lower income groups in this period. But this also means that increased inequality in disposable incomes over the period up to the Global Financial Crisis was a consequence of government policies becoming less effective in reducing inequality.

The tax and transfer systems are important mechanisms by which Australian governments have acted to moderate inequality in market incomes particularly to alleviate poverty, and also to offset rising inequality. The effectiveness of taxation and social security systems (and social spending more broadly) in reducing inequality reflects two factors – the distribution of taxes and benefits (i.e. how progressive are the tax and welfare systems) and how large they are as a share of household income. In this context, it should be noted that while levels of social spending in Australia are towards the lower end of OECD countries, the social security system is the most progressive in the OECD.

The effectiveness of the tax and transfer systems in reducing inequality reached its peak in the mid-1990s and subsequently declined. The decline in the effectiveness of the tax and transfer systems in reducing inequality is partly explained by some transfers such as Newstart not keeping pace with rising community incomes (this being particularly important for alleviating poverty), but it also reflects the fact that the Australian social security system is very targeted to lower income groups so, as the earnings of lower income households increased due to higher employment levels, the social security benefits they received reduced.

Because Australia has the most progressively distributed social security benefits in the OECD, per dollar spent Australia reduces income inequality more than any other country (but we spend fewer dollars). Correspondingly, across the board cuts in social security in Australia would increase inequality by more than any other OECD country (OECD, 2012). This makes achieving further expenditure restraint in Australia a particularly difficult challenge – although it contributes to the outcome that overall we have relatively low social security spending.

Design principles for Australia’s social security system

There are strengths in the Australian social security system design and its emphasis on poverty alleviation. That remains the central objective. But this objective needs to be balanced against other objectives, particularly the objective of encouraging work and savings and self-help more generally, noting the longer-term advantages of employment including the avoidance of persistent poverty and disadvantage.

Getting the right balance is a matter for judgment, but we suggest the following general principles should be applied in the design of our social security (and related tax) system:

• Limiting eligibility for the major social security payments to those unable to find work or not expected to work;
• Distinguishing between those with long-term constraints on capacity to work and those in shorter-term need, with eligibility conditions for the latter that promote employment and rehabilitation, and policies for the former that facilitate supplementation of social security payments by income from savings or part-time and occasional work;
• Setting adequacy standards that ensure those totally dependent on social security (and who meet all the conditions mentioned above) do not live in poverty defined in terms of minimum incomes relative to Australian community standards. This also means that the payment rates for those unable to find work should be the same as for those not expected to work;
• Applying means tests that leave reasonable incentives to work and save while concentrating assistance on those most in need, the means test on those with longer-term constraints on working being tapered so that effective marginal tax rates are not excessive, and the test for those with shorter term needs designed on the expectation that the basic eligibility conditions will provide the main incentive to gain and sustain employment;
• Linking assistance for those outside these categories primarily to assistance for dependent children in recognition of their direct costs and the costs (both direct and indirect) of their care, this assistance addressing both vertical equity (providing greater support to lower income families) and horizontal equity (recognising that the costs of children affect capacity to pay tax at all income levels);
• Preserving redistributive capacity in the tax system, primarily through the personal income tax threshold which should exceed the maximum level of pensions, but also through marginal tax rates that increase at higher income levels.

Some specific priorities

From these principles we suggest the following practical measures to achieve expenditure restraint while simultaneously addressing concerns with inequality:

1. Indexing all social security payments by a common factor that will preserve relativities including with changes in community incomes. The current pension index is likely over time to increase pensions relative to community disposable incomes and raise longer term budgetary challenges, but indexing to the CPI alone would inevitably lead to social security recipients falling behind over time, as shown by the experience of Newstart recipients. This is a genuine policy dilemma but the current compromise reflects policy failure on both sides of politics, allowing overly generous indexation of pensions and continuing miserly attitudes towards the unemployed and sole parents in particular. We suggest the CPI as an automatic adjustment factor for all transfers and biennial independent reviews to determine supplementary adjustments in light of changes in average community incomes, with a legislative requirement that these reviews be debated in Parliament.
2. Additional increases in Newstart to reduce the gap between the different categories of payment, as a complement to a more effective package of support services and incentives to promote employment.
3. Redesigning family payments into a more coherent framework which addresses both horizontal and vertical equity, leaving to private financing any income-related support such as paid parental leave (while maintaining the current flat-rate structure).
4. Increasing the personal income tax threshold as part of a package to simplify personal income tax as suggested by the Henry Review, and reviewing the income levels where higher marginal rates are applied, particularly if some family payments are to be paid on a universal basis.

We also suggest a comprehensive review of retirement incomes policy to allow careful consideration of the effectiveness and efficiency of current arrangements, including inter alia tax expenditures and the age pension means test. This might avoid the inevitable adverse effects of the piecemeal approaches now being put forward by the Government and Opposition.

The specific measures above would deliver some of the savings proposed by the Government, but would also involve higher expenditures in some areas. If some of these measures are considered too hard in the current budgetary climate, we suggest a new review of the adequacy of the full range of social security payments using the same methodology as the Harmer Pensions Review (which, because it was restricted to consideration of pensions and related allowances, contributed unintentionally to some of the current inequities within the social security system).

Andrew Podger is Professor of Public Policy at the ANU and former Head of several Commonwealth departments. Peter Whiteford is a Professor in the Crawford School of Public Policy at the ANU.

Policy Series

Australia has a reputation for egalitarianism, as a country where, in comparison with Old World countries, wages were good and, to quote Lawson, where people “call no reason to call no biped lord or sir”.

Up to around 1980, Australia’s distribution of income was becoming more equal, but since then inequality has been on the rise: our income distribution is now back to where it was 80 years ago, in the years before the Pacific War. We still do better than the UK and the USA – our usual points of comparison – but in comparison with other prosperous countries, particularly those of northern Europe, we have slipped a long way behind.

And as income inequality persists so wealth inequality also grows, and wealth inequality tends to be enduring as the advantages of high wealth, and the disadvantages of poverty are passed from generation to generation. We are on the way to having an entrenched “upper class” and a class, not even accurately described as a “working class”, for whom opportunities for economic mobility are blocked.

It is tempting for governments to dismiss rising inequality with the aphorism “a rising tide lifts all boats”. The idea is that just so long as no one goes backwards in material living standards, all is well.

This economic philosophy, which has become the basis of undergraduate economics teaching – and therefore the ideas that dominate government treasury departments – is attributed to the Italian economist Wilfredo Pareto, an adviser to Mussolini’s fascist government. It’s not that academics and bureaucrats are attracted to fascism, but they are attracted to the simplicity of Pareto’s economics, absolving them from having to think about moral questions about inequality. It’s a neat cop-out rationalisation for allowing privilege to become more entrenched.

Pareto’s stamp is on many government policies. The projections of the 2015 Intergenerational Report suggested that over the next 40 years gross income per person will rise by 75 percent, but not for those dependent on the age whose income was to be frozen at 2017 levels.

It’s extraordinary that any government could have the gall to produce such a projection based on its preferred policy settings, and it’s even more extraordinary that they received such a tame reception in the media (including the ABC). Perhaps this shows the extent to which Pareto’s dismal brand of economics has been absorbed into our thinking.

Maybe, in the land of the “fair go”, we have come to accept Pareto’s amoral indifference. We get upset when public policy actually takes from the poor (as was the case with the 2014 Abbott-Hockey budget), but not when policies allow for widening inequality.

Inequality does count, however. It is costly to all – not only to the most disadvantaged. Even those on the right, who pay lip service to the benefits of capitalism and market forces, and who assert that good public policy is about economic progress, should be able to understand that inequality is a problem, because a high level of inequality is symptomatic of deep problems in the economic system.If a society cannot achieve a fair distribution of income, wealth, participation and opportunity there is something wrong with the country’s economic structure. Politicians may see inequality as an unavoidable collateral outcome of a successful economy, but an economic structure that sees most of the benefits accrue to a few while others are left behind can hardly be called a success. It is flawed thinking to assume there must be some tradeoff between “economic” and “social” outcomes.

Of course many on the right will argue that inequality simply arises from different individuals’ contributions, which in turn arise from different people’s talents and effort.

But when inequality gets to a high level we must seriously question that assumption. Is a bank CEO paid $10 million really 300 times as talented and hard-working as someone earning a basic wage?

It’s hard to imagine differences on that scale being innate: it’s more likely that the connection between contribution and reward, which has always been a fairly fragile connection, has become further weakened, and that many people have been unable to develop their full capabilities.

Market capitalism, as a theoretical system, is based on a linkage between contribution and reward. Even the most right wing economist would agree with that proposition. But when inequality results from inheritance, privilege bestowed by government policy, “old boy” (and “old girl”) networks, corruption and theft, the basic incentives that are supposed to operate in a market economy don’t function.

There’s no point in working hard or creatively if others will enjoy the benefits. There’s no point in studying difficult courses at university if there is no return for putting in the effort: better to spend one’s student days finding a well-connected spouse, or cultivating friendships with those who have already made it into the ruling class. And if one has mathematical talents, there’s no point in becoming a teacher, engineer or scientist when there are such lucrative rewards in the finance sector, shuffling other people’s money around and taking a commission on the way.

And when people lack the opportunity to develop their full capabilities there is an additional cost to society. Equality of opportunity is another essential plank of market capitalism and if it is blocked by misallocation of education resources and inadequate attention to children at risk, there is a big opportunity cost of unrealized talent.

These are the hard-nosed economic costs of inequality, without even venturing into the moral issues of economic unfairness. When those few politicians who have the courage to speak out on unfairness they are often met with the rebuke that they are raising the “politics of envy”, but fair-minded people don’t envy those who have succeeded through their own effort and who enjoy the rewards of having made a contribution to society. Use of the word “envy” does injustice to those who are disgusted by the perversion of economic incentives in our society and by the tawdry rationalizations those who have accumulated unearned wealth use to justify their privileges.

When people think the cards are stacked unfairly the resulting resentment can have far-reaching consequences. Politics becomes a tussle about preserving or gaining privilege, rather than a contest of ideas about how to improve prosperity for all.

One manifestation of this tussle is our labour relations system, where both sides fight to retain what they hold rather cooperating in ways to increase wealth. (The notion of a class-based dividing line between “employers” and “employees” is an anachronism but it survives in Australia.) Elections and budgets have come to be about “what’s in it for me”, rather than evaluation of economic policy.

A “what’s in it for me” approach to inequality doesn’t work. At best it may divide a shrinking pie a little more fairly. 

Inequality has to be tackled at its root – the nation’s economic structure.

Policy approaches – eliminate or compensate – distribution or redistribution

There are two broad policy approaches to reducing inequality. One is to attend to a nation’s economic structure so that inequality is less likely to arise in the first place; the other is to let inequality to arise and to compensate with progressive income tax and social security payments.

Both approaches have their place, but the emphasis is a matter of policy choice. As a general finding, left-leaning governments tend to favor solutions at source, through attention to labour market, industry, education, regional and other policies, while more right-leaning governments tend to favor compensation through welfare payments. (And, of course, some governments on the right take the view that any form of distributive welfare that goes beyond mere survival destroys the work incentive.)

To illustrate different countries’ approaches, it is revealing to look at a common indicator of income inequality known as the Gini coefficient. When income is exactly equally distributed, as in some hypothetical socialist paradise, the Gini coefficient is 0.00. In a situation of extreme feudalism, with hordes of starving peasants and one rich warlord, the Gini coefficient is 1.00.

The table below shows the Gini coefficients for the world’s 17 most prosperous developed countries. The first column shows the coefficients arranged by what is known as “private income”. That is people’s income before governments intervene with taxes, pensions and other cash distributions (“transfers” in economic terms). The next column shows what happens once taxes and transfers are taken into account, and the third shows the extent of the reduction.

	Private income	After tax and transfers	Reduction due to taxes and transfers
Switzerland	0.372	0.298	0.074
Iceland	0.399	0.246	0.153
Netherlands	0.421	0.283	0.138
Norway	0.423	0.249	0.174
Denmark	0.429	0.252	0.177
Sweden	0.441	0.269	0.172
Canada	0.447	0.319	0.128
Luxembourg	0.468	0.271	0.197
Australia	0.469	0.334	0.135
Austria	0.483	0.269	0.214
Belgium	0.483	0.264	0.219
Finland	0.485	0.265	0.220
Japan	0.488	0.336	0.152
Germany	0.492	0.286	0.206
United States	0.499	0.380	0.119
France	0.505	0.303	0.202
United Kingdom	0.523	0.341	0.182
Gini coefficients 2010, 17 OCED countries with per-capita income >$US 35000

Note that the range generally aligns with what we already know: the Nordic countries are at one end, while the US and UK are at the other end. Australia is around the middle in private income: this is possibly a reflection of our comparatively young age structure and a reasonably high minimum wage. But after taxes and transfers we don’t do as well as most other countries.

Note also two patterns, which I call “distributive” and “re-distributive”. The Nordic countries and Switzerland tend to go for distributive policies – that is to pursue policies making sure that private incomes are reasonably well-distributed before the government kicks in with welfare transfers.  By contrast, France, Germany, Finland, Austria and Belgium all have relatively unequal distributions of private income, and rely heavily on taxes and transfers to achieve a degree of equality, thus bringing their ranking up.  (If we had data for Saudi Arabia, Oman and Kuwait they would no doubt show a very high use of transfers to redress a highly imbalanced distribution of private income.)

Historically, Australia has strived for distributive policies, backed by targeted (often means-tested) re-distribution. The main policy instruments were tariff protection, centralized wage determination, partial or full nationalization of key industries, and tolerance of restrictive trade practices. (“The Australian settlement”). The economic aspiration in the early post-federation years was that every job should be a well-paid job by the standards of the time.  Universal free public education and good public housing, and later universal health care were important components of the “social wage”. 

The means to realize this aspiration necessarily change. Tariff protection and tolerance of restrictive trade practices are definitely past their use-by dates. So too are many industry-specific subsidies, such as those which have been granted to automobile manufacturers.

But that doesn’t mean other means cannot meet the same purpose. 

Public policy – an economic structure to prioritize distribution over redistribution

As with the past, the starting point should be with structural policies. The vision should be that everyone’s capabilities are developed to the fullest, and that no one so equipped should have to rely on redistributive measures.

Of course that will never be fully achievable, but it should be standard against which policies are assessed. And it is a more egalitarian policy than simply seeking full employment.

Full employment, or near-full employment, can be achieved by forcing people into poorly-paid and demeaning jobs through punitive measures, and cutting support to those who need it most. If minimum wages are pushed low enough, and if the alternative to employment is made miserable enough, of course employment will rise, but it won’t be a very productive or motivated workforce.

Incentives for economic participation should apply across the board. Terms such as “passive welfare”, “lifters and leaners”, “mutual obligation” and the old perennial “dole bludgers”, have some validity if applied to all – the financial planner taking a commission for doing nothing, the “self-funded” retiree enjoying a six digit tax-free income, the executive in a mining firm enjoying government subsidies, the share speculator  making a fortune on lightly-taxed capital gains, and the healthy work-shy twenty-four year old living on an invalidity pension.

But these terms are applied selectively, generally as part of a right wing agenda of preserving privilege for the well-off. and cutting government services – the “small government” agenda.

A “small government” however, won’t provide the public goods – the framework of support – necessary for people to realize their capabilities, and will not adequately defend the public interest against rent-seekers and others who seek to prosper from the efforts of others.

Practical public policy – distribution through investment

The list below, in a rough hierarchical order, covers ten policy principles which can come together to address inequality. All the first eight are “distributive” policies aimed at strengthening the economy’s productive capacity. Only the last two involving transfers through progressive taxation and cash transfers are primarily “redistributive”.

1. Invest in human capital. This is primarily about a well-funded public education system as a basis for developing people’s capabilities and achieving equality of opportunity. The most important immediate measure is to implement the Gonski reforms.While school education is important, it is crucial that governments support children at risk. Early childhood is where the foundations for future development are laid down.Also economic disadvantage should not provide a barrier to access to post-school education. Just as in the past we have shifted our norms upwards to what constitutes a basic “free” education, trade certificates and undergraduate degrees should now be fully tax-funded. This is in recognition of the general principle, observed in most human societies for most of history, that the elders have an obligation to support the upbringing of the young.If the community is to enjoy the benefits of a dynamic economy it should make sure that people whose livelihood is threatened by structural change are supported with opportunities for re-training and re-skilling. Public investments in these activities are much lower cost than the alternative – long-term unemployment of displaced workers and political resistance to structural change.

