National Reform Priorities
SL Policy Development Group of the Victorian Branch of the ALP
Executive Summary
Introduction
The paper ‘A Third Wave of National Reform’ was publicly released by the Premier of Victoria in August 2005. The paper had not been the subject of consultation with constituent units of the party including relevant policy committees, the state parliamentary caucus or the State Conference, prior to its release.
Under the new model proposed in the paper, a National Reform Council would be established to oversee incentive payments to governments and to ensure progress in key areas is independently assessed and transparently reported. The aim is to enhance Australia’s ‘human capital’ and the paper identifies five areas that should be at forefront of the next generation of reform. These are:
- Regulation
- Infrastructure
- Health
- Education and training
- Work incentives
The paper can be viewed at:
http://eherald.alp.org.au/download/now/a_third_wave_of_national_reform.pdf
While ‘A Third Wave of National Reform’ contributes to the public debate about future directions of reform in Australia, it represents the Premier’s personal view, not an ALP endorsed, view. The purpose of this paper is to further the debate around reform issues and to demonstrate that other views are held by members of the ALP, in this instance, by the Socialist Left Policy Development Group of the Victorian branch of the ALP. (1)
The Premier’s paper seems to propose a co-operative joint approach to a new wave of national reform with the Howard Government. While not supporting the Howard Government’s IR agenda, in many other respects the Premier’s paper seems to support many of the de-regulatory policy settings of the Federal Government.
Moreover the Howard Government’s IR reforms are likely to create such divisiveness and suspicion within the community that they will inevitably render a more co-operative federalism problematic.
Further, whether in IR or in other areas, some base line principles should be adhered to if co-operative federalism to become a reality. Basic principles of fairness and “no disadvantage” are fundamental to Labor. The principles of fairness and no disadvantage must be applied in the workplace as well as in service delivery areas and in relation to both consumers of services and those who are employed in delivering them.
The COAG process should not exclude debate or discussion within the community, the relevant Cabinets or the relevant parliamentary caucuses.
The Premier has not outlined the manner in which his ideas for national reform are to be considered within the ALP’s policy development process. Our paper is to be distributed through the ALP to feed into the national policy dialogue currently in train under the auspices of the ALP National Policy Committee.
(De-) Regulation
– There is support for removing redundant or unnecessary regulation;
– Not only the costs of regulation but costs of de-regulation must be measured;
– It is not only the economic cost and benefit that needs to be measured but also the impact of regulation on environmental, health and social outcomes;
– An approach (such as that suggested in the Premier’s paper) that only measures the economic cost of regulation and that creates an aim of 25% reduction in regulation without regard to consequences other than cost cutting for business, reflects a narrow and ideological approach;
– Moreover the paper misses the point one of the reasons for increased regulatory complexity arises from competition policy and privatisation. To some extent greater regulation is a necessary by-product of privatisation and the need to maintain community service standards that were previously met through policies adopted by state owned instrumentalities that did not operate on a purely profit driven basis.
Infrastructure
– Efficient provision and use of infrastructure is critical to international competitiveness;
– However there remains a debate as to the best or most appropriate means of providing such infrastructure;
– In general, Government is able to raise capital for infrastructure expenditure less expensively than the private sector;
– The ALP nationally has set up a committee to evaluate how public infrastructure can best be provided;
– An evaluation of Public Private Partnerships in Victoria has raised concerns that that the state government may have paid hundreds of millions of dollars more than it should have in the provision of infrastructure;
– The Premier’s announcement of support for use of public-private partnerships (in which the private sector raises the capital) without the provision of any analysis as to why they are a preferred option, and prior to completion of the internal ALP process nationally, is not particularly constructive.
Health
– The paper points out that the “ability of our health system to improve public health, and to prevent and manage ill-health, directly shapes the economy’s productive capacity.”
– The call for an emphasis on combating chronic disease through increased emphasis on prevention is welcome as is the identification of obesity as a major health issue;
– The initiatives to improve ill health prevention outlined in the paper are either a little nebulous or repeat calls (e.g in relation to cost shifting) that have been made since at least the 1980s. There is little by way of concrete suggestions as to how these measures will be implemented;
– Having identified obesity as a major priority requiring a preventative approach the paper offers little by way of direct measures to attack the problem;
– A survey has shown that 97% of parents favour Government regulating on healthy school food. Unlike NSW and Queensland the Bracks’ government has failed to do so;
– A direct and practical measure that is worthy of consideration by Government is the introduction of health workers into schools;
– Other areas where increased emphasis on prevention is critical include mental health and preventative dental care;
– There is a need evaluate the effectiveness of private as opposed to public or community based approaches towards preventative medicine. We wish to see serious evaluation given to the effectiveness of preventative approaches by community health centres in Victoria and the serious consideration given to extension of this model of health provision to other states.