2. Invest in public goods. A society needs a suite of public goods covering what the market cannot supply or what the market cannot supply efficiently. These include health care, education, security, public health and physical infrastructure. Utilities (water and energy), roads, railroads and public transport remain essential infrastructure for economic participation; to these should be added a national broadband network as originally envisaged.

3. Use sound counter-cyclical management. Government’s macroeconomic role is to practice counter-cyclical management, compensating for swings in the business cycle, and more actively to use its power to prevent speculative booms and crashes. It has become fashionable to criticize the Rudd-Gillard Government for running a deficit in response to the events of 2008, but that is normal and responsible economic practice. While it is easy to see the cost of a fiscal deficit, it is far harder to bring to measure the cost of the alternative – a loss of employment and output. When, in a downturn, people lose their jobs or close their businesses, some will never get going again.

4. Develop an economically responsible tax system and regulatory structure. These policies should rewardeconomic contribution and that discourage financial speculation and rent-seeking. In this regard tax reform is crucial – restoring a neutral capital gains tax system (the present arrangements reward short-term speculation while discouraging long-term investment), removing incentives for payment in fringe benefits, closing avoidance provisions such as use of family trusts, re-introducing inheritance and gift taxes, removing the most regressive superannuation tax provisions, removing subsidies for “negative geared” property investments, re-establishing a carbon tax, requiring multinational firms to pay a fair share of tax, and establishing a proper resource rent tax.

5. Mandate a decent minimum wage. Australia has traditionally had a high minimum wage – it has been a defining feature of our economy. There is an argument that a high minimum wage discourages firms from taking on staff, and this has some validity. But a high minimum wage also ensures that firms have an incentive to employ people productively. When people are employed in low productivity jobs such as parking station attendants, domestic servants and supermarket packers there is a waste of human capital.

6. Provide social insurance –covering high-cost contingencies. Unemployment benefits, Medicare, drought assistance, age and invalid pensions and the National Disability Insurance Scheme can all be classified as social insurance.Social insurance is necessary because of various failures of private markets to cover risk. Social insurance can be set with high or low safety nets. Publicly-provided social insurance can allow individuals to take more risks in private markets, for example by establishing startup businesses and investing in specialised skills.While social insurance has many similarities with redistributive welfare, and indeed may use some of the same policy instruments (e.g. unemployment benefits), it is redistributive only in the same sense that normal commercial insurance could be described as “redistributive”.   

7. Support social inclusion.Beyond platitudes about “team Australia” social inclusion does not seem to be a priority of Coalition governments. And there has been a tendency by Labor governments to conflate ideas of social inclusion with redistributive welfare. This conflation has allowed governments to ignore the problem of self-exclusion by the well-off, into literal or metaphorical gated communities, most notably private schools and private hospitals.As a result, services such as public education and publicly-funded health care become re-defined as services for the poor (or “indigent” to use the demeaning American term). Those who are well off, who expect high standards and who have the political clout to demand them cease to have any stake in such services.There should be no taxation or other financial incentives (such as subsidies for private health insurance) that encourage people to opt out of using shared services. Where means-testing is applied to health and education services it should be applied in such a way that supports sharing the services.

8. Attend to the social wage. The importance of the social wage was asserted in the 1945 White Paper on Full Employmentand re-affirmed by the Hawke Government. It refers to a set of government services and interventions as a complement the minimum wage to support a basic living standard, through provision of publicly-funded health care and education, and attention to important household costs, particularly housing and provision of utilities such as electricity and water. These are areas where markets, left to their own mechanisms, can produce very inequitable effects.Housing affordability has become a major issue in Australia, and needs to be tackled by supply-side interventions, including provision of high quality public housing to exert price competition, public funding of infrastructure for new housing, and spatial policies to quell the arms race pushing up housing prices in desirable locations.

9. Use progressive taxation. The way taxation is collected can and does have redistributive benefits, but in recent years there has been a concerted campaign towards flattening tax scales because of claimed disincentive effects of high levels of taxation on those earning high incomes.Contrary to mythology justifying the notion of cutting top tax rates, Australia does not have high rates of personal income taxes once compulsory tax-like contributions, such as social security contributions, are taken into account.  Out of those 17 prosperous OECD countries mentioned earlier, only four (Switzerland, Iceland, Luxembourg and Austria) have lower top marginal tax rates than Australia when these compulsory levies are included. Whether high marginal tax rates discourage work is a matter of dispute among economists. Whatever disincentive effects exist may be fully or partially offset by people’s desire to work harder to sustain a desired standard of living. And, of course, there are many motivations other than material living standards driving people to work hard – motivations which tend to be lost in the simplistic and amoral economic models upon which much public policy is based.
   
   In any event, if high marginal tax rates do discourage some from paid work, that may be a desirable outcome. Those who voluntarily move out of the paid workforce or reduce their hours are not necessarily ceasing to make economic contributions – many are moving to unpaid work, including care for others and volunteer work. And few would dispute the need to distribute work and leisure more evenly.

10. Use social security payments to support those in need. There will always be a need for cash transfers to those in need, but this form of assistance should not be seen as the first response to rising inequality. The priority should be to measures that allow people to develop their capabilities and to contribute in whatever way they choose.

Ian McAuley is Adjunct Lecturer, University of Canberra. He has worked on consultancies for Australian and foreign governments, and for international agencies, the UN and the OECD. 

 

Policy Series

By most of the usually accepted markers the health of Australia’s indigenous people compares unfavourably with that of other Australians. This has been known for decades and numerous strategies and programs have been developed to correct this inequity. Despite the best of intentions and expenditure of billions of taxpayers’ dollars over the past half-century, a yawning chasm remains in this so-called “gap”. The Prime Minister, no less, admitted in February 2015 that the findings of the seventh annual Close the Gap Report were “profoundly disappointing”.

Two important questions flow from this:

• Why?
• What’s to be done about it?

Why have past and current programs failed?

The reasons for this being such a difficult problem are complex. They are historic, entrenched, cultural and deeply divisive, as are many of the issues that bedevil the relationships between indigenous and other Australians. The alienation felt by indigenous people which was caused by colonising powers, such as loss of traditional lands and waters, food and water sources, destruction of long-held beliefs, customs and behavioural norms, is almost incomprehensible to non-Aboriginal people. But these issues are real, resented and sour the relationships between fellow Australian citizens.

We must ask ourselves what is health? And does the concept of “health” mean the same to all peoples? To most Westerners “health” means the absence of illness, disease or disability, or not needing to go to a doctor or other therapist for treatment or hospitalisation. But this concept is not shared by all cultures; in some societies health can mean the equivalent of “happiness” or living in harmony with one’s environment. For Australian Aboriginal people health has been described in the National Aboriginal Health Strategy as “not just the physical well-being of the individual, but the social, emotional, and cultural well-being of the whole community. This is a whole-of-life view and it also includes the cyclical concept of life-death-life”. How often do health professionals consider such different attitudes from what they consider to be the norm? And how often do conventional clinical carers think that others might take a different view of health and, perhaps, even put it low on their list of the necessities for survival? How, also, could such concepts be considered when assessing the health of individuals or groups of people?

Any consideration of what affects health must include physical and environmental factors such as: living standards; overcrowding; personal and community hygiene; food availability and quality; and knowledge, attitudes and behavioural patterns towards maintaining health and wellness. In all of these categories many indigenous Australians are disadvantaged when compared to their average non-indigenous counterparts. Added to this background must be possible genetic and cultural influences as well as the context of what importance is put on staying healthy among any individual’s essentials in their day-to-day needs. In all human societies seemingly mundane requirements such as food, shelter, and the means to sustain those can override all others. Just as importantly, attitudes to a person’s or a family’s or a community’s aspirations and attitudes to well-being can influence their physical and emotional health. The stage is therefore set for many indigenous Australians to fare poorly in the health stakes. These are at least some of the ways that the why can be explained.

What should be done?

The first thing that should occur is an admission by government that the approaches used over the past 30 to 40 years have failed. Unless this happens the failures will persist. A fresh approach is the only way to overcome past mistakes. Some will say “but there have been past successes”. True; let’s look at some of them.

Rates of infections and parasite infestations have dropped; infant and maternal mortality have declined; infants’ birth weights have improved; childhood malnutrition is not as severe as it was, say, 40 years ago, and; life expectancy has improved although, in relative terms, the gap is still unacceptably wide. Many of those welcome improvements can be explained rationally and objectively. For example: widespread immunisation coverage against many infections has assisted with the drop in infections; better hygiene has also helped with this decline; earlier referral and improved treatments have lowered the disease burden from infections such as gastroenteritis, and; improved therapies have brought better outcomes for people with conditions that need long-term clinical care. Overwhelmingly these improvements are due to responses to classical public health prevention measures or to better clinical care and follow-up.

But – there are areas where Aboriginal health has deteriorated. We’ll examine them, at least briefly. They include: a rapid upsurge in so-called chronic ”lifestyle” diseases such as obesity, diabetes, cardiovascular disease and hypertension; chronic kidney disease and renal failure; smoking-related disorders; drug and alcohol abuse, and; accidents and violence. Most of these disorders have a common theme; they are linked to inadequate knowledge and attitudes about health and about potentially hazardous behaviours that can undermine an individual’s health. This is crucial because it introduces the elements of knowledge or education regarding health and how people can use that information to sustain their own health. This, in turn, brings into the equation a component of individual and collective responsibility for one’s own health.

The “balance sheet” or ledger of improvements, on one hand, and deterioration on the other, has probably tipped unfavourably against overall improvement in Aboriginal health statistics over the past 30 years. This imbalance is where the task of improving Indigenous health in future becomes really difficult.

Viewed objectively, at least two challenges must be met. First, government alone cannot solve all of the problems that characterise Aboriginal health. Second, individual and collective responsibility for one’s own health must become a principal issue to be addressed by the nation’s Aboriginal community. These two challenges provide opportunities which should be met enthusiastically by complementary responses through working in partnership.

Past failures can be sheeted home to three main sectors which provide health and medical services to the Aboriginal population. They are: (a) federal and state government services; (b) the specially developed and independently-run Aboriginal Health or Medical services, and; (c) private or other non-government operators of clinical and related services for Aboriginal people. These three sectors must work together to correct the currently unacceptable state of play. In order for this to succeed a fourth sector must become involved; that is individual Aboriginal communities and their local administrative structures. This is the fourth dimension which has been lacking in the past and which, I believe, can help to break the current impasse.

Despite the failures of the past, there remains an attitude of goodwill among the wider Australian community to see that the First Australians should share the health standards that most of us take for granted. Unless tangible progress is made in the near future it is likely that this support will wane.

To break the current nexus there must be a coming together to plan a new way forward. Initially, the federal government should objectively examine the options and then arrange a consultative process which involves all four sectors: (1) federal and state governments; (2) Aboriginal Health or Medical Services; (3) private or non-government clinical and related services, and: (4) community-based representatives to involve “grass roots” people in the cooperative venture. Arranging such a consultative process will be tricky and will require funding. Certain organisations may feel unfairly excluded such as medical and nursing organisations and specialist Colleges, universities, and technical and other higher education institutes. If all such organisations were to be involved the process would probably become cumbersome, too large to be manageable, excessively expensive, and could involve too many conflicting interests. It is likely that some of the current players will feel threatened by this proposed process. So be it. If they feel threatened or that their territory is about to be invaded, this will be their opportunity to demonstrate, objectively, that their services are indispensable. All four sectors will need to recognise that compromise will be needed to achieve the desired outcome – better health for indigenous Australians. Arranging for the new sector, the fourth on my list, may be the most difficult but it is essential if success is to be achieved. No such body exists and it will need exquisitely sensitive skills to be realised. This new dimension will at last recognise that local Aboriginal communities have a real contribution to make to the health improvement process. This cannot be satisfactorily achieved by regional indigenous health organisations even if they claim to be “community-controlled” because members of local indigenous communities play no part in the selection of such regional bodies and are kept voiceless. Using this fourth sector will also acknowledge the great diversity of Aboriginal communities around Australia and their own special needs and aspirations, which are often ignored in current policy and program development and implementation. This fourth sector must be driven locally because this is a situation where “one size fits all” will not work. It will also be essential to avoid building yet another nationwide “grand plan”. These often fail because they ignore the real desires of those who matter most — the people who lack yet desire to have the same standards of health and well-being as other Australians.

If such a four-pronged negotiating process can be arranged, the next step will be to devise a plan of action and mechanisms to regularly assess its successes, failures, strengths, and weaknesses. A new plan should merit a new name. To avoid the notion of closing a gap I suggest for consideration the name Aboriginal Health Improvement Program or AHIP. At least that lends itself to measurable, incremental health targets and outcomes instead of trying to completely repair, in a rigid time frame, this problem that has been so elusive for decades.

How likely is it that such a meeting of the four sectors will occur? Regrettably, my experience over many years makes me suspect that the chances of arranging such a gathering and seeing it through to a successful conclusion are low. At least in the past, issues of territoriality, institutional responsibilities, the open and free sharing of information, and personality clashes and jealousies have too often led to impasses, failures, and sometimes to acrimony. What is the alternative? It seems that the failure to proceed along these or similar lines to a fresh start for Aboriginal Health would mean that the overall failures of the past would continue into the foreseeable future. Is that acceptable to the Aboriginal people or to the Australian government? Only they can answer that question.

It must be remembered that any new Aboriginal Health Improvement Plan must meet the needs of hundreds of thousands of Aboriginal people, of all ages, in vastly different circumstances, and with very different socio-economic levels in all parts of Australia. Additionally, consideration must be given to training and retaining a clinical and other technical workforce to serve the needs of the health improvement strategy and implementation plan; without that support the best intentioned plans are bound to fail.

Details of where to go from there and how the new approach will be funded, operated, and continually monitored must rest with the operational strategies that are agreed by the four major participating parties. To the “number crunchers”, policy makers, administrators, politicians and guardians of the public purse, health must be measurable. Otherwise how can we be confident that public monies are being put to best use? So we should all be informed and the operators of the program should be guided by the effectiveness of health expenditure to improve such outcomes as: life expectancy; rates of diseases, disabilities and deaths; nutritional status; and immunisation coverage rates against vaccine-preventable diseases such as measles, TB, whooping cough, tetanus, certain types of pneumonia and hepatitis. Other outcome measures, such as those relating to emotional well-being and social functioning should also be included.

The managers, administrators and day-to-day operators of any such new approaches must avoid the prevalent temptation to be interested only in outputs instead of outcomes. It is too easy, for example, to simply measure the number of persons or patients who attend a clinic or some other facility or activity without estimating the essential measure that is needed to determine whether a health intervention program is effective or not. That is, what changes has the new program brought to the health of the target group, the Aboriginal population?

The success or otherwise of any new program should be measured in this way and reported publicly so that the entire Australian community can see if their aspirations and the needs of the Aboriginal people are being met as they would reasonably expect.

Finally, it must be recognised that health is determined by many factors out of the control of health planners, administrators and clinicians. Significant improvements in health outcomes rest with significant improvements in other areas. These include education, employment opportunities, housing and hygiene standards, self-esteem, and the availability of affordable supplies of fresh and nutritious foods. Without improvements on this wide front initiatives that focus on medical issues alone can have only limited success.

 

Michael Gracey is a paediatrician who has worked with Aboriginal patients, their families, communities and organisations for more than 40 years, particularly in remote parts of Western Australia. He was Principal Medical Adviser on Aboriginal Health to the WA Department of Health, Professor of Aboriginal Health at Curtin University in Perth, and is a previous President of the International Paediatric Association.

Policy Series

It is unlikely that at any time since 1788 a sample of Indigenous Australians would agree they have enjoyed fairness opportunity and security.

It is similarly unlikely that any Minister responsible for Indigenous Affairs, past or present, would claim as much progress in achieving those objectives as hoped for. The now obligatory annual report card delivered in Parliament by the Prime Minister of the day confirms the slow and irregular progress in closing the gaps in economic and social circumstances.

Any snapshot of the circumstances of indigenous Australians at any time post settlement will reveal our failures. But a longer view, a 50 year perspective, suggests dramatic changes and progress. Post 1788 saw dispossession and dispersal, denial of property and other rights, attitudes and policies forged in an age of overt racial discrimination, effective exclusion from citizenship and participation in social and economic life.