Education
– The Premier’s paper emphasises the need to spark the interest of every child in lifelong learning and to target early learning programs to disadvantaged children;
– The paper fails to articulate the importance of public education or to refer in any way to the need to reverse the Coalition’s attack on public education.
– The paper places heavy emphasis on the vocational goals of education;
– Overemphasis on vocational goals is unlikely to lead every child to develop an interest in lifelong learning;
– Education is probably the primary means through which government can contribute to enhancing quality of life;
– It is valid to assert that schools must impart standards of literacy and numeracy and to encourage vocational skills (including technical skills);
– But the aim should also be for all young people to leave school with:
- Skills in compromise and negotiation that will assist them in forming durable interpersonal relationships as well as enhancing vocational prospects;
- Ability to participate and take interest in at least one area of artistic, craft or creative endeavour;
- Ability to participate and take interest in at least one area of physical endeavour (which may include but should not necessarily be limited to sport);
- An ability to understand basic nutrition and to prepare half a dozen or so balanced and healthy meals.
– The paper proposes further funding increases for higher education but does not raise this for vocational education and training (“VET”) which receives much less funding per student than in higher education or schools and where real funding has decreased in the past decade when compared to schools and higher education. The only point raised about VET funding is one about the need to lift private contribution. This seems to be code for HECS for TAFE students.
– The performance measures proposed for education are quite narrow and in the VET sector do not include the vital question of increasing the numbers who hold portable national qualifications, particularly at higher levels. This is the best indicator of future employability. The paper is silent on how the deregulatory industrial relations laws and policies are continuing to destroy the capacity to learn and train at work and are driving Australia down the low skills path.
Work incentives
– The paper correctly identifies that more reform is possible to increase the financial incentives for people to move from welfare to work;
– The paper fails to recognise that there are significant obstacles to workforce participation other than the interaction between the welfare and taxation systems. A major obstacle is the absence of suitable jobs for age-groups and in regions which used to rely on manufacturing industry employment which has been cut by tariff deregulation, leaving large pools of hidden unemployed. Another major impediment is disability. Here regulation may have a positive impact on workforce participation;
– The Premier’s paper hints at support for reducing the top marginal rates of taxation;
– We strongly oppose reducing the top marginal income tax rate in Australia from 47%;
– We regard Bill Shorten’s call to cut the top marginal rate to 30% as extraordinary and as potentially prejudicial to the ALP’s electoral prospects;
– We analyse the arguments for reducing the top marginal tax rate and conclude that they are not convincing. For example, Australia experiences a net “brain gain” under current arrangements;
– In relation to deductions one option that may provide for simplification might be to give individual taxpayers a choice between a reduced marginal rate without deductions (or with capped deductions) and paying the current rates but allowing taxable income to be reduced through legitimate deductions.
– Labor should commit to the views that:
- The market, including the labour market, does not produce just rewards for effort or even necessarily skill. Part of the role of a taxation system is to redress this injustice;
- The fact that the minimum wage in Australia is relatively high compared to the OECD average is something that we, as a nation, should be proud of and seek to maintain;
- Increasing economic inequality is neither socially desirable nor a requirement of economic efficiency. In fact the opposite is true. Increased economic inequality increases crime, poverty, drug abuse and social dislocation. Nordic nations of comparable size to Victoria are combining high levels of economic equality with world-class entrepreneurship and prosperity.
– One of the reasons most commonly offered for cutting taxes is that this allegedly creates incentives for people to “work harder”. Reducing high effective tax rates for those wanting to transfer from welfare to work is obviously a sensible measure. But generally Australians already work the longest hours in the developed world. Longer working hours can diminish quality of life and or contribute to breakdown in family relationships with severe impact on human capital. Longer working hours are associated with lifestyle illnesses such as obesity, alcoholism and vascular disease.