The history is well known enough not to need repeating here. What is relevant to this series is the direction of travel over the last 50 years or so and the efficacy or potential efficacy of current policy settings.

The direction of travel is positive. Until 1960 Australia was a segregated country. What are some of the markers of our direction of travel as a country over that time?

• Voting rights legislated for in 1962;
• the unprecedented level of support for the 1967 referendum which afforded Indigenous Australians the dignity of being counted in the census;
• the Gove land rights case 1971 which, while denying recognition of native title, set the intellectual framework for recognition of Land Rights;
• the Woodward reports on the implementation of land rights in the Northern Territory in 1973 and 1974 supported across the Parliamentary divide;
• all party support for the Racial Discrimination Act 1975;
• all-party support for the establishment of Land Rights in the Northern Territory culminating in the Land Rights (NT) Act 1976,
• the subsequent establishment of Land Rights regimes in the majority of Australian states during the 1970s and 80s;
• the establishment of the Council for Aboriginal Reconciliation in 1991;
• the High Court’s Mabo judgement in 1992;
• Keating’s Redfern speech in the same year;
• the Native Title Act 1993;
• the bridge walks for reconciliation in 2000
• the establishment of Reconciliation Australia in 2001;
• Prime Minister Rudd’s national apology in 2008; and
• All party support for constitutional recognition.

To this list can be added endless expressions of good intentions over that period by governments of all stripes, Commonwealth and State.

Of these changes the High Court Mabo judgement is the most significant. What the High Court did in Mabo was to give Common Law recognition to the connection between Indigenous people and their land as established through their own law and custom. For the first time since 1788 Indigenous people come to the table with governments and industry as people with rights rather than as supplicants. This was the most significant shift in the balance of power between the settler society and indigenous society since settlement. The major agreements made and being made with native title groups, Indigenous collectives defined by Indigenous law and culture, by governments and corporations reflect a new legal reality, the continuing legal economic as well as cultural relevance of Australia’s first nations.

From a policy perspective we are more conscious of what is wrong than what is right. Rates of Indigenous imprisonment alone are a reminder of the intractability of disadvantage. But the past is a foreign country. Today Indigenous people enjoy full de jure citizenship. The civil and political rights that were denied are available to them. More Australians than ever before are lining up to support Aboriginal endeavours to achieve social and economic equality.

There is widespread community support and engagement with Aboriginal and Islander people and their issues. There are around 600 reconciliation action plans involving the majority of the great companies in Australia, with another 400 in the pipeline, with countless individual and community initiatives in education health employment sport and culture, Aboriginal people have never had more allies.

These significant events do not plot a straight-line graph of progress. Over the same period there are numerous markers of the old attitudes and of resistance to the recognition of Indigenous interests. None of the gains were easily won.   Land rights were bitterly contested in some States. The current all party support for constitutional recognition does not mask the strong negative influences which will contest any proposal which is not assimilationist and which envisages continuing Indigenous collectives as part of the national fabric. Each gain was the product of intense and, usually, contested effort.

Now, after years of political attention and concerns about the continuing social, economic, and legal status deficits, there is a degree of public bewilderment about inadequate progress. Why do the gaps persist in the face of significant public expenditure and apparent government goodwill?

This is not a new question. Over the period of positive effort there has been a considerable degree of experimentation with different policy approaches. Assimilation was replaced by self-determination which became self management and spawned Aboriginal controlled bodies like the Aboriginal Development Commission and then ATSIC and the funding of thousands of Indigenous organisations. Too often a start again approach was adopted when an iterative approach might have been more productive.

What have we learned over 50 years?

There is a lot of common ground about what works among academics, bureaucrats, and the Productivity Commission. But the past suggests that the failure of funding agencies, whether they are an ATSIC or a line department, to apply what has been learned is a consistent issue. How to do it is written down but governments have not acted in accordance with what is written down.

As Westbury and Dillon pointed out in 2007, “What has not been recognised (at least within government) has been the extent to which government funding arrangements have reinforced community and organisational dysfunction” (Beyond Humbug P 191)

The Productivity Commission sets out in its reports what are the preconditions for success:

• Cooperative approaches between Indigenous people and government – often with the non-profit and private sectors as well.
• Community involvement in program design and decision making – a ‘bottom up’ rather than ‘top down’ approach.
• Good governance – at organisation, community and government levels.
• Ongoing government support – including human, financial and physical resources.

It observes that the lack of these factors can often contribute to program failures.

There are few if any authorities which would challenge that analysis. With wicked problems, multi factoral problems affecting the disadvantaged such as health education and employment, solutions require the involvement and participation of those for whom the program is established. But few if any Indigenous communities or individuals would claim that their experience of dealing with government has been in line with those preconditions.

The Commonwealth has acknowledged in the past the interconnectedness of the problems it seeks to address and concluded whole of government approaches are required. Two Management Advisory Committees (made up of heads of departments) have described the changes in organisation and processes that were essential if whole-of-government was to work. This included five basic imperatives:

• Substantial initial cross-agency/stakeholder agreement about the broad purposes to be pursued;
• Use of the outcomes budget framework to pool resources and to create appropriate accountability frameworks;
• Lead-agency staff empowered with sufficient authority to manage whole-of-government settings and to lead the engagement of local stakeholders;
• Empowering these same managers to engage with relevant individuals and interests;
• And finally ensure the individuals engaged in these latter roles have the appropriate networking, collaboration and entrepreneurial skills. 

This is an internal high level Commonwealth assessment not some external critic, these are the people with administrative skin in the game. It seems that these imperatives have never been met in the past and are still not being met.

In the 2014 budget the Government announced a new Indigenous investment strategy to begin on 1 July 2014 as follows:

“Under the strategy, more than 150 individual programmes and activities currently being managed by the Department of the Prime Minister and Cabinet are being replaced with five simple, streamlined programs worth $4.8 billion over four years. They will focus on achieving results in the government’s key priority areas in indigenous affairs of getting children to school and adults to work and making communities safer.

• Jobs, Land and Economy: this will support adults into work, foster Indigenous business and assist Indigenous people to generate economic and social benefits from effective use of their land, particularly in remote areas;
• Children and Schooling: this will focus on getting children into school, improving education outcomes and supporting families to give children a good start in life.
• Safety and Wellbeing: this programme is about ensuring the ordinary law of the land applies in Indigenous communities, and that Indigenous people enjoy similar levels of physical, emotional and social well-being enjoyed by other Australians;
• Culture and Capability: this will support Indigenous Australians to maintain their culture, participate equally in the economic and social life of the nation and it sure that organisations are capable of delivering quality services to their clients; and
• Remote Australia Strategies: this program will support flexible solutions based on community and government priorities and support remote housing strategies.

This came with a promise to end unnecessary red tape and remove duplication so that reductions in expenditure can be made without reducing impact on the ground. This last point is contested by many of the organisations affected by reductions in expenditure and is very optimistic.

At the same time the strategy is to be supported by the establishment of a new remote community advancement network which will move to a regional model of administration rather than the current State and Territory based management arrangements “so decisions can be made closer to the people and communities they affect.” Additionally the Government announced that “staff in the remote community advancement network will spend more time engaging with communities to negotiate and implement tailored local solutions designed to achieve results against government priorities”.

The ideas behind this restructuring reflect the lessons drawn from past efforts. Whole of Government approaches, local solution brokering, the possibility of pooled funding are positive. But the administrative complexity of what the Government has undertaken and the management of it is a challenge not met so far. It was supremely optimistic to take 150 existing programs which involve some 1400 organisations and redirect expenditure into five broad streams while at the same time changing the geographic and hence jurisdictional basis of the administrative framework in the space of a year. An additional challenge was to develop the skills required to carry out the admirable intentions, to engage with communities to negotiate and implement tailored local solutions, providing opportunities for communities to contribute to the design and delivery of local solutions to local issues. The skills required for this difficult work are largely absent from the APS and there is no training program to learn those skills.

An additional challenge is that State and Territory Governments are essential players in all of the priority areas, so it is incumbent on those implementing the new arrangements to work not only with the local communities but with those other governments which are so central to service delivery.

There is a considerable risk of unintended consequences as tectonic shifts in administration are in train. The risk of value destruction in the course of implementing new approaches is real. The current challenge for Government is whether it can construct the capacity to deliver on its large and complex agenda and avoid the further disillusion flowing from yet more top down changes.

The proposal to recognise indigenous Australians in the Constitution remains a work in progress. Parliament has yet to decide on what particular proposition should be put to the electorate. Whether the all party support for recognition will persist in the face of any particular proposal is yet to be seen. There are at least three critical factors at play. Broad indigenous support for the proposition will be essential to success. What the proposition should be is still a matter of debate and discussion among significant Indigenous participants in the process. The absence of a determined and respectable opposition to the proposal is also vital, and the content of the proposal will determine whether significant opposition will emerge. The third factor will be the standing of the Government. At the time of the referendum an unpopular government may be seen as fiddling while Rome burns if it is pursuing a constitutional change which is not relevant to the core concerns of the broad community.

What is generally agreed is that a failed referendum would be a very large setback. A guarantee of success is difficult to achieve.

On all fronts Indigenous Affairs is a work in progress.

Fred Chaney AO was former Deputy Leader of the Liberal Party, Member of the Federal Parliament for the seat of Pearce, Minister for Aboriginal Affairs 1978-80. Until April 2007 he held the position of Deputy Chair of the Australian Native Title Tribunal. He is on the Board of Directors of Reconciliation Australia.

Policy Series

Introduction

Like we do in many areas, such as sport and financial services, Australian conservation punches above its weight in the international arena. Australia is signatory to all major multilateral environmental agreements including the Convention on Biological Diversity and the UN Framework Convention on Climate Change, we have environmental law in all three tiers of government, have established one of the world’s best national reserve systems including some of the largest world heritage areas, along with supporting cutting edge conservation science and management practices. All these conservation measures are worthy achievements that should be celebrated. They are certainly necessary and warrant the ongoing support of all concerned citizens and organisations. They are, alas, insufficient in the face of the overwhelming pressure on the natural environment we now face. Unfortunately, we are not fixing conservation problems at a faster rate than we are creating them. We are not saving species and ecosystems at a faster rate than they are being extirpated and degraded. While technological innovation brings both welcomed conveniences and economic efficiencies, it also opens the doors to novel ways of exploiting natural resources on land and sea, exposing ecosystems that we previously never imagined being threatened.

There is a great deal of public policy and private action aimed at promoting nature conservation, however, little attention is directed to identifying a vision and long term goal for biodiversity and nature conservation in Australia. Given what we have lost in this continent over the last 200 years and what we face losing in the coming century, focus on a conservation vision and a long term conservation goal (or goals) for Australia will provide the necessary context for federal and state strategies and regulatory frameworks, along with private and civil society efforts. Among other things, we need to be able to evaluate what the anticipated accumulated outcomes of our current web of conservation policies and programs will be and how these match with our long term goals?

Australia’s principle legal instrument for nature conservation is the Environmental Protection and Biodiversity Conservation Act 1999. Its objectives include to provide for the protection of the environment, especially those aspects of the environment that are ‘matters of national environmental significance’, to promote the conservation of biodiversity, and to provide for the protection and conservation of heritage. These are admirable objectives but provide no guidance as to how much of Australia’s biodiversity and natural heritage should be protected and conserved in the long term.

In the absence of a national dialogue (or perhaps we should call it a “national yarn”) on a vision and long term goals, along with their enshrinement in law, we risk ever-shrinking conservation ambitions as Australia’s ecosystems are destroyed and degraded, populations of endemic species are extirpated disrupting ecological and evolutionary processes, and more species are pushed to the brink and beyond of global extinction. As a community we are already losing sight of Australia’s natural richness and beauty, setting our conservation sights lower and lower with each passing decade. What will be left in the year 2100 of Dorothea Mackellar’s ‘Green tangle of the brushes, where the lithe lianas coil…’ and her ‘…wilful, lavish land’[1]?

In considering a conservation vision and long term goals for Australia, there are four questions that require our attention.

How much does nature need?

In both international and national conservation policy debate there is considerable attention paid to targets but not much on long term goals. For example, at the 2010 conference of the Convention on Biological Diversity – which met in Nagoya, Aichi Prefecture, Japan – the world community adopted a revised and updated Strategic Plan for Biodiversity, including the Aichi Biodiversity Targets, for the 2011-2020 period[2]. Commitments included Target 11 for at least 17% of terrestrial and inland water and 10% of coastal and marine areas to be conserved through protected areas and Target 15 which calls for restoration of at least 15% of degraded ecosystems. Australia has already met Target 11 for land with the National Reserve System covering 17.88% of mainland Australia. Does this mean we have done our job and can now rest on our laurels and simply get on with development in the rest of the country without regard to the consequences for conservation?

There is of course a difference between intermediate targets and long term goals. The Aichi Targets are clearly milestones to be reached by 2020 on the road to somewhere. The problem is that where or what that somewhere is has not been discussed either internationally or within Australia, at least in policy circles. There is a fundamental difference between a long term goal based on the best available conservation science as to what nature needs and an intermediate term target that is the outcome of political negotiations. Based on scientifically rigours studies, 25-75% of a region must be managed with conservation of nature as a primary objective to meet long term biodiversity goals, with 50% – slightly above the
mid-point of recent evidence-based estimates – scientifically defensible as a global target[3]. Should this be the long term protected area goal for Australia?

What land uses are ecologically compatible with conservation?

About 80% of the Australian continent has a native vegetation cover, is outside a protected area, and is not used for agriculture or forestry. Around 56% of these natural landscapes are held under commercial grazing leases[4] and subject to a range of land use impacts including mining. Clearly, the future of biodiversity lies as much outside protected areas as it does within them. The challenge therefore on these extensive leasehold lands and unallocated crown lands is how conservation outcomes can be integrated into their land management objectives.

One approach is to identify land uses that are compatible with conservation, those that could be made compatible with appropriate management and regulatory regimes, and those that are incompatible. It is now entirely feasible to identify for a given bioregion a range of land use activities and classify them in terms of their long term effects on natural values and ecological processes drawing upon documented evidence of environmental problems from unsustainable land use activities. For example, broad scaling clearing is incompatible and should not be allowed. Some activities will be largely disconnected from country, e.g., information technology services, and therefore compatible with conservation. While for many activities the manner in which they are carried out will determine their level of compatibility[5].

We lack a national land use policy per se let alone a land use plan that integrates long term conservation goals into land management across half our continent. This is not only a concern for biodiversity but also for the agriculture sector given the connections between good land management, healthy and productive natural vegetation, and a sustainable pastoral industry. A laissez-faire, benign neglect, policy for half our continent will serve neither conservation nor industry in the coming decades. Careful land use evaluation inclusive of a rigorous analysis of conservation compatibility would be a good start to addressing this policy vacuum.

What are the implications of land use change and climate change?

Two big pressures for nature conservation in Australia are from land use change and climate change. The rate and scale of land use change reflects both financial globalisation and technological innovations which together support industrial agriculture and mining enterprises of increasing magnitude and impact including coal seam gas mining, coal mining, bauxite mining and new mega-irrigated farming schemes. For example, the imminent extraction, approved by the Queensland Government, of water for large scale irrigation from two major Gulf of Carpentaria river systems, the Flinders and Gilbert Rivers^[6]. Another example is the massive and rapid expansion of coal seam gas mining over the last 10 years in prime agricultural areas affecting both natural and agricultural values [7].

Layered over the ever-increasing extent and intensity of industrial-scaled land developments, human-forced climate change is driving a myriad of direct and indirect impacts on species and ecosystems which are now well documented by science and recognised by government[8]. Direct effects include the need for some species to disperse away from their established territories as climatic conditions begin to fall outside their physiological niche and they migrate to find more suitable habitat. Indirect impacts include new fire regimes and subsequent shifts in the distribution of vegetation types.

Human-forced, rapid climate change will bring new challenges to Australia’s biodiversity and exacerbate current threats. Climate change per se is not new to the Australia continent and our biodiversity has evolved to have a certain natural adaptive capacity. Examples include species with populations that undergo micro-evolution or possess ‘phenotypic plasticity’ so they can persist in situ under the new conditions. Other examples are species with high dispersal ability that can readily migrate to suitable habitat locations, species that contract their range to persist in refugia locations, and species that possess broad niche requirements and are generalists rather than specialists. Conservation responses that support the natural adaptive capacity of our biodiversity include expanding the current national reserve system and assigning priority to protecting large intact landscapes, ensuring ecological connectivity is maintained and restored across the continent, and reducing threats in the landscape across Australia^[9].

There is an additional pressure from climate change that may well transform how we value land use should we commit to achieving the deep cuts in CO₂ emissions needed to limit global warming to less than 2 degrees below pre-industrial levels as per the Cancun commitment[10]. There are two primary sources of anthropogenic CO₂ emissions. First, the emissions from burning fossil fuel carbon for energy. Second, the emissions from destroying and degrading ecosystems, especially forests and woodlands, through land use impacts such as industrial logging and clearing for intensive agriculture[11]. Policies and programs aimed at changing land use and management to avoid and reduce emissions from the land sector are already in operation internationally with REDD+ and nationally with the Australian Government’s Direct Action Plan[12]. As the world community increases the value it puts on keeping carbon out of the atmosphere, carbon offsetting and related payments for ecosystem service schemes will rapidly expand.

How important is the contribution of Indigenous land?

At least 15% of Australia is legally recognized as Aboriginal and Torres Strait Islander land; in South Australia and northern Australia Indigenous peoples hold title to more than 20% of the land area. Much of this country is intact compared to south-eastern Australia and has been under traditional stewardship for millennia. Traditional owners have a pretty good conservation track record (notwithstanding the evidence that Aboriginal people may have been implicated, albeit indirectly, in the extinction of some megafauna species around forty thousand years ago). In the period between Aboriginal people being established in Australia and the British first settlement in 1788, the dingo was the only known introduced mammal species. It was probably introduced by humans and is thought to have displaced the native thylacine, or Tasmanian tiger (Thylacinus cynocephalus), as the apex (nonhuman) predator. Otherwise, to our knowledge, every species that was present when the British explorer Captain Cook arrived in 1770 had persisted through the fifty thousand years of Aboriginal influence. Evidently, Aboriginal Australian cultural practices and land management were conducive to the conservation of much of Australia’s evolved biodiversity[13].

Around 7.2% (55,028,856 ha) of Australia is an Indigenous Protected Area with these areas comprising about 40% of the National Reserve System^[14]. An Indigenous Protected Area is an area of Indigenous-owned land or sea where traditional owners have entered into an agreement with the Australian Government to promote biodiversity and cultural resource conservation[15]. Given this is a voluntary scheme there are evidently many Indigenous communities who see biodiversity conservation as congruent with their traditional cultural values and practices. Indigenous lands and their traditional owners and communities are central to the long term conservation of Australia’s biodiversity.

Conclusions

What would a long term conservation vision and goals for Australia look like? In terms of a vision, I am thinking here of something more fulsome than a typical business vision statement – a one-liner that captures the essence of the enterprise’s aspirations. The Preamble to The Earth Charter is more like the kind of long term conservation vision we need articulated for Australia. At around 400 words, the Preamble provides an inspiring narrative and synthesis of the 77 ethical principles detailed in the document’s main body[16]. We’ve done this before – develop a vision with objectives and goals through a broadly based,
multi-sectoral consultation process – when Australia produced the 1992 National Strategy for Ecologically Sustainable Development[17].

We also need to give attention to the kinds of long term conservation goals that are needed particularly in light of the issues raised here. Conservation goals are usually defined in technical terms that are inaccessible to those concerned citizens, communities, and businesses who must be engaged if we are to succeed. The proposed Sustainable Development Goals perhaps provide a useful model in terms of both the process by which they are being negotiated and the accessibility of the text[18].

The Sustainable Development Goals process is also relevant as it speaks to the root causes of the growing threats to our biodiversity and natural heritage including the pursuit of GDP growth when much of this growth is increasingly uneconomic with the benefits failing to out-weigh the total costs, including the costs to the environment and future generations which are externalised[19].

It is worth noting that the ‘ecological’ component is too often omitted from conversations about sustainable development and that for nature and people to have a healthy long-term future we must re-frame the sustainability conversation to ensure that it is more ‘biosensitive’[20]. It is inevitable that a national dialogue about a long term conservation vision and goals for Australia will entail issues of sustainability writ large: the challenge of reconfiguring the human endeavour to live within the boundaries of a finite planet, leaving enough for the greater community of life and future generations.

Brendan Mackey

Director, Griffith Climate Change Response Program, Griffith University.

 

[1] Quotations from My Country by Dorothea Mackellar; http://www.dorotheamackellar.com.au/archive/mycountry.htm

[2] Strategic Plan for Biodiversity 2011-2020 and the Aichi Biodiversity Targets. Convention on Biological Diversity; https://www.cbd.int/sp/targets/

[3] Noss et al. (2012) Bolder Thinking for Conservation. Conservation Biology, 26, 1-4.

^[4] Mackey B.G. et al. (2007) Towards a scientific framework for the WildCountry project. In Jianguo Wu and Richard J. Hobbs (editors) Key Topics and Perspectives in Landscape Ecology. Cambridge University Press, pp. 92-208.

[5] Woinarski J.C.Z.R., Mackey B.G., Nix H. and Trail B. (2007) The Nature of Northern Australia: its natural values, ecology, and future prospects. ANU E Press, Canberra; http://epress.anu.edu.au/nature_na_citation.html

[6] Flinders Gilbert Agricultural Zone. Queensland Government, Department of Agriculture and Fisheries; https://www.daf.qld.gov.au/business-trade/development/industry-development/flinders-gilbert-agricultural-zone

[7] “The coal seam gas rush”.Updated 28 Jun 2012, 7:27am.  Produced by ABC Radio Multiplatform & Content Development, and presented by ABC News Online. This data journalism site was compiled in April 2012; see http://www.abc.net.au/news/specials/coal-seam-gas-by-the-numbers/ and references cited therein.

[8] Australia’s biodiversity and climate change – A strategic assessment of the vulnerability of Australia’s biodiversity to climate change. Biodiversity and Climate Change Expert Advisory Group, 2013

http://www.environment.gov.au/climate-change/adaptation/publications/australias-biodiversity-climate-change

[9] Mackey B., Watson J.E.M. and Hope G. (2008) Climate change, biodiversity conservation, and the role of protected areas: an Australian perspective. Biodiversity 9, 11-18.

[10] This commitment was recorded in Conference of the Parties Report of the Conference of the Parties on its sixteenth session, held in Cancun from 29 November to 10 December 2010 Addendum Part Two: Action taken by the Conference of the Parties at its sixteenth session. FCCC/CP/2010/7/Add.1

[11] Mackey B., et al. (2013) Untangling the confusion around land carbon science and climate change mitigation policy. Nature Climate Change 3, 552–557; doi:10.1038/nclimate1804; Mackey B., et al. (2015)   Policy options for the world’s primary forests in multilateral environmental agreements. Conservation Letters 8, 139–147.

[12] See REDD Web Platform. UN Framework Convention on Climate Change [http://unfccc.int/land_use_and_climate_change/redd_web_platform/items/4531.php]; and Direct Action Plan and Emissions Reduction Fund, Australian Government Department and Environment [http://www.environment.gov.au/clean-air].

[13] Mackey B. (2014) The future of conservation: an Australian perspective. George Wuethnre, Eileen Crist and Tom Butler (eds) In Keeping the Wild: against the domestication of Earth. Island Press.

[14] Collaborative Australian Protected Area Database – CAPAD 2014. Australian Government, Department of Environment; http://www.environment.gov.au/land/nrs/science/capad

[15] Indigenous Protected Areas. Australian Government, Department of Environment; http://www.environment.gov.au/indigenous/ipa/

[16] The Earth Charter Initiative Handbook 2010. Earth Charter International Secretariat, Costa Rica; http://www.earthcharterinaction.org/invent/details.php?id=824

[17] National Strategy for Ecologically Sustainable Development 1992. Prepared by the Ecologically Sustainable Development Steering Committee. Endorsed by the Council of Australian Governments December, 1992. ISBN 0 644 27253 8; http://www.environment.gov.au/about-us/esd/publications/national-esd-strategy

[18] Open Working Group proposal for Sustainable Development Goals. United Nations document A/68/970; http://undocs.org/A/68/970

[19] “Uneconomic Growth Deepens Depression” by Herman Daly. The Daly News – Steady State Economy and Related News; http://steadystate.org/uneconomic-growth-deepens-depression/

[20] Stephen Boyden (2015). Patron’s Corner: Part 1 – past, present and future, a biorenaissance – the hope for the future. Biounderstanding the story of life and the future of civilisation. Frank Fenner Foundation; http://www.natsoc.org.au/patrons-corner/part-1-past-present-and-future

Policy Series

Given that the substantial threat brought about by anthropogenic climate change has been recognised for a quarter of a century, it is remarkable that global policy makers have been so dilatory in responding to it. Voluminous scientific and economic studies have been produced, Ministers have met annually to discuss and negotiate a global policy response and yet in terms of outcomes nothing much has happened. This year, however, the annual conference of the parties (CoP) to the UN Framework Convention on Climate Change (UNFCCC) to be held in Paris will be of unusual importance. The parties will be required to commit to making reductions in greenhouse gas emissions beyond 2020 in pursuit of their agreed objective of limiting the future rise in global temperatures to two degrees Celsius.

To date, the only significant global response to climate change has been the Kyoto protocol, signed in 1998. Under the terms of the protocol, most developed countries undertook to reduce their greenhouse gas emissions to 95 per cent of 1990 levels by 2012. In the decade to 2013, however, when the world’s primary energy consumption increased by 28 per cent, the use of carbon-intensive fossil fuels remained at a high level. Fossil fuels comprised 87 per cent of global primary energy consumption both in 2003 and in 2013.[1] The kindest statement that can be made about the Kyoto protocol is that it probably did not make the situation any worse.

A “diabolical” global policy problem

That said, the difficulties confronting policy makers in seeking to address climate change are many and intense. Ross Garnaut was not exaggerating when he called it a diabolical policy problem.

There are important efficiency issues involved in taking action against climate change. The fundamental difficulty is that greenhouse gases know no frontiers so that a global agreement is required if they are to be significantly reduced. Because reducing emissions can involve considerable costs and we do not always have technologies that are efficient and effective substitutes for fossil fuels, it is not surprising that national governments are reluctant to commit to substantial action. In a situation where the actions of most individual countries can make only a negligible difference, there is also a free rider problem, or even a positive economic incentive to take as little action as possible and leave the heavy lifting to others. In addition, the problem of ‘carbon leakage’, or the migration of footloose investment projects to jurisdictions with zero or low taxes on carbon emissions, implies that national governments face a substantial disincentive to taking ambitious action against climate change that would involve getting in front of the pack.

Not least among the policy problems are considerations of equity which, to the extent that they are often subjective, can be relied upon to provide fertile ground for disagreement. Since it is generations as yet unborn that will suffer the main impact of climate change, inter-generational equity is one important consideration. It is not easy to persuade people to make economic sacrifices for future generations they will never know, particularly if they are not wealthy themselves. This can lead to a conflict between ethical aspirations and the hip pocket nerve. Opinion polling suggests that while a substantial majority of Australians support taking action to address climate change in principle, most people are far less willing to accept the necessary increases in the prices of petrol and electricity.

This issue spills over into a significant difficulty in terms of horizontal equity. It is notable that the OECD nations accounted for almost none of the increase in energy consumption between 2003 and 2013. Non-OECD nations on the other hand increased their primary energy consumption by 63 per cent over the same period. Yet quite understandably, under the terms of the Kyoto protocol, most of these countries were not required to reduce their emissions. It is difficult to explain to people in India, for example, many millions of whom do not yet have any power supply, that they should not aspire to enjoy the same benefits of cheap electricity that has in part enabled people in the developed world to build and increase their wealth. There are, therefore, persuasive reasons for either excluding developing countries from restrictions on the use of fossil fuels or, preferably, to provide financial support for them to invest in greenhouse-friendly technologies.

Given that non-OECD countries now account for over half of global emissions and that the United States also refused to be bound by the Kyoto protocol, it is not surprising that the treaty was ineffective. Its provisions for greenhouse gas reduction covered only about one quarter of global emissions, with the world’s two largest emitters, the US and China, remaining outside its reach. This problem of coverage will need to be addressed in any future agreement if it is to be effective.

Finally, policy issues are always less tractable when they are bedevilled by competing ideologies. Climate change fits neatly within this category. On the left, the Greens often appear to have the big resources companies in their sights, for reasons over and above climate change, and also to be ideologically opposed to any low or zero emissions energy technologies that are not renewable. On the right, the science of climate change, bizarrely, is often seen as a green/socialist plot to attack big business. Self-proclaimed experts decry the work of peer-reviewed climate scientists despite having no relevant expertise or qualifications in the field.

A “diabolical” Australian policy problem

In many areas, Australian policy makers can take credit for their performance over the last thirty years, particularly in microeconomic reform. We do, however, fall back to the pack when it comes to tackling global warming, where Australia’s record has been unexceptional.

In retrospect and compared with what followed, the performance of the Howard government now looks relatively good. Despite not ratifying the Kyoto protocol solely to demonstrate solidarity with President George W. Bush, Australia committed to meeting our Kyoto targets (which were admittedly considerably more generous than for other nations). Nevertheless, Australia generally punched above its weight at Kyoto and in annual conferences of the parties; the government established the Australian Greenhouse Office; and the Coalition took an emissions trading scheme to the 2007 election.

Kevin Rudd stated that climate change was the “greatest moral, economic and environmental challenge of our generation“. Yet apart from ratifying the Kyoto protocol, which because we were going to meet the target anyway was the easy bit, his climate change policy ended up being a damp squib. Paradoxically, the Greens, who should own this issue as none other, turned out to be saboteurs. By making the perfect the enemy of the good, the Greens contrived first to sink Rudd’s emissions trading scheme and then not only to persuade Julia Gillard to break her promise of no carbon taxes but also to impose a carbon price that was higher than that of most other countries. By opening the door for Tony Abbott, a man who believes that climate science is “crap” and “coal is king”, the Greens scored a spectacular own goal.

While the politics and equity issues around climate change policy are difficult, if we allow ourselves to be guided by economic considerations we should:

• Since scientists state that climate change will be particularly dangerous for Australia, prosecute the case for ambitious international action to limit global warming
• Invest heavily in developing new cost-effective low emissions technologies
• Use a market-driven instrument, such as emissions trading with access to international credits, to reduce emissions in the most efficient way
• Be neutral in encouraging the deployment of low emissions technologies, for example by not favouring renewables.

In comparing the policies of the present government to this blueprint, they rate badly in every respect:

• The government’s ambition for tackling climate change is low: it generally fails to send senior Ministers to international meetings and, embarrassingly, worked hard to keep climate change off the agenda for the last G20 meeting in Australia
• It has attempted, although frequently foiled in the Senate, to reduce substantially Australia’s efforts in climate change-related research and development
• It has destroyed Australia’s policy architecture for a market driven, emissions reduction instrument and instead, ludicrously for a conservative government, implemented a subsidy scheme for emitters directly opposed to the well-established ‘polluter pays’ principle
• It has maintained the policy of having a renewable energy target which discriminates against other low or zero emissions technologies.

The wild card for the government’s climate policy, however, is the upcoming CoP in Paris in December. At that meeting, Australia will be required to join with other parties to the UNFCCC in providing a commitment to reduce emissions post-2020 in pursuit of the agreement, to which it is a party, to restrict global warming to two degrees Celsius.

Setting and achieving an emissions reduction target

Although many countries are yet to reveal their initial position, the current level of global ambition for the Paris CoP falls short of what would be required to achieve the two degree target. For example, the climate change agreement between the US and China announced in 2014, while showing a welcome increase in commitment from these two major emitters, represents a manifestly inadequate benchmark. Realistically, nations would need to commit to a reduction in emissions levels of at least 40 per cent from 1990 levels by 2030 if the target is to remain within reach, with the hope of new technologies becoming available after that date leading to decarbonisation of the global economy after 2050. The EU has already committed to a 40 per cent reduction target for 2030 and expressed a willingness to go further if other countries show a greater ambition. Canada, whose Prime Minister’s position on climate change is similar to Tony Abbott’s, recently proposed a 30 per cent reduction in emissions from 2005 levels by 2030.