Other problems in the Premier’s paper
The Premier’s paper ignores major problems that confront the Australian economy. It ignores the facts that:
- Much of the increase in wealth in Australia between 1995 and 2005 has been based upon debt and unsustainable increases in the value of houses and land which is making home ownership unaffordable for a younger generation of Australians. Victoria and New South Wales, which together represent 60 per cent of the country’s economy, are already two of the most unaffordable places to buy a home in the world. A study by American researchers Wendell Cox finds that every Australian city except Darwin is severely unaffordable;
- Although commodity prices have increased, improving the terms of trade, growth in imports continue to exceed growth in exports;
- There has been a reduced growth in Australian export of Elaborately Transformed Manufactures (ETMs). The reduction is from 18% in 1996 to 1.7% per year since 1997;
- Australia’s current account deficit relative to GDP is the highest in the OEDC;
- The deficit means that we are constantly borrowing or selling assets to pay the interest on a growing foreign debt.
In conclusion we believe that these economic problems will not be overcome by another round of deregulatory reform or privatization. We agree with the Premier that enhancing educational and health outcomes and increasing provision of infrastructure are an important part of the solution. But we do not share his views, or all his views, on the means by which these outcomes are to be achieved. Further we believe that enhancing skills training and innovation and industry policy is an essential component of improving Australia’s economic performance.
We do not accept any propositions that may be advanced, explicitly or impliedly, in the Premier’s paper that:
- Current prosperity has been based on de-regulation of the labour market and the implementation of National Competition Policy;
- There should be a further round of national competition policy with a strong involvement of the productivity commission;
- Benchmarking of economic success should be based on a single measure of GDP per head of population – a measure which ignores issues of distribution of wealth, power and services;
- There should support for policies such as privatisation of the NSW electricity industry, removal of anti-dumping restrictions which protect Australian industry, further free trade measures at a time when the labour movement is concerned about the effects of a free trade deal with China, privatisation of Telstra, and removal of cabotage protecting Australian shipping. Many of these proposals do not sit well or are contrary to ALP policy or platform.
Other priorities for national reform
– There are at least four other areas where efforts at national reform should be focused. These are the inter-related areas of regional development, the environment and particularly the need to solve water shortage issues in the regions and the need for community building. All of these factors directly affect the development of human capital.
– In the context of global warming it would be highly irresponsible for Labor to commit to a model designed to foster ongoing economic growth without identifying the need to protect the environment as an area in which fundamental reform is required.
– Threats to life and security posed by global warming need to be treated just a seriously as the threat posed by terrorism.
– Carbon sequestration technology is new and unproven and requires 20 per cent of the energy generated from burning the coal in the first place.
– The national reform effort should focus on more renewable energy and less carbon-intense fuel.
End of Executive Summary
For further inquiries contact Peter Holding, SL Policy Development Co-Coordinator 0411287930 or phold@optusnet.com.au
National Reform Priorities
SL Policy Development Group of the Victorian Branch of the ALP
Introduction
The paper ‘A Third Wave of National Reform’ was publicly released by the Premier of Victoria in August 2005. The paper had not been the subject of consultation with constituent units of the party including relevant policy committees, the state parliamentary caucus or the State Conference, prior to its release.
Under the new model proposed in the paper, a National Reform Council would be established to oversee incentive payments to governments and to ensure progress in key areas is independently assessed and transparently reported. The aim is to enhance Australia’s ‘human capital’ and the paper identifies five areas that should be at forefront of the next generation of reform. These are:
- Regulation
- Infrastructure
- Health
- Education and training
- Work incentives
The paper can be viewed at:
http://eherald.alp.org.au/download/now/a_third_wave_of_national_reform.pdf
While ‘A Third Wave of National Reform’ contributes to the public debate about future directions of reform in Australia, it represents the Premier’s personal view, not an ALP endorsed, view. The purpose of this paper is to further the debate around reform issues and to demonstrate that other views are held by members of the ALP, in this instance, by the Socialist Left Policy Development Group of the Victorian branch of the ALP. (1)
The Premier’s paper seems to propose a co-operative joint approach to a new wave of national reform with the Howard Government. This is a challenging proposition at a time when the Howard Government has launched the biggest attack in more than 100 years on the labour movement and workers rights. The Howard Government’s assault on workers rights and trade unions is being accompanied by rhetoric that a new wave of reform is essential and that it must take labour market de-regulation a step further to create jobs and a stronger economy. While not supporting the Howard Government’s IR agenda, in many other respects the Premier’s paper seems to support many of the de-regulatory policy settings of the Federal Government.