Of course it needs to be asked whether, in practical terms, Australia would be able to achieve a 40 per cent reduction in emissions from 1990 levels by 2030.[2] Assuming a limited use of international emissions credits, the two sectors of the economy that would be most affected — electricity generation and transport — would need to undergo substantial technological change. Coal-fired generators would probably be replaced by gas combined cycle for base load duty, although following Premier Weatherill’s initiative in establishing a Royal Commission on nuclear energy in South Australia it may be that at least one State government could propose small modular nuclear reactors as a more economic option. Fortuitously, most of Australia’s fleet of coal-fired plant will approach the end of their economic lives in the 2020s. In the transport sector, electric vehicles and hybrids would need to increase their market share substantially.

What policy instruments should be employed to effect these major changes? Instinctively, an economist would advocate a market-based mechanism such as an emissions trading scheme. But one of the consequences of Tony Abbott’s effective “axe the tax” campaign has been to entrench community opposition to an overt carbon price, particularly a high one such as would be required, for example, to effect a shift from coal to gas. Indeed, the community appears much more comfortable with a regulatory approach as exemplified by support for the RET which, of course, embodies a significant implicit carbon price.

Because of opposition to a carbon price in the Congress, President Obama has adopted a regulatory approach to reducing coal-fired power generation. In Canada, Ontario has phased out coal generation, which provided over a quarter of the province’s power supply early in this century. One approach to the Australian electricity sector would be to impose a ceiling on emissions from generators. For example, assuming no carbon capture and storage, a limit of 900kg CO₂/MWh by, say, 2023 would force the decommissioning of current brown coal generators, while a limit of 400kg CO₂/MWh by 2030 would eliminate black coal plant. Below these limits, the market would determine which technologies would be adopted. Similarly in the transport sector, emissions limits could be established for new vehicles, again with the market determining which technologies were employed.

It is not clear that such a regulatory approach would involve any substantial loss of efficiency as compared to a price-based mechanism. It may even have some advantages in terms of effectiveness, because investors in low emissions technologies would have certainty as to when their projects would need to come on stream.

In conclusion, the global community can only hope that its leaders rise to the occasion in Paris. Australians also have the right to expect, in the national interest, that their government will play a leading role both in advocating an ambitious emissions reduction regime and committing to a national target consistent with the positive efforts of comparable countries.

Jon Stanford is currently a Director of Insight Economics. He had a significant career as an economist in the Australian Public Service, ultimately in the Department of the Prime Minister and Cabinet. He has worked extensively on economic and policy issues around climate change and energy, both in the public service and subsequently as a consultant.

[1] BP Statistical Review of World Energy.

[2] The choice of 1990 or 2000 as a base year is not a material issue for Australia as the level of emissions was similar in each of those years.

 

 

Policy Series

Wentworth Group of Concerned Scientists[*]

When faced with significant environmental challenges in the past, Australian governments, businesses, communities and individuals have shown their capacity for responding creatively and energetically to environmental challenges, with positive outcomes for the health of the environment and economic productivity. While there are thousands of examples across Australia every day where individuals, communities and businesses strive to live sustainably, too often, despite best intentions, we place short-term interests over long term benefits.

The consequence is that as a nation, we are taking more from our environment than can be replenished, and that by any definition is unsustainable. The destruction of native vegetation, over-extraction of water, degradation of agricultural soils, and poorly planned urban and industrial development are driving the continued, long-term degradation of the Australian landscape.

As our population and incomes continue to grow, these assets will come under even more pressure. Climate change will exacerbate many existing challenges. The continent will continue to get hotter and experience changes in rainfall patterns, more droughts, and higher bushfire risks. Agricultural productivity is likely to be diminished by decreased rainfall and soil water availability, and urban and coastal assets will be at increasing risk from more intense storms, sea level rise and floods.^1,2

The problem is the narrative: jobs or the environment.

In recent times, national policy has been plagued by short-term vested interests striving to shift the public dialogue to a position that we must sacrifice the environment to pursue a growing economy. We have witnessed the winding back of national water reform; the repeal of the emissions trading scheme; constant attacks on the Renewable Energy Target; the approval of thousands of coal seam gas bores across the landscape without proper assessments of their cumulative impacts on water resources, agricultural land or native vegetation; the Commonwealth seeking to give away responsibility to protect matters of national environmental significance; and very significant cuts to scientific research and national environmental programs.

This myopic attitude flies in the face of both good science and it flies in the face of good economics because, in the long run, we cannot have a prosperous society if we continue to pollute our environment and degrade our natural capital.

Conservation of natural capital is a universal human value that should underpin all political philosophy. The great Republican President Theodore Roosevelt once said: “Of all the questions which can come before this nation, short of the actual preservation of its existence in a great war, there is none which compares in importance with the great central task of leaving this land even a better land for our descendants than it is for us.”³

Generations of Australians have overwhelmingly supported this philosophy. For the past three decades, The Australian newspaper has commissioned Newspoll to survey the issues that Australians consider important in Federal politics. In every opinion poll conducted since 1993, the majority of Australians have said they considered the environment as a very important public policy issue.⁴

A sustainable economy

Productivity is the key to long-term economic growth. It is also a pillar of sustainability, because people can create greater value using less materials and less energy, with less impact on the environment.

If more people are to benefit from industrialisation, the world will need to produce more energy. How this energy is produced will be critical to achieving a sustainable economy, because the world needs to reduce greenhouse emissions by at least 50 per cent within the next 40 years to avoid the most dangerous consequences of climate change.⁵ This will require developed countries such as Australia to reduce net greenhouse emissions by more than 95 per cent over the next 35 years.⁶

If Australia chooses to act now in our own long-term self-interest, we can achieve that target without fundamental changes to the economy, through a combination of energy efficiency, low carbon electricity generation, and carbon farming.⁷ Carbon farming is particularly important because not only does it provide an economic mechanism to help offset Australia’s existing greenhouse gas emissions, it also provides an economic foundation for the restoration of degraded land across the continent.⁸ This is because natural landscapes and healthy agricultural systems store vast quantities of carbon.

Federation and the role of science in public policy

The health of the natural environment matters because it affects the wellbeing of people. The Australian Treasury defines wellbeing in terms of the total stock of capital – human physical, social and natural – that is maintained or enhanced for current and future generations.⁹ If we are to improve the stock of natural capital to enhance the wellbeing of current and future generations, we need to ensure that sustainability principles are embedded across all sectors of the economy, and for this we need science.

Australia’s Federation has by any measure been an extraordinary story. It has underpinned the development of one of the most successful and stable democracies in the world, which now sees us enjoying a remarkable 24 years of uninterrupted economic growth. This history has also positioned us to take advantage of the rise of the Asian century, creating a vast array of new economic opportunities.¹⁰

The conservation of natural capital however, did not factor prominently in the creation of our Federation or our constitution – and herein lies our problem. We built our political and economic institutions at a time when the natural world seemed endless – where land clearing was part of a heroic vision to develop the nation – where fresh water flowing to the sea was thought to be wasted – and where coal was the great new energy source that would power the industrial revolution.

With a new century come new challenges – challenges that our founding fathers could not have dreamed of. Today’s challenges of climate change, food security, the increasing scarcity of fresh water resources, the loss of biodiversity, and the increasing cost of natural disasters,¹¹ are the defining issues of our age that will increasingly challenge our notion of progress.

These challenges require a new set of skills and institutions built on an understanding not only of market economics and social sciences, but also the natural processes that drive our ecosystems, such as the water cycle and the carbon cycle, and through maintaining the capacity of ecosystems to provide the goods and services that underpin our society and our economy.

The challenge and the opportunity

The challenge we all face is that the economic transformations needed are far beyond the ability of any individual or company to address on their own. The current government’s intentions to reform both Federation and the tax system present a golden opportunity for us to put in place practical, forward-looking reforms that embed sustainability throughout the economy, so that everyday actions also lead to the conservation of our natural capital.¹²

So how do we bring the economy and the environment together? The Wentworth Group of Concerned Scientists, in consultation with experts in economics, land use planning and land and water management, has put forward what we believe are five interconnected, long-term economic and institutional reforms that will lead to a healthier environment and a more productive economy:¹³

1.  Modernising Australia’s reactive land and water use planning systems  

Ineffective land use and infrastructure planning is not only a drag on economic growth – delays, uncertainty in development approvals, congestion, and damage from extreme weather events – it is also the driver of long-term environmental degradation because it fails to take into account the cumulative impact of development on the long-term health of environmental assets. It also causes significant economic costs. According to a report by Deloitte Economics, ineffective planning currently costs the Australian economy over $6 billion a year to repair damage from floods and storms, and without substantial reform, these costs are forecast to increase to over $2 billion per annum over the next 35 years.^14,15

Australia sits on the edge of the most rapid economic expansion in human history.¹⁰ This will create a vast array of new economic opportunities. Such an expansion in combination with an expected 60 percent growth in Australia’s population in coming decades also means that competition for and conflict over land and water resources will continue to grow.

Major public investment in a new generation of land use and infrastructure plans will not only help manage these pressures, they will improve the livability of our towns and cities and because they are more efficient, will also help secure Australia’s economic prosperity long into the future.

2. Using markets to finance conservation.

Many market activities damage the environment, but this is often not reflected in the market price of the goods or services these activities produce.¹⁶ For example, industries will continue to emit excessive greenhouse gases if there is no market value placed on a stable climate system, and farming may cause land degradation if there is no market value placed on the ecosystem services they provide to society.

Often these problems arise because many aspects of the environment have public good values – that is, because no individual or company owns them, these values are not priced by the market, and are often used without regard to the costs that may be imposed on others. It is therefore in the public interest for governments to create the economic conditions for these impacts to be incorporated into the cost of doing business.¹⁷

Our proposition is a simple, but fundamentally important one: remove subsidies from activities that pollute the environment and create economic incentives for business and consumers to restore and maintain environmental assets that have been degraded in the past.

One way of doing this is to put a price on carbon and use carbon offset markets for the reasons described earlier: healthy landscapes store vast quantities of carbon. Another way is to eliminate fossil fuel subsidies and tax expenditures that are costing the economy in the order of $8 billion a year[†], and use some of these savings though an equitable, broad-based land tax to pay farmers, indigenous communities and other landholders to restore degraded environmental assets.

As a package these measures in combination with a price on carbon, would go a long way to restoring and maintaining the nation’s natural capital long into the future.¹⁸

3.  Conserving Australia’s natural capital.

On our watch,[‡]¹⁹ the clearing of native vegetation, pollution of rives and estuaries, over extraction of water, introduction of weeds and feral animals, and inappropriate fire management, has resulted in the listing of over 1,600 species of native plants and animals as threatened with extinction.²⁰

We can turn around this systemic decline in Australia’s natural capital by: closing the gaps in our public and private reserves; connecting these across the landscape; and committing to a long-term plan to conserve our native plants, animals and ecosystems. In doing so, we will also create wealth and employment opportunities for more people, because access to nature in an increasingly congested world will be valued more highly by Australians and attract growing numbers of international visitors.

4. Regionalising management of Australia’s natural resources

In recent decades Australia has adopted a regional model for identifying investments in natural resource management.²¹ We are not proposing a fourth tier of government. What we are advocating is that all three levels of governments work more effectively with Australia’s existing regional natural resource management bodies, so that public and private investments lead to more effective management the Australian environment.[§]

The benefit of a regional model is that investment decisions are underpinned by an understanding of how landscapes function. It is also an effective mechanism for aligning government policies with peoples’ expectations and values.²² It is able to do this because it operates at a scale large enough to manage the pressures on our landscapes, yet small enough to use local knowledge to tailor solutions that suit those landscapes.  

5. National environmental accounts.  

At its most fundamental level, many of our environmental problems arise because we only measure half the ledger. We have sophisticated economic accounts that measure benefits of economic growth, but we do not account for the depletion of natural capital.

It is not possible to manage our economy without economic accounts. Neither is it possible to manage the environment without accounts that measure the condition our natural capital.

If Australia is to become a sustainable society – one that creates wealth without degrading its natural capital – a most fundamental reform is to create a system of environmental accounts that measure the condition of environmental assets (such as rivers, soil, native vegetation, fauna, and estuaries) appropriate to the scales at which economic and policy decisions are made.²³ When we do it will change the way we manage Australia.

We all have a role …

The twenty first century goal of promoting economic growth has for too long been framed as a trade-off between the economy and the environment. We must move on from this phase of our industrial history.

We live in an extraordinary country. Our natural heritage is truly breathtaking. We enjoy one of the highest living standards of any nation – ever, and our prospects for the future seem endless.  

There is no reason why the Australia of today cannot grow the economy, create jobs and maintain a healthy environment. But to do so, we have to stop kidding ourselves that the short term decision-making that is pervading public policy today is not having a negative long term impact on our environment and our economy. And we have to stop kidding ourselves that the small handful of people who are responsible for managing Australia’s vast land and water resources have anything like the resources to do it without financial support from the rest of the community.

If we want to leave our world in a better condition than the one we inherited, it is incumbent on each of us, no matter where we live, to participate actively in public processes to plan for these long-term outcomes, and then take action so that they take us on a pathway where a healthy environment becomes a natural by-product of our economy – a partner to economic growth, rather than a competitor.

With land use plans that promote development and protect the environment, long-term emissions reduction targets to address climate change, the elimination of fossil fuel subsidies that cause pollution and their replacement with a tax system that finances conservation, it is possible to have a productive economy and a healthy environment.

When we do these things, we will create a truly sustainable society, because the market will direct investments that grow the economy and protect the environment.

 

The Wentworth Group of Concerned Scientists is an independent group of Australian scientists, economists and business people whose objective is to help policy makers identify solutions to the long-term conservation of Australia’s land, water and biodiversity assets.

Current Members of the Group are Mr Peter Cosier, Dr Richard Davis, Professor Tim Flannery FAA, Dr Ronnie Harding, Dr Terry Hillman AM, Professor Lesley Hughes, Professor David Karoly, Professor Hugh Possingham FAA, Mr Robert Purves AM, Dr Denis Saunders AM, Professor Bruce Thom AM FTSE, Dr John Williams FTSE.

 

References

1. CSIRO and BoM, Climate change in Australia: projections for Australia’s NRM regions. 2015, Australia Government. p. 218.
2. Department of Climate Change, Climate change risks to Australia’s coast: A first pass national assessment. 2009: Canberra.
3. Slack, M. From the archives: President Teddy Roosevelt’s new nationalism speech. The White House Blog, 2011.
4. Newspoll Political issues and trends: Importance of federal issues. 2015.
5. Meinshausen, M., et al., The RCP greenhouse gas concentrations and their extensions from 1765 to 2300. Climatic Change, 2011. 109(1-2): p. 213-241.
6. Wentworth Group of Concerned Scientists, Submission to Garnaut Climate Change Review: Science based emissions targets will require far deeper cuts. 2008.
7. Denis, A., et al., Pathways to decarbonisation in 2050. Initial Project Report. 2014, ClimateWorks Australia: Melbourne, Victoria.
8. Wentworth Group of Concerned Scientists, Optimising Carbon in the Australian Landscape. 2009, www.wentworthgroup.org/wp-content/uploads/2013/10/Optimising-Carbon-in-the-Australian-Landscape.pdf.
9. Australian Treasury, Australia to 2050: Future challenges. 2010, Australian Government: Canberra.
10. Australian Government, Australia in the Asian Century: White Paper. 2012: Canberra.
11. Productivity Commission, Natural Disaster Funding Arrangements. Inquiry Report No. 74. 2014.
12. Institute of Chartered Accountants Australia, An economic policy platform for the next term of government. 2013, www.charteredaccountants.com.au/futureinc.
13. Wentworth Group of Concerned Scientists, Blueprint for a Healthy Environment and a Productive Economy. 2014.
14. Productivity Commission, Barriers to Effective Climate Change Adaptation. 2012, Report No. 59, Final Inquiry Report: Canberra.
15. Deloitte Access Economics, Building our Nation’s Resilience to Natural Disasters. 2013, Australian Business Roundtable for Disaster Resilience and Safer Communities.
16. Australian Treasury, Australia’s future tax system: Report to the Treasurer. Part Two, Volume 2: Detailed Analysis. 2010: Canberra, ACT.
17. Australian Treasury, Australia’s future tax system: Report to the Treasurer. Part One: Overview. 2010: Canberra, ACT.
18. Australian Treasury, Australia’s future tax system: Report to the Treasurer. 2010: Canberra, ACT.
19. McGraw Hill, McGraw-Hill Dictionary of American Idioms and Phrasal Verbs. 2002, The McGraw-Hill Companies, Inc.
20. State of the Environment 2011 Committee, Australia state of the environment 2011. Independent report to the Australian Government Minister for Sustainability, Environment, Water, Population and Communities. 2011, DSEWPaC: Canberra.
21. DEWHA and DAFF, Regional Delivery Model for the Natural Heritage Trust and the National Action Plan for Salinity and Water Quality. Audit report No. 21. 2007, Department of the Environment, Water, Heritage and the Arts and Department of Agriculture, Fisheries and Forestry: Canberra. p. 130.
22. Natural Resources Commission NSW, Progress Towards Healthy and Resilient Landscapes: Implementing the Standard, Targets and Catchment Action Plans. 2010.
23. Wentworth Group of Concerned Scientists, Accounting for Nature: A Model for Building the National Environmental Accounts of Australia. 2008: www.wentworthgroup.org/blueprints/accounting-for-nature.

 

[*] This paper is based on the Blueprint for a Healthy Environment a Productive Economy produced by the Wentworth Group of Concerned Scientists in association with Dr Guy Fitzhardinge AM, Prof Quentin Grafton FASSA, Dr Ken Henry AC, FASSA, Mr Max Kitchell, Prof Darryl Low Choy AM, MBE, RFD, FEIANZ, Ms Ilona Millar, Dr Jamie Pittock, The Hon Paul Stein AM, QC, and Mr Martijn Wilder AM.

[†] Primarily from exemptions provided to some industry sectors through fuel tax credits and reductions to the Commonwealth fuel excise, accelerated depreciation for fossil fuel assets, and the failure to index fuel excise for inflation since 2001.

[‡] ‘On our watch’ is an expression that means while someone is on duty; while someone is supposed to be in charge of a situation.

[§] There are 54 Regional Natural Resource Management bodies across Australia that work with governments, farmers, indigenous communities, and community groups who have a passion for public land conservation.

Policy Series

I once called climate change policy diabolical, but with a saving grace (Garnaut 2008).

It is diabolical because of the overlapping of four complex issues. While there is high scientific confidence that human action causes warming and that, beyond some limit, warming damages many aspects of human life, perhaps catastrophically, there is uncertainty about the precise consequences. The costs of effective action come now and the benefits much later. Avoidance of dangerous outcomes requires parallel action in all of the larger countries. And effective action is politically difficult because it confronts the interests of large corporations which are accustomed to investing heavily to bend policy to their own ends. When I first started working on the issue 8 years ago I said that it might be too difficult for our political system at this early stage of our development.

The saving grace is that climate change captures the interest of large numbers of people in many and diverse countries to an extent that has no near comparator amongst contemporary policy issues. I saw this in the huge participation of citizens in public meetings to discuss draft reports and update papers during my two climate change reviews. We saw it in the electoral reaction to Prime Minister Rudd’s decision not to battle on with draft legislation for an emissions trading scheme after its defeat in the Australian Senate in December 2009. We see it now in the pressure on the current Australian government to do its fair share in a global effort to mitigate climate change. We see it in popular pressures in countries as diverse as the United States and China.

Many things have changed since climate change policy cut a destructive path through Australian political life between 2007 and 2013.

The science has become less uncertain. The average of the increases in temperature that science leads us to expect from a doubling in greenhouse gas concentrations has not changed much, but the range around the average has diminished. Peer-reviewed science now identifies a human footprint in an increasing number of contemporary climate events.

The cost of breaking old links between levels of economic activity and greenhouse gas emissions has fallen dramatically. People everywhere are finding that they can prosper with much lower energy use–absolutely for electricity in the developed countries including Australia, and as a ratio to economic output in rapidly growing developing countries led by China. The costs of all the alternative energy sources are falling more rapidly than anticipated in my modelling 7 years ago. Solar panel costs have fallen by 80 percent. Opportunities for sequestering carbon in soils, pastures, woodlands and forests are turning out to be closer to the upper than the lower end of the speculative range set out in my 2008 Review. In Australia, farmers are responding to the incentives providing by the combination of carbon pricing and the carbon farming initiative, now replaced by the Emissions Reduction Fund and the carbon farming initiative.

Australians may soon be ready to look again at economically rational approaches to reducing emissions through carbon pricing. We now know that large reductions in emissions were achieved in covered sectors under the so-called “carbon tax”, and reversed after abolition in July 2015. New schemes in China, Korea, US states, Canadian provinces and elsewhere makes carbon pricing less lonely today. Awareness has grown that carbon reduction measures that raise rather than absorb government revenue serve fiscal as well as climate change purposes. Australians are starting to put the several sources of past electricity price increases into perspective—and an astute political leader could point out that only the increases from carbon pricing were compensated by tax cuts and social security adjustments. The scary prognostications about the effects of carbon pricing on industry and electricity supply did not come to pass, and are likely to be less influential in future political contests over climate change policy.

There has been a big change in international action on climate change, and in Australians’ awareness of what others are doing. When I suggested targets for Australian emissions reductions in my 2008 Review, there was no international agreement on a goal for limiting greenhouse gas emissions. Nor was there agreement on how the international community should go about implementing any agreement to reduce emissions. The US President, George W, Bush, had told the 2007 Major Economies meeting that US emissions would peak in 2025. China had just doubled coal consumption in seven years and had not announced any target for constraining emissions growth.

That was why I proposed unconditional as well as conditional targets for reducing Australian emissions. If the rest of the world did nothing at all, we should reduce emissions by 5% from a 2000 base by 2020. I called this the “waiting game”. We should reduce emissions by more if others were active—by 25% within effective global action towards limiting global temperature increases by 2 degrees, and by intermediate proportions if other countries were taking intermediate steps. These objectives were nested in a longer term requirement to reduce emissions by 90 percent by 2050 as Australia’s fair share of a global effort to hold temperature increases to 2 degrees Celsius. The 2020 recommendations were accepted by the Australian Government with the full support of the Opposition led by Tony Abbott, and formally communicated as an Australian commitment to the United Nations. The then Opposition’s continued support for the conditional as well as the unconditional targets was reiterated during the 2013 election campaign.

Following a proposal from the G20 heads of government, the Cancun meeting of the UN in 2010 unanimously agreed to aim at holding human-induced warming to 2 degrees. The Cancun meeting also agreed on an approach to limiting emissions that I call “concerted unilateral mitigation”. There is a common approach to measurement of emissions and to trade in carbon credits. Governments set their own emissions reductions targets in the light of the global objective and other countries’ actions, and choose policies to reach the targets. Targets and policies are subject to international review, which adds to domestic political pressure for laggards to do their fair shares.

At Cancun, President Obama made a serious political commitment to the US reducing emissions by 17 percent by 2020 on 2005 levels. The Chinese government committed China to reducing the emissions intensity of economic activity by 40-45% on 2005 levels by 2020.

The US is on a path to meet or over-perform on its target for 2020. China has gone way beyond the change in trajectory implied in its 2020 target. Chinese coal consumption fell in 2014 and may have passed its all-time peak. Preliminary data suggest that emissions fell slightly last year. In the first quarter of 2015, the absolute fall in Chinese emissions has exceeded total United Kingdom emissions.

Now that we know that other developed countries are taking comparable steps and major developing countries substantial action, our 2020 commitment is minus 15%.

The Presidents of the US and China jointly announced post-2020 objectives at the time of the 2015 APEC meeting in Beijing. The US announced that emissions in 2025 would be 26-28% below 2005 levels. China for the first time committed itself to quantitative limits—a peak by or if possible before 2030. My own assessment is that current policies in China will deliver a much earlier peak in emissions.

Two crucial policy decisions must be made for Australia in 2015. One is to honour the 2020 commitment. The other is to establish post-2020 targets that are in line with other developed countries and avoid leaving an excessive burden of adjustment to future Australians. I have suggested that targets from a 2000 base of minus 27.5 % by 2025 and 40% by 2030 are the minimum reductions that are consistent with responsible sharing of the burden between present and future Australians.

For Australia to do its fair share in an international mitigation effort, having and achieving reasonable targets is more important than the means we apply to reducing emissions. How we get there affects Australian prosperity but not environmental outcomes.

President Obama’s Secretary for Energy,Nobel Laureate in Physics Steven Chu, made this point to me in early 2011 when I expressed concern about failure to legislate an emissions trading scheme. “Don’t worry, Ross“, he said to me. “We wanted to reach the target through economically efficient means that minimize costs to businesses and households. But that path was blocked by the Congress. We will get there in other ways”. He then outlined for me the programme of regulatory action through which the Administration has since gone about reducing emissions.

The regulatory action through the Environmental Protection Agency has been supported by restrictions on gas exports, which in combination with domestic gas supply expansion have pushed the domestic gas price lower. That has introduced powerful pressures for replacing domestic coal-fired power generation by gas. The proportionately even larger increase in gas reserves in eastern Australia has had the opposite effect, because a new export industry is lifting prices to export parity.

The United States reduction has also been assisted by sub-national initiatives to price and to regulate carbon emissions. California was in front of others in regulatory action, and now is operating an emissions trading schemes as well. The Californian scheme is linked to Quebec and will soon be linked to Ontario. The addition of Australian States would lower Australian and North American mitigation costs.

The debate over carbon pricing in Australia was influenced by business hopes that the issue would go away. The greatest cost of global mitigation to Australia was always going to be the effect of other countries’ mitigation on the price of coal, gas and other emissions-intensive exports. Hope within Australian business that the issue would go away contributed to the greatest resource allocation fiasco in Australian history: the overinvestment since 2011 in expanding resource exports into a declining global market.

An Emissions Trading Scheme has always been preferred over other options by Australian voters once it is accepted that emissions have to be reduced by one means or another, and if it is explained to citizens that carbon pricing allows increased costs for carbon-intensive goods and services to be balanced by some combination of tax cuts and additional public services.

The 2011 Australian scheme, linked to Europe as it would have been by mid-2015, and with the legislated provisions for assistance to trade-exposed industries and Productivity Commission review, remains an environmentally reliable and economically efficient approach. It generates a lot of revenue for compensatory tax cuts or reducing the deficit. Low European carbon prices at present would give reintroduction of the scheme a gentle start. A straightforward carbon tax could also do the job and is popular politically in Canadian Provinces that have used the revenue to reduce other taxes, but the peculiar history in Australia makes revival of a fixed carbon price unlikely for the foreseeable future.

An emissions trading scheme linked to Europe at current permit prices would see a substantial part of Australia’s contribution to the global mitigation effort coming from purchase of overseas credits. This is consistent with our doing our fair share in the global effort. Slow reduction of emissions within Australia, however, would leave us vulnerable in later years when larger reductions are required and the costs of international credits higher.

To avoid placing an excessive mitigation burden of emissions reductions on future Australians, it would be wise to supplement an emissions trading scheme linked to Europe with regulatory action over the early years. The Renewable Energy Target has turned out to be a relatively low-cost way of achieving large emissions reductions in the electricity sector. Modelling commissioned by the Warburton Committee indicates that a stronger Renewable Energy Target would reduce electricity costs to users. The RET and other regulatory support would be rendered redundant as European carbon prices rose with tighter targets and, hopefully, the return of at least moderate prosperity to that continent.

Ross Garnaut. Professorial Research Fellow in Economics, University of Melbourne. He has been a consultant to prime ministers and senior ministers on trade policy and relations with Asia and the Pacific since 1976. He was Principal Economic Adviser to Australian Prime Minister Bob Hawke and Australian Ambassador to China.

 

Policy Series  

There are a number of givens about schools and their students. Both are critical to economy and society. The level of collective student achievement can create future dividends – or deficits. The quality of school education not only matters but the extent to which this quality is distributed around schools also matters. Even the length of time students spend at school impacts on GDP. The experiences of young people at school, who they mix with and what they learn – including about each other – also has implications for our future social and community lives. In short: developing the human capital in our schools must be a national priority.

Beliefs rule…

We know all these things. But there are more givens about school education that we either don’t know or choose to ignore. Far too often evidence about education policy and practice ends up being cast aside in favour of rusted-on beliefs about what matters and what doesn’t. As one American writer once observed, where education is concerned, the old adage holds true: facts are negotiable; beliefs are rock solid.[1]

Even after decades of research, the provision, organisation and funding of Australia’s schools is surprisingly influenced by beliefs, with successive governments recycling policies which don’t seem to make much difference. Yet, on a whole range of policy options, the jury is in: for ages we have known, if only from the OECD, that some school system characteristics are associated with success, others seem to impede this success and still others have little impact either way.

…but quality and equity matters 

The features associated with success for schools include accountability, standards, teacher quality and other things we do quite well. But even more success, at least in measurable student outcomes, is achieved by countries which have comprehensive and equitable systems of schools with little separation of students in terms of socio-educational status and ability. Competition can improve quality to a point, but it more often segregates students on social and academic grounds. The OECD states that governments can prevent school failure by using two parallel approaches: eliminating system level practices that hinder equity; and targeting low performing disadvantaged schools.[2]

Alas, for well over a decade we have not done this well, if at all. Policy has instead encouraged competition and choice between schools and, for the last 15 years, funding has disproportionately flowed to schools where students already achieve at quite high levels. This has happened against a background of headlines about falling student achievement – and recurring moral panics about Australia slipping down various international school league tables.

Some of this matters and some doesn’t, league tables always deserve far closer scrutiny than they receive. But we’ve been slow to join the dots between the relative decline in our performance and decades of neoliberal policy on schools. The policy framework wasn’t and isn’t working, the funding of schools especially has become quite risible. It became inevitable that a government would initiate a review on the scale of the Review of Funding for Schooling, the Gonski review.

Let’s hear it for Gonski…and My School!

The Gonski review is significant for a number of reasons. It came up with many findings and recommendations and it will forever remain a benchmark statement of what was going wrong and what we should do about it. It was widely welcomed in early 2012, but, as we know, its implementation has been very patchy and has fallen well short of what the Gonski panel recommended.

The Coalition at the federal level, supported by key non-government school peak groups, has essentially walked away from any long term commitment, as recently evidenced by the review of federal state relations. Labor dragged its heels from day one and its current commitment is at best ill-defined.

It is almost as if we need another review to press the urgency of Gonski’s findings and solutions. That is unlikely. The good news is that, in an unconnected way, Australia has accumulated and published massive amounts of data about schools which shows whether things have improved or further deteriorated.

More important, all this data – annually presented and updated on the My School website – can help us assess policy decisions made by governments at state and federal level. The data which lies behind My School, tells all. It would be hard to find a better template against which to assess policies being proposed, implemented – or avoided.

How have our schools progressed, under a mix of governments, in the five years since the Gonski panel visited all those schools, waded through a mountain of submissions, commissioned deep research and scrutinised all the evidence? It is certainly possible to find out; for a couple of years I have worked on this data with Bernie Shepherd and our reports don’t reveal much cause for optimism.

Progress report 1: schooling performance and outcomes

The Gonski review found that Australian schooling needs to lift its performance, particularly that of the lowest achievers. National tests in reading, writing, language conventions and numeracy show that this hasn’t happened. Certainly there is a debate about the adequacy of such tests as a measure, but they are quite wide-ranging. They show that student overall performance has, between 2009 and 2013, been more inclined to stagnate or fall rather than to improve, with trends in middle secondary school of particular concern.[3]

Gonski’s concern about the lowest achievers was and is very well justified. Fortunately we can now track their performance: My School allocates a socio-educational advantage (SEA) index created by the enrolment in every school and we can measure the ongoing achievement of the advantaged, the disadvantaged and those in-between. Unfortunately, student achievement scores have clearly diverged between schools with higher SEA enrolments against those with lower SEA enrolments. This diverging trend was also most noticeable in middle secondary school.

Progress report 2: equity and disadvantage

So our students aren’t doing much better, if at all – and the differences between them are increasing for all the wrong reasons. Hence Gonski recommended that new funding arrangements for schooling should aim to ensure that differences in educational outcomes should not be the result of differences in wealth, income, power or possessions. This is the OECD definition of equity. In short, we need schools – not the circumstances of birth and upbringing – to create each child’s future.