Moreover the Howard Government’s IR reforms are likely to create such divisiveness and suspicion within the community that they will inevitably render a more co-operative federalism problematic. This is especially the case where the mooted IR reforms are premised upon controversial use of the corporations’ power to override state industrial relations contrary to the expressed desires of the State Governments that have not referred those powers. Such unilateral action is hardly likely to create an environment conducive to a co-operative approach towards federalism.
Further, whether in IR or in other areas, some base line principles should be adhered to if co-operative federalism to become a reality. Basic principles of fairness and ‘no disadvantage” are fundamental to Labor. This concept is not even acknowledged, much less negotiated, by the Howard government as its centralisation blitzkrieg rolls on in the areas of IR, education, health, ports and who knows what else. The principles of fairness and no disadvantage should be applied in the workplace as well as in service delivery areas and in relation to both consumers of services and those who are employed in delivering them.
The Premier himself describes the paper as a “New National Reform Initiative for COAG”. In addition to the challenges referred to above we express concern at the manner in which the COAG process has sometimes operated to date. State Premiers have signed off on agreements with the PM without those agreements necessarily having been subjected to debate or discussion within the community, the relevant Cabinets or the relevant parliamentary caucuses. This was certainly the process adopted in relation to recent proposals for extension of the anti-terror legislation. We do not support such a top down approach to national reform. While there may occasionally be areas where a “fast track” approach is appropriate, general principles establishing when such an approach is justified need to be agreed and regard paid to appropriate levels of accountability to parliament, cabinet and the community in general.
It is also disappointing that the Premier has not outlined the manner in which his ideas for national reform are to be considered within the ALP’s policy development process. We can only assume that this was an oversight by the Premier. For our part, we propose to distribute this paper throughout the party’s relevant constituent units so that the ideas in it can be further discussed or refined and fed into the national policy dialogue that is currently in train under the auspices of the ALP’s National Policy Committee. We do not assume that our paper represents the “last word” for the ALP on directions for national reform. We trust that the Premier has the same attitude towards his paper.
(De-) Regulation
‘A Third Wave of National Reform’ calls for a 25% reduction in regulatory costs on business. There should be support for measuring the costs of regulation and removal of regulation on business where that regulation is unnecessary or redundant. But the objective should be to identify unnecessary or redundant regulation.
It is not only the costs of regulation on business that need to be measured but also the benefits of regulation and/or the costs likely to result from removing it. While the paper mentions the potential for regulation to impose burdens upon productivity it fails to mention that regulation can also operate to increase productivity and/or to ensure desirable economic, environmental, health or other social outcomes. It is not only economic cost and benefit that needs to be measured but also the impact of regulation on environmental, health and social outcomes.
An approach that only measures the economic cost of regulation and that creates an aim of 25% reduction in regulation without regard to consequences other than cost cutting for business reflects a narrow and ideological approach.
Moreover the paper misses the point one of the reasons for increased regulatory complexity arises from competition policy and privatisation. To some extent greater regulation is a necessary by-product of privatisation and the need to maintain community service standards that were previously met through policies adopted by state owned instrumentalities that did not operate on a purely profit driven basis.
Infrastructure
The paper recognises that efficient provision and use of infrastructure is critical to international competitiveness. The need to overcome infrastructure “bottlenecks” in Australia has been recognised by both sides of politics. In general, government is able to raise capital for infrastructure less expensively than the private sector.
However there remains a debate as to the best or most appropriate means of providing such infrastructure.
The Premier’s paper states that there will be a role for public-private partnerships in the provision of public infrastructure without adducing a scrap of evidence that this means of infrastructure provision is the most efficient. The Premier must know that following the 2004 National Conference, the ALP nationally set up a committee to evaluate how public infrastructure can best be provided. He must know that public-private partnerships are a matter of some controversy within the Party and that policy options are still being reviewed.
An evaluation of Public Private Partnerships in Victoria has raised concerns that the state government may have paid hundreds of millions of dollars more than it should have in the provision of infrastructure.
Even some supporters of Public Private Partnerships have expressed concern at the way in which they are currently operating, that community and social obligations are not being met and that the public purse is bailing out failed PPPs.
The Premier’s announcement of his support for use of public-private partnerships (in which the private sector raises the capital) without the provision of any analysis as to why they are a preferred option, and prior to completion of the internal ALP process nationally, is not particularly constructive.
Health
The paper points out that the “ability of our health system to improve public health, and to prevent and manage ill-health, directly shapes the economy’s productive capacity.”