The review published social gradients for various countries, showing the relationship between student achievement and level of advantage. Australia had, and has, one of the steeper gradients amongst the higher achieving countries. Bernie Shepherd used My School test data to calculate equivalent gradients and found that the gradient appears to have steepened in just a few years, 2010 to 2013.[4] Differences in education outcomes indeed seem to be increasingly impacted by “differences in wealth, income, power or possessions.” School-to-school equity has declined measurably. The gradient was particularly steep and worsening for metropolitan and for secondary schools.

Progress report 3: funding arrangements

Presumably with this in mind, Gonski wanted school funding to be targeted in ways which would close this gap – with allocated funding to reflect the different needs of students, lift the strugglers and elevate student achievement across Australia. Funding of schools was overdue for an overhaul – Gonski found that it lacked logic, consistency and transparency.

Not much seems to have changed. The old funding arrangements have continued, with some variations, in the process often compounding existing problems. My School reveals hundreds of schools funded in ways which defy logic and consistency. In one out of every two federal electorates there is at least one lower SEA school less well funded by governments than a nearby school enrolling more advantaged student.[5]

Gonski came up with sector-blind solutions but the problems are partly sector-based. Government schools disproportionately enrol higher needs students – My School’s SEA index is consistently lower for government schools. But the distribution of government recurrent funding has continued as if the reverse was the case: between 2009 and 2013 government funding (per student) increased by 12.8% to government schools, by 23.5% to Catholic schools and by 24.6% to Independent schools.[6]

The combination of public and private funding, mainly through fees, creates greater differences. The vast majority of non-government schools have higher, and often much higher, net recurring incomes per student. Parents would argue that they have a right to pay fees to achieve a perceived advantage – but to what extent should governments be party to such arrangements when they undermine efforts to shift the whole system towards levels of equity to deliver improved national performance? Gonski had a sector-blind solution to this problem.

Progress report 4: Australian and state government funding 

Gonski reported an imbalance in federal and state school funding and recommended a school resourcing body be established to coordinate the allocation of funding. Labor didn’t implement this essential recommendation – and the current federal government certainly won’t. In the meantime the lack of coordination proceeds apace, worsened by the time-honoured pre-election sweetheart deal with various school authorities – best illustrated early in 2015 by that between Labor in Victoria and Catholic schools.

In the meantime state-level recurrent funding (per student) increases to schools has little consistency across state boundaries. Lowest increases between 2009 and 2012 were around two per cent and highest around twelve per cent. Capital funding variations between the states defy explanation. In the same period Queensland provided almost as much capital funding (per student) to non-government schools as South Australia provided to government schools.

Separating and concentrating advantage and disadvantage…

The Gonski panel found that increased concentration of disadvantaged students in certain schools was having a significant impact on educational outcomes, a finding supported by research commissioned for the Review.[7] We’ve known about this concentration: six years ago the OECD reported that almost 60% of our students were enrolled alongside their peers in disadvantaged schools – quite a high figure in comparison with equivalent countries.[8]

We also know about the processes driving this concentration. Those with the means to exercise choice have moved to higher SEA schools in every sector, especially but not only to non-government schools. The search for a perceived more desirable peer group has long driven school choice.[9] A part consequence is that lower SEA schools have been losing, and higher SEA schools gaining, student enrolments.[10] The movement is such that only around a quarter of Australia’s schools now have an enrolment which reflects the level of social advantage of the town or suburb in which they are located.[11]

…and what it costs

The problem is that this compounding of advantage and disadvantage into different schools exacerbates the existing impact of family SEA on student achievement, in ways which are quite complex but well-researched.[12] This resulting SEA effect on levels of student achievement is also quite pronounced in Australia – and increasing.[13] The end result is that some schools develop (and/or import) a high profile of achievement and success, while others become places where middle class Australians especially avoid.

This tends to confuse the debate about school quality: ‘good schools’ end up being those which enrol “good” students. My School actually shows that, when student background is taken into account, the achievement level of students doesn’t significantly vary from school to school.[14]

What does vary, however, is the amount of money going to different schools. Substantial amounts of both government and private funding ends up in schools where the extra investment makes little difference to measureable student outcomes. It is possible to argue that $3.3 billion each year is misdirected in this way[15] – such an amount would more than sustain full implementation of Gonski’s recommendations.

It is inevitably argued that the government’s contribution to this $3.3 billion overspend is still a good investment. It mainly goes to private schools but it still represents a saving to government. But the recurrent funds saving to government of having private schools is less than $2bn each year – much less than figures thrown around by non-government school peak groups. When viewed alongside other costs created by having an increasingly class-based hybrid school system the question that has to be asked whether private schools represent much of a saving at all.

Conclusion 

Clearly business as usual in policy affecting Australia’s schools is not working. We are continuing to widen the gaps, with all that this means for achievement, equity and the future human capital represented by our students. What Gonski found to be bad has worsened. The Review’s findings are still waiting for implementation of the Review’s solutions.

It is hardly the first time that a major review in Australia has been followed by inaction or half-hearted solutions. The difference now is that we can track the progress of our school education in unprecedented ways using the most recent data about real schools. The data from My School is telling us more than was previously known about our framework of schools. At the very least, ongoing revelations about student achievement, school quality, equity issues and funding have the potential to create a better debate. At the most we have the right to expect better policy.

Chris Bonnor 

[1] Gene V Glass, Fertilisers, Pills and Magnetic Strips – the fate of public education in America, Information Age Publishing, 2008, p. xii

[2] Organisation for Economic Co-operation and Development (2012) ‘Equity and Quality in Education: Supporting disadvantaged students and schools’, http://www.oecd.org/dataoecd/34/11/49478474.pdf.

[3] https://drive.google.com/file/d/0BxK25rJrOw-eLW45cng0MXIxODg/view

[4] https://drive.google.com/file/d/0B8UbZRpTfT_5empMWm5nbFZMblhKUkhKNmRfUnJVOVcwWDQ4/view

[5] https://drive.google.com/file/d/0BxK25rJrOw-eLW45cng0MXIxODg/view

[6] These are the latest figures available (My School 2015) and yet to be published in any report.

[7] http://www.deewr.gov.au/Schooling/ReviewofFunding/SubGen/Documents/Teese_Richard_and_Lamb_Stephen.pdf

[8] http://www.oecd.org/pisa/pisaproducts/48852584.pdf

[9] http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=EDU/WKP(2010)15&docLanguage=En

[10] https://drive.google.com/file/d/0B8UbZRpTfT_5empMWm5nbFZMblhKUkhKNmRfUnJVOVcwWDQ4/view

[11] https://drive.google.com/file/d/0BxK25rJrOw-eS1dUQXdheTVRdjg/view

[12] http://www.deewr.gov.au/Schooling/ReviewofFunding/SubGen/Documents/Teese_Richard_and_Lamb_Stephen.pdf

[13] http://www.oecd.org/pisa/pisaproducts/48852548.pdf

[14] https://drive.google.com/file/d/0BxK25rJrOw-eMi1BVjJTYjJyQTg/view

[15] https://drive.google.com/file/d/0BxK25rJrOw-eckVtUDhoU0hLNjQ/view

Policy Series

Knowledge capital is the real wealth of nations. If you stop to think about it, what matters more for opportunity, fairness and security than the skills, talents and ideas of the people? Yes, other things matter, but in the long haul they are way back in second place. And, yes, we do a lot already to foster our abilities, but we could be even smarter in this endeavour.

Education Structures

In Australia, growing our knowledge capital starts at the beginning. Child development is the foundation. It is well established that getting early childhood development right makes a lot else work well in later life. Nobel Laureate James Heckman established some time ago that the real rate of return could average 60% for early childhood investment programs. When many other investments are lucky to clear reasonable hurdle rates of 5-10%, this is, or should be, a no-brainer. Of course such quantification demeans the intrinsic worth of the endeavour, but it is interesting how readily an early childhood advocate adopts the trappings of an economist when he or she learns of such reality.

In terms of the cycle of life, the work accomplished in pre-school and child care is next sharpened by schooling. In Australia recently we have had some healthy debate about how that is best accomplished. Our unusual mix of private and public secondary schooling sharpens that debate here and points to the distinctive “Australian Way” of combining government and private provision. This model is also to be found in child care and in tertiary education, especially in vocational education and training. It is not unique to education either, as it operates in everything from superannuation to health and from electricity provision to imprisonment.

Whether the mix is optimal or not is a big debate and getting the balance right is not easy. For example, the Lomax-Smith Base Funding Review of 2011 struggled long and hard to define the right mix of private benefit and public good emerging from higher education but, given the difficulties of quantifying the public good component, ended up with rules of thumb. However, putting aside the precise metrics, it remains true that it is this principle of blending that has allowed Australia to enjoy one of the lower government outlay shares for industrial countries, despite the protestations of classical libertarians who would wish it lower still.

The great Australian statistician, Colin Clark, who pioneered notions of national income, once suggested that detriment would follow when government share of GDP exceeded 25%. Although this has happened, Australia has become one of the world’s most wealthy nations, sitting closely alongside the Scandinavians who breach the Clark rule in spades.

With public expenditure share at around a third of GDP Down-under (as opposed to Scandinavian models of over 50%), there is scope for correction, including through a greater public outlay share if we have got the balance wrong in our public-private partnership model in specific areas of provision. This applies in much of Australian education these days, and advocates of a free, fairer and more prosperous Australia should not step back from saying so until that is recognised.

Indeed, contrary to much conventional political wisdom, it is clear from studies that seek to ascertain willingness to pay for policy reform that the public is amenable to seeing more go to education and to paying for that through taxes if necessary. This includes higher education, often seen in politics as not carrying votes, even though such learning is central to the future for young people and appreciated as such not only by them, but also by their parents and grandparents.

In addition to increased undergraduate enrolment, the growth of postgraduate courses and executive programs is a major transformation of the modern university – further engaging many mainstream voters. Opinion surveys show that higher education can sway votes, particularly given the growth of the non-aligned voter phenomenon.

The “Australian way” of public-private partnership in schooling was at the core of the so-called “Gonski process”. The examination of what base-level provision was essential and who should pay for it involved the investigation of arrangements for this, the one major component of the education sector where overall and public funding meets or exceeds OECD averages (which is not so for earlier childhood funding nor for tertiary outlays, at least as regards the formalised sectors).

Beyond the formal government accreditation systems, there is much that goes on in professional and personal development on the education side and in external research and development on the innovation side. This includes family, corporate and community activity of a kind not normally pursued through ongoing official data collection. How Australia fares here is accordingly less clear.

In such matters we are at one with the drunk who looked for lost keys under the streetlight, not because that is where they were dropped but because the light was better. More could be done to learn of such things beyond the current focus that occupies most analysis and data. But in the funding battle between Big Science* (and indeed STEM** overall) and other research, such modest projects in the humanities and social sciences seem to get somewhat marginalised.

To the economist this is passing strange since value for dollar, including for producing simple citation metrics, is often greater for the cheaper projects. Indeed in terms of the discipline rankings Australia is at the top of its game globally in such fields as philosophy and international relations, and they cost peanuts, relatively speaking. But in academic matters value for money is often subordinated to other cultural and power forces when total subvention is artificially constrained.

The resultant research battle is bizarre, given the opportunities for good, productive research across the spectrum. Only 15-20% of current well-attested projects receive funding under nationally competitive grants schemes (with many more accordingly discouraged) when the real rate of return from such research is estimated to be on average 20% or more. This return exceeds most commercial business project outcomes, and yet we continue to restrict support which costs under half of the return. Both STEM** and HASS*** research support can be enhanced. Cultural explanation of public decision-making must be sought as to why this does not happen, not rational economic and business understanding.

Higher Education

In the most recent public debates in Australia, higher education reform has been at the forefront of debate in this broad field of knowledge capital. Though the Abbott government had flagged that its approach to universities was intended to be one of “masterly inactivity” with a more general policy philosophy of “no surprises”, the 2014 Budget encapsulated some rather dramatic and therefore largely unanticipated reform proposals for that sector.

The so-called “Pyne reforms” sought the following as their original ambition:

• Expansion of the system through demand-driven funding for sub-bachelor degrees;
• Restructuring of the pattern of funding by field of study and for infrastructure;
• Deregulation of undergraduate degree fees and lighter touch quality regulation;
• Introduction of greater competition from non-university higher education provider access to subsidies; and
• Increased private financing through reduced per-student grants, new doctoral fees and reduced grant indexation.

Amongst the cut and thrust of privatisation and competition, the irony of a new mandated scholarship scheme to come from deregulated university fees and paid to lower socio-equity students, was lost.

Most attention has focussed on the deregulation of undergraduate fees, the $100,000 degree possibility and the “threat” to fiscal consolidation of the greater provision of demand-driven places. Less attention has been placed on the slow undermining of educational quality from reduced per student funding, reduced indexation of grants and the diversion or diminution of infrastructure funding. The gradual rise of student-staff ratios in depreciating facilities and what this means for quality of learning and the learning experience, is ignored. And our decision-makers wonder why our nation’s productivity is declining!

There may be greater awareness if, as is now happening, other international student competitor nations start to take higher shares of the global market as our student experience deteriorates relative to theirs. But for now the bounce-back from the disastrous Indian student crisis, caused by poor migration regulation and poor community integration for international students, hides any such problems.

The way to square the circle on this is to understand the aspirations of voters and respond to that by a commitment to a narrative of investing in our future and ensuring that in higher education we aspire to an equal and shared partnership between public and private funding. The benefit to the economy, let alone beyond that, would more than pay for the cost.

A proper restructuring of government Budgets to distinguish recurrent from investment outlays would allow the public and the politicians to appreciate this payoff. As indicated, aspirational votes are there to be tapped. If, however, short-term “deficit fetishism” still prevails, some leadership on tackling the long list of well-known rorts in capital gains taxation, asset exemptions from means-testing, negative gearing, family trusts, GST exemptions, and more, would manage the transition well.

Taking the public into your confidence can work wonders as the micro-economic reform era indicated to governments of both persuasions,. More recently, Premier Mike Baird in NSW has turned around resolute opposition to privatisation and won handsomely.

Vocational Education

A big elephant in the room remains in the form of vocational education and training. It is not far-fetched to say it is in crisis. It suffers from divided responsibilities across governments of a kind that begs for federalism reform in Australia. Popular attention focuses on how this produces variant approaches to policy across jurisdictions, but probably the biggest consequence is the under-funding that results. The Commonwealth controls the nation’s public finances. It can – and does – under-fund the States and territories for their functions. It can – and does – opportunistically engage or withdraw from those areas through the specific purpose payments mechanism.

A classic case in point is the 2014 Coalition budget reduction in previously anticipated health and education spending from the Commonwealth to states and territories of $80 billion over the decade to 2025. It is precisely this withdrawal, plus bracket creep in income tax, that allows the Government to claim it is addressing the deficit – for the Commonwealth!

One crucial consequence of such legerdemain has been slow growth in public funding of vocational education and training. VET is the true Cinderella of education with substantial restriction on per student funding. One device for dealing with that, in turn, was for states and territories to open up training subsidies to a cheaper private sector and, as elsewhere in education, use some public subsidy to encourage wider private provision alongside basic public provision.

However the implementation process has been fraught. National regulation has proven to be flawed, particularly its very mechanical “tick a box” process focus and limited examination of education and training outcomes. States and territories’ funding regimes have been problematic. Most recently in 2015, for example, South Australia announced an intention to significantly reduce private provider access to publicly funded places, reserving most for TAFE, a move objected to by the Commonwealth government.

A potentially productive model in the Australian tradition has been compromised by poor implementation, and by failure to negotiate politically bi-partisan commitments to longer-term arrangements. Changes of government have changed the settings dramatically.

Such policy shifts and uncertainty over future settings, combined with basic underfunding of the public benefits from this education, even apart from equity and access issues, have been a recipe for a growing degradation of what is actually a jewel in the Australian crown.

Alongside Germany, Australia has actually been a global standard setter in technical education. Countries in our region have looked to adopting our ways and seeking our advice, and thereby allowing us to lock in major trading advantage and influence. This achievement is under threat.

Australian higher education was revitalised and put on sound foundations by the 2008 Review of Australian Higher Education. The further reforms contemplated today still build on that. Such a review for vocational education nation-wide, more than most reviews that we could think of, would help set a better path for a smarter Australia.