It points out that “the relatively good outcomes achieved by Australia’s health system mask the enormous burden that chronic diseases place on individual and families, and the mounting costs of health care in coming decades. Real health expenditure per person has increased at an average annual rate of 3.3 per cent over the last 10 years.”
The paper makes a welcome call for an emphasis on combating chronic disease through increased emphasis on prevention. It points out that while smoking in Australia has declined “Australia now ranks as one of the world’s fattest nations (Dunstan et. al., 2001). Approximately 9 million Australian adults are overweight or obese, and 3.3 million are in the high-risk obese group.”
The paper then goes on to propose the following initiatives to improve ill health prevention:
- All levels of government to work cooperatively to shift focus towards prevention and promotion of wellness among the working-aged and our children.
- Joint initiatives to address major chronic diseases by focusing on preventable risk factors.
- Patient centred health care: Achieving more integrated, seamless and rational delivery and funding of health care.
- Draw together ‘packages of care’ for people with chronic diseases and cancer based on patient need rather than whether services are funded by the Commonwealth or State Government.
- Increased emphasis on case management and multi-disciplinary care, based on consistent triaging and targeting;
- Incentives to substitute the most cost-effective form of care, such as home care rather than acute hospital care;
- Improved capacity for patients and their carers to self-manage through better access to information about their illness and the services available;
- Improving productivity and efficiency: Incentives, planning and resource allocation must enhance productive use of available resources;
- Providing incentives for consumers to recognise the resource costs of their decisions;
- Reducing duplication of services between the Commonwealth and State Governments;
- Introduction of a national scheme for health practitioner regulation;
- Greater use of e-health to improve quality care and safety.
Some of these measures seem a little nebulous. One can hardly argue with others such as the removal of “cost-shifting” between the Commonwealth and the states and removal of duplication of services. Yet calls to remove cost shifting and duplication have been made more or less constantly in Australia since at least the 1980’s. Making yet another such call is not wrong but adds little in the absence of concrete suggestions as to how these measures will be implemented.
Obesity, including childhood obesity, is already a major public health problem. The number of obese children tripled between 1985 and 1995. One in four children, or in adolescence, is either obese or overweight. Health risks created include diabetes, high blood pressure, gallstones, asthma, orthopedic problems, heart disease, infertility, stroke, certain kinds of cancer, low self esteem and depression.
Having identified obesity as a major priority requiring a preventative approach the paper offers little by way of direct measures to attack the problem. It is not suggested that there are simple solutions and some of the solutions probably go beyond measures that Government intervention can directly influence. But the approach of Tony Abbott that the solution to childhood obesity is for parents to “lift their game and lift it urgently” (2) is a simplistic approach to a complex social issue. This is to be expected from Mr. Abbott who sees everything as a matter of individual choice in isolation from social realities. But why the Bracks’ Government has rejected moves implemented by the Queensland and NSW governments to regulate the food sold in school canteens in favour of “guidelines” is difficult to fathom. This approach is despite the fact that a survey has shown that 97% of parents favour Government regulating on healthy school food (3). Although the Bracks’ government has supported Federal Labor’s call on the Federal Government to tighten controls on junk food advertising during children’s TV viewing hours, this is no excuse for failing to take action within its power that is likely to receive widespread community support.
Another direct and practical measure that is worthy of consideration by Government is the introduction of health workers into schools. This would be consistent with “increased emphasis on case management and multi-disciplinary care.” Health workers would be responsible for monitoring the health and well being of each child at a school. The aim would be for each child to see the health worker at least once or twice a year with more intensive intervention where problems (including but not limited to obesity) were identified. In a private, non-intrusive and supportive way the health worker could inquire into the child’s diet and exercise habits and be equipped to take some basic medical information (blood pressure, weight, skin fold tests etc). Where there was concern for a child’s health parents would be notified and supported in attaining any other assistance or information required. Health workers would not prescribe medication but would liaise with other school staff including physical education teachers, as well as parents and treating medical practitioners. They would link into community based organizations that provide activities for children. They would recognize that competitive sport is not a preferred option for all children but that a dislike of competitive sport should not and need not condemn a child to a life of physical inactivity.
No doubt such a measure may well be criticized for being overly interventionist or for attempting to usurp the proper role of parents. The counter argument to this is that in most cases, the advent of obesity in children is not a matter in which the child is exercising any real, or mature, choice. Society expects intervention to occur where children are being subjected to physical or emotional abuse in the home. It is not suggested that the parents of obese children are subjecting their children to physical or emotional abuse. But it is a fact that the consequences of failing to intervene in cases of child obesity may, in terms of health outcomes, be just as profound as failing to intervene in cases of physical or emotional abuse. If a person reaches 20 in a state of morbid obesity, it is estimated that life expectancy is reduced by 20%.
Other areas where increased emphasis on prevention is critical include mental health and preventative dental care.
The immediate aftermath of the release of the “Not for Service” report on mental health services in Australia was yet another spat of blame shifting and buck passing between different levels of government. The report indicated that “access to early intervention services is limited”. It went on to state that “From the perspective of many of those who made submissions, the mental health care system seems to provide a palliative care rather than early intervention model of service. They suggest that only those who have reached the most severe or the most chronic forms of illness are prioritised for specialised or ongoing care.”
In our view the IR reforms mooted by the Federal Government are likely to impact negatively on the incidence of work related mental health problems.
National reform should also facilitate greater emphasis on preventative dental care. National Government should commit to ensuring free dental treatment for all needy persons by extending Medicare bulk billing to cover ‘dental’. The initial commitment could be restricted to, for example, anyone on a pension or benefit or in bracket 2 of the single scale (earning up to $30,000), plus all babies and infants. As to that last category, high-level dental decay has been reported as accounting for a stunning 90% of infant (< 4 yrs. old) admissions to Victorian rural hospitals. (4) Clearly this type of inefficiency should be capable of amelioration through enhanced preventative dental care for infants.
The Premier’s paper lists some twelve measures to enhance prevention of ill health. However not listed amongst them is the need to evaluate the effectiveness of private as opposed to public or community based approaches towards preventative medicine. If, as we suspect, it is the case that community outreach programs, support groups, education etc are more effectively delivered through public or community based providers as opposed to private providers (who tend to deal with individuals in isolation) this may have implications in determining the most effective means for delivering expenditure on prevention. We do not mean to imply that the building of new public hospitals is the only solution. We wish to see serious evaluation given to the effectiveness of preventative approaches by community health centres in Victoria and serious consideration given to extension of this model of health provision to other states.
The Community Health Program was set up in the 1970s to make sure that Australians could access basic health care within their own neighbourhoods. A typical community health centre is publicly funded and offers a range of health-related services to the local residents. The services available depend on the needs of the families and other specific groups living in the area. Victoria has around 100 community health centres. Thirty-nine are managed independently, while the remainder are part of larger health services. Community health centres aim to keep individuals and families in better health by taking into account their environment and social circumstances. A focus on health promotion and disease prevention and management is designed to improve the health and wellbeing of local residents as well as taking the pressure off the acute care health system.
Education
The section on education in the Premier’s paper sets out a number of objectives. It refers to the need for early opportunities and for better choices for every young person to support a successful transition from school to work or further study. It calls for rewarding teachers “based upon performance” and for incentives for teachers to work in “hard to staff schools” and in regional areas. It calls for agreement on consistent performance reporting. It supports efforts to overcome skills shortages including increases in skilled migration and increased scope to recognise skills developed in different settings and jurisdictions. It emphasises the need to spark the interest of every child in lifelong learning and to target early learning programs to disadvantaged children.
The paper fails to articulate the importance of public education or to refer to the need to reverse the Coalition’s attack on public education. In our view defence of public education is required on both equity and efficiency grounds. The paper places heavy emphasis on the vocational goals of education. While vocational goals are important an overemphasis on them is unlikely to lead every child to develop an interest in lifelong learning. The key in sparking this interest is for children to perceive that education will enrich their lives and enhance their physical, emotional and moral wellbeing as well as their vocational prospects.
Having a vocation is important and work is a source of satisfaction as well as financial reward and independence for many people. But it also needs to be recognised that work is unlikely to be a primary source personal satisfaction for everybody. There is more to education than equipping people for work and consumption. Research is increasingly showing that successful pursuit of material goals can lead to temporary improvement of mood but is likely to be short lived and superficial and that close interpersonal relationships and connection to others are hallmarks of psychological health and high quality of life.