Within such a review the relationship with higher education would be an issue that could at last be systematically examined as part of the process. Various governments have had ambitions to tackle this, but they have largely fallen foul of the federal-state divide and not proceeded.

The mutual responsibility issue for employers has largely gone through to the keeper. Industry advice is sought and indeed privileged, but business support and facilitation of training is sometimes less forthcoming. One result has been a rigid rather backward looking conception of skills, when a more flexible future oriented approach is needed.

To go back to basics and see what type of vocational education and training we need for the future, how it should be funded and how it should be provided, is a long overdue exercise, made even more necessary by the short-sighted abolition of the Australian Workforce and Productivity Agency by the incoming Abbott Government. Perhaps the Council for the Australian Federation or an independent think tank such as the Grattan Institute could begin such a process.

Conclusion

The case is strong for ongoing investment in our future through a fair balance of public and private funding plus ongoing reform of the structures for delivery.

Seeking Budget economies by reducing investment in a smarter Australia is a false saving. The government and the private sector, and possibly the community sector too, are under-investing.

Greater deliberation over the systems for education and training delivery is also essential to guide future investment, including how to better build resilient, adaptive skilling for the future.

* ‘Big Science’ is a term used by scientists and historians of science to describe a series of changes in science which occurred in industrial nations during and after WWII, as scientific progress increasingly came to rely on large-scale projects usually funded by national governments or groups of governments.

** STEM refers to the disciplines of Science, Technology, Engineering and Mathematics.

*** HASS refers to the Humanities, Arts and Social Sciences.

 

Glenn Withers is an honorary Professor at the Australian National University and Tongji University Shanghai and President-Elect of the Academy of the Social Sciences in Australia. He is also Advisory Board Chair of Blended Learning International and was previously the founding Chief Executive Officer of Universities Australia.

Fairness, Opportunity and Security.
Policy Series edited by Michael Keating and John Menadue.

With many other people, we are concerned about the policy vacuum and the poor level of public debate on important policy issues. We began a series of articles on policy issues in Pearls and Irritations on 11 May. They have now all been posted.  There are forty-nine articles on fifteen policy areas from over thirty contributors. They are linked to the contributor’s name (below).

This now completes the series. In August, we plan to publish these articles in a book in order to continue the debate for better public policies for Australia. 

We will keep you posted.

To all the contributors – thank you very much for your excellent contributions. John Menadue, Michael Keating.

Introduction.
Ken Henry. ‘I can’t recall a poorer quality public debate, on almost any issue, that we have had in recent times in Australia.
Democratic Renewal
.  Vested interests (John Menadue 2), ‘Vested interests represent a growing and serious corruption of good governance and the development of sound public policy’
.  Loss of trust (John Menadue 1), ‘We need political reform to restore trust in our political system and our polity.’
.  Post majoritarian future. (Ian Marsh 1), ‘It is unlikely that in the future Australian governments will have majorities in both Houses of Parliament’.
.  Policy-making practice. (Ian Marsh 2) ‘Policy reform may well depend on reforms to our political system and decision-making processes.’
The Role of Government
.  The importance of values. (John Menadue), ‘Good government must be based on some broadly shared values that inspire and enthuse us.’
.  Role and responsibilities of government. (Michael Keating), ‘In practice, the responsibilities of governments have changed little in the last thirty years.’
.  Role of government. Ian McAuley) ‘Australia and similar democracies have done well because economic progress has been a shared venture between the public and private sectors.’
Foreign Policy
.  Security in the region. (Stephen FitzGerald), It is remarkable the headway that Paul Keating and Gareth Evans made in South East Asia … in gaining acceptance of Australia as one of them.
.  Australian foreign policy (Cavan Hogue), ‘Countries don’t have friends, only interests. The United States has always remained fiercely independent and has followed policies which served its own interests first.’
.  An independent Australian foreign policy. (Richard Butler), By relying on ‘great and powerful friends’ we have acted in a way that has ‘substantially compromised our independence and … exposed ourselves to increasing danger.’
.  What Australia’s foreign policy should look like. (Stuart Harris), We must be careful to avoid ‘a choice between the political and economic relationships with the US and China.’
.  Australia, the US and Asia. John McCarthy. In recent years Australia has superceded both Japan and the UK as the US states’ closest ally.
The Economy
.  Fixing the budget (Michael Keating 1)  ‘Why did the government break so many promises and insist that the unfair cuts in last year’s budget were absolutely necessary and any opposition was irresponsible.’, Michael Keating 2) The government’s plan to balance the budget by 2019-20 is not credible.
.  Taxation Reform (Michael Keating) ‘Encouraging unrealistic expectations of tax cuts is only making government more difficult.’
.  Federalism (Michael Keating) ‘It will be necessary to continue the reforms started by the Hawke-Keating governments.’  (John Menadue) One way to make federalism work better in the health field is to pool commonwealth and state funding and agree to a state-wide health plan in any state that is prepared to cooperation with the commonwealth.’
.  Job Creation and Participation  (Michael Keating) The best way to promote greater employment participation is to increase the investment in education and training to improve the skill base and employability of disadvantaged people.
.  Productivity (Michael Keating) Most important is the creation of an innovative culture through support of research and development, education and skills and forging close links between the scientific community and industry.
.  Innovation (David Charles) We need to transform from an economy largely driven by investments in the minerals and energy sector to one which has a wider spread of investment drivers.
.  Transport and Infrastructure (Michael Keating and Luke Fraser) Australia is racking up very substantial debts to finance unreformed infrastructure. It is scandalous that infrastructure investment escapes proper scrutiny.
Retirement incomes
.  A fair, effective and sustainable system. (Andrew Podger) We need to draw together all the threads of the retirement system, particularly pensions and superannuation.
Population/migration/refugees (Peter Hughes, Arja Keski-Nummi, John Menadue),  .  Immigration Part 1, Australia has a great record in nation-building, but benefits achieved cannot be taken for granted in the future.
.  Refugees Part 2,  How to move from toxic politics to a humanitarian policy once again.
.  Settlement Part 3 Successful nation-building needs good settlement services to support new arrivals.
Communications and the Arts
.  Cultural Identity (Julianne Schultz) We need to draw together diverse cultural policies to better serve our national interests.
.  Arts. (Kim Williams) We have eroded the standards and reduced public support for the arts.
.  Media Regulation in Internet World (Terry Flew) How media convergence is driving the need for regulatory and policy change.
.  NBN. (Rob Nicholls) We need to target the NBN rollout in line with what our major trading partners are doing,
Security – internal and Human Rights (Spencer Zifcak) We have draconian laws but inadequate safeguards. (Susan Ryan) We need to revive the Human Rights Act campaign of the 1980s.
Security, both military and soft power
.  (Michael Wesley) The politicalisation of security is endangering our safety.
Health
.  Part 1 Problems (John Menadue) Medicare was established forty years ago but is badly in need of reform. 
.  Part 2 Health reform opponents (John Menadue) ‘Health ministers may be in office, but seldom in power.’
.  Part 3 Health solutions (John Menadue) We need new processes, governance and policy directions to move us beyond the present inertia, incrementalism and tinkering.
.  Health workforce (Jim McGinty) The emphasis in health workforce reform must mainly be about nurses.
.  Co-payments (Jennifer Doggett) We have amongst the highest out-of-pocket health costs in the world. They lack logic, efficiency and equity.
Development of our human capital in the fields of education, science, innovation, research and development
.  Knowledge capital. (Glenn Withers) Knowledge capital is the real wealth of nations.
.  Eroding Human capital. (Chris Bonnor) Differences in education outcomes seem to be increasingly the result of differences in wealth, income, power or possessions. Let’s hear it for Gonski and My School.
Environment and climate change
.  (Ross Garnaut) It would be wise to supplement an emissions trading scheme linked to Europe with regulatory action. 
.  (Peter Cosier) Ways to combine a productive economy with a healthy environment.
.  (Jon Stanford) Will Australia rise to the occasion in the Climate Change Conference in Paris in December. 
.  (Brendan Mackey) Reconfiguring human endeavour to live within the boundaries of a finite planet.
Indigenous affairs
.  (Fred Chaney), Some progress in closing the gap – but a long way to go.
.  (Michael Gracey) Indigenous health requires a much broader definition of the meaning of ‘health’ and local empowerment.
Welfare and families
.  (Andrew Podger) Current arrangements are overly complicated, inconsistent and incoherent, overly means-tested, and without sufficient regard for efficiency.
Inequality and the Australian welfare system
.  (Andrew Podger, Peter Whiteford), In reducing inequality, priority should be given to promoting employment and addressing specific weaknesses in the tax and transfer system.
.  (Ian McAuley) The conservative slogan that a ‘rising tide lifts all boats’ is not working for the poor.

Media enquiries. johnmenadue@staging-johnmenadue.kinsta.cloud.

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Policy Series.

The growing problem of out-of-pocket health care costs in health care is undermining the benefits of Medicare and creating a barrier to increasing fairness, opportunity and security throughout our health system.

Out-of-pocket costs are the direct payments made by consumers for their health care which are not subsidized by any form of public or private insurance (or any other funding source). They include co-payments for care partially subsidized by Medicare and the PBS (for example GP services and prescription medicines), co-payments for goods and services subsidized by private health insurance (for those who have it) and the full cost of unsubsidized and un-funded forms of care, typically non-prescription medicines, allied health services not subsidized by private health insurance, medical aids and appliances.  

Currently, individual co‐payments comprise around 17% of total health care expenditure in Australia – the largest non‐government source of funding for health goods and services.^[1] This contribution by individuals represents a higher proportion of health care funding than in most other OECD countries and equates to $1,078 per capita per annum.

However, more important than the quantum of health funding contributed via co-payments is the way in which the burden of these out-of-pocket costs is spread across the population. There is a wide variation in the impact of co-payments on people with different illnesses and disabilities. People with conditions that can be largely treated by GPs or within the public hospital system generally incur lower co-payments than those with conditions that require allied health care and over-the-counter medicines.

This is the case independently of the length or severity of the illness/disability and its impact on both individuals and society as a whole. In fact, people with ongoing chronic conditions often end up receiving lower levels of subsidy for their health care than those with one-off or self-limiting conditions.

The overall impact of this ‘system’ is an inequitable and inefficient allocation of resources within our health ‘system’, compounding existing inequalities in our community. This is largely a result of the ad-hoc approach to co-payments and lack of leadership at the political level on this issue. Despite the fact that out-of-pocket costs make up almost one fifth of total health spending, Australia has no national policy on co-payments and there has been no comprehensive consumer or community consultation on this issue. Co-payments are set by governments, health care providers and others independently without any guidance from the community and without any overarching policy framework.

While there are a number of data and research gaps in this area, there is good evidence that existing co-payments within the Australian health system are causing financial hardship for many consumers and creating barriers to accessing care.

For example, the Commonwealth Fund’s 2013 International Health Systems survey[2] and its 2008 Survey of Sicker Adults[3] found significant evidence that co-payments were creating an access barrier for many consumers. Among the surveys’ findings were:

• 16% of Australians surveyed reported delaying access to treatment due to cost issues;
• 29% of Australians reported not accessing dental care in the past year due to cost; and
• 25% of Australians with a chronic condition reported not having a recommended test or follow-up treatment due to cost issues

These findings are reflected by recent research[4] undertaken by the Consumers’ Health Forum which found that more than 70 per cent of respondents had delayed going to the doctor, around half of whom attributed this delay to cost worries. Key findings of the survey include:

• Many consumers are already experiencing difficulty affording health care costs;
• Many consumers are failing to access needed health care due to its cost; and
• Any new co-payments – even if small – will further add to the financial difficulties being experienced by many consumers and create additional barriers to accessing appropriate care.

Other international evidence reflects these findings and show that co-payments create barriers to access to health care for many consumers without decreasing overall health care costs.

Overall, international research in this area has found that:

• Co-payments result in decreased access to health care for vulnerable groups
• This decrease in access is proportional to the size of the co-payment
• Access to both high and low value health services decreases as a result of co-payments.

There is also no evidence that co-payments result in overall cost savings to the health system although there is some limited evidence that co-payments can increase downstream health care costs.

Without significant reform, co-payments will continue to threaten the equity and efficiency of our health system. However, addressing this issue requires an understanding of the unique nature of health payments and their impact on individuals and families.

Unlike many other household expenses, the costs of health care fall unevenly and unexpectedly and typically coincide with decreased earning capacity and higher expenses elsewhere. This means that even small expenses can be an intolerable burden for someone living from pay-to-pay, and large outlays can be financial crippling even for the well-off. Also, because health is such a fundamental criteria for participation in other aspects of life, any barriers to accessing care can have significant flow-on effects in areas such as employment and education, further compounding the gap between the least and most advantaged. To be successful, any reform measures must reflect the underlying and unpredictable nature of health expenses and the relationship between health and other aspects of well-being.

Part of the problem is the need to resolve areas of misunderstanding on both sides of the political spectrum in this area. On the left, the debate has focused on the role of universal health care as requiring ‘free at the point of service’ care. This has resulted in ongoing efforts to preserve bulkbilling and free public hospital services, while largely ignoring the rise in payments for other forms of care such as dental care.

On the other hand, conservative governments have misguidedly focussed on the role of private health insurance (PHI) in assisting Australians to meet their health care expenses, despite the multiple disadvantages of PHI as a funding mechanism (due the fact that it combines the moral hazard of insurance with the lack of price control possible with a single purchaser). The lack of understanding of the underlying issues affecting health co-payments by both sides of the political spectrum is a major barrier to progressing reform in this area.

Our federated structure can also prevent effort action in this area. Given Australia’s complex health ‘system’, with funding and service delivery responsibilities split between different levels of government and the public and private sectors, there will be no simple solutions. The cumulative impact of co-payments on consumers is multi-faceted, cuts across program and jurisdictional boundaries and arises out of the complex interactions between different areas of the health system.

Therefore, as radical changes are not likely to be politically palatable, the most realistic options for change involves smaller scale and targeted initiatives. This is likely to involve a suite of measures which partially address the issue within identified areas or populations. These may include:

• Workforce solutions: a reconsideration of when the GP gatekeeper role is essential, for example, through allowing practice nurses, pharmacists or others to provide clinically appropriate services (re-issuing of routine prescriptions, authorizing medical certificates, some preventive health activities) at a lower cost;
• Increased transparency around specialist fees: currently there is a large variation in fees charged by specialists and no evidence of a link between price and quality. Supporting consumers to find lower cost specialist services and working with specialist colleges to increase fee transparency, perhaps even shaming those whose fees are significant outliers, could help reduce the sometimes large out-of-pocket costs in this sector;
• The establishment of community health centres with salaried staff in areas of need. This would help in providing coordinated, prevention and chronic disease management services to a high risk group;
• Targeted assistance for people identified as having ongoing high health care costs. This would include people with chronic illnesses and seek to assist them in managing ongoing costs, for example, through identifying lower cost alternatives to their existing services/products, developing payment options to assist them in managing their costs, e.g. regular payment plans or providing targeted subsidies, e.g. PBS subsidies for people who rely on non-prescription medicine for serious illnesses; and
• Linking reduced co-payments and out-of-pocket costs to voluntary registration with a general practice and a pharmacy. There is some evidence that people with chronic conditions benefit from having a ‘medical home’ through improved management of their condition. Improving the health of people with chronic conditions is likely to also reduce their out-of-pocket health care costs and increase their productivity.

These proposals all have limitations and need further exploration. However, if developed further, in consultation with the community and based on existing evidence, they offer the potential to reform our current ‘system’ of health co-payments to deliver greater fairness, opportunity and security to consumers.

Jennifer Doggett is a Fellow of the Centre for Policy Development and a Consultant working in the health sector.  

[1] Senate Reference Committee on Community Affairs. Out-of-pocket costs in Australian healthcare. August 2014. http://www.aph.gov.au/parliamentary_business/committees/senate/community_affairs/australian_healthcare/~/media/committees/clac_ctte/australian_healthcare/report.pdf 

[2] http://www.commonwealthfund.org/publications/surveys/2013/2013-commonwealth-fund-international-health-policy-survey

[3] http://www.commonwealthfund.org/publications/surveys/2008/2008-commonwealth-fund-international-health-policy-survey-of-sicker-adults

[4] https://ourhealth.org.au/news-stories/news/empty-pockets-why-health-co-payments-are-not-solution-australia-needs#.VWO74Dr77IU