Education is probably the primary means through which government can contribute to enhancing quality of life. It is valid to assert that schools must impart standards of literacy and numeracy and that those who are technically orientated should be encouraged to enter trades and should not be made to feel that embarking upon a trade (as opposed to attending university) represents failure. But it is also the case that all young people should leave school with skills that are likely to equip them to live happier lives as well as enhancing vocational skills. Some programs in education already aim at enhancing life skills. The objective should be for all young people to leave school with:
– Skills in compromise and negotiation that will assist them in forming durable interpersonal relationships as well as enhancing vocational prospects;
– Ability to participate and take interest in at least one area of artistic, craft or creative endeavour;
– Ability to participate and take interest in at least one area of physical endeavour (which may include but should not necessarily be limited to sport);
– An ability to understand basic nutrition and to prepare half a dozen or so balanced, fresh and healthy meals.
The paper proposes further funding increases for higher education but does not raise this for vocational education and training (“VET”) which receives much less funding per student than in higher education or schools and where real funding has decreased in the past decade when compared to schools and higher education. The only point raised about VET funding in the Premier’s paper refers to the perceived need to lift private contribution. This seems to be code for HECS for TAFE students.
The performance measures proposed for education in the Premier’s paper are quite narrow and in the VET sector do not include the vital question of increasing the numbers who hold portable national qualifications, particularly at higher levels. This is the best indicator of future employability. Again the Premier’s paper is silent on how the deregulatory industrial relations laws and policies are continuing to destroy the capacity to learn and train at work and are driving Australia down a low skills path.
Work incentives
The Premier’s paper correctly identifies that more reform is possible to increase the financial incentives for people to move from welfare to work. Suggestions to increase the tax free threshold and reduce the rates at which welfare benefits are withdrawn as income rises are welcome, if not new. But the paper fails to recognise that there are significant obstacles to workforce participation other than the interaction between the welfare and taxation systems. One obstacle is the absence of suitable jobs for age-groups and in regions which used to rely on manufacturing industry employment which has been cut by tariff deregulation, probably leaving large pools of hidden unemployed. Another major impediment is disability. Here regulation may have a positive impact on workforce participation. Currently accident compensation and anti-discrimination laws provide inadequate protection to workers with disabilities. The Victorian Government has persistently used surpluses from the Victorian WorkCover Authority to deliver reduced premiums to business. It is time for improvement in benefit levels to injured workers with an emphasis on facilitating rehabilitation and return to work. The situation confronting employees with disabilities can only be worsened by the abolition of unfair dismissal laws in businesses that employ fewer than 100 employees and reforms that may render unchallengeable, decisions by companies (that employ more than 100 employees) to get rid of employees with disabilities by selecting them for redundancy.
Although Victoria has ceded IR powers to the Commonwealth the Victorian Government still retains a capacity to strengthen state anti-discrimination and accident compensation laws or administrative arrangements to enhance the ability of people with work related disabilities to obtain or retain employment. It has thus far shown a reluctance to do so. Dialogue between relevant policy committees and the State Government continues in relation to these issues.
The Productivity Commission report into worker’s compensation (5) reveals some interesting information about return to work of injured workers. The three schemes that are said to have the best return to work and durable return to work outcomes of injured workers by the Productivity Commission are the Comcare, Tasmanian and SA schemes in that order. Yet when one looks at table 9.1 (on page 255) and table 7.2 (page 199) of the Productivity Commission report the following seems to emerge:
- Comcare and SA have the longest periods of time before weekly payments of worker’s compensation are reduced from full payments (45 weeks for Comcare and 52 for SA);
- Weekly payments continue in Tasmania for up to 10 years;
- Comcare and SA have indefinite periods for which the employer must keep the worker’s position open as compared to other state schemes where the obligation on employers to facilitate return to work are limited to periods of between one or two years.
This suggests that it is the regulatory framework and/or the employer’s ability or willingness to offer suitable employment that is a more important factor in achieving return to work for people with work-related disabilities than is cutting recipient’s benefits or weekly payments of compensation- a measure often described as an “incentive” by economists. It also suggests that the Federal Government toughening of eligibility requirements for the disability pension will not of itself result in increased employment outcomes, as opposed to increased hardship, for people with disabilities.
The Premier’s report also refers to calls for reforms “to increase Australia’s attractiveness to highly skilled, globally mobile workers.” It states:
“Reform in this area could increase workforce participation, help attract and retain the world’s most productive workers, and reduce the complexity of the tax system. Many thoughtful people from all sides of Australian politics have argued that a simpler tax system with a broader base and lower rates could significantly enhance participation, productivity and efficiency outcomes.”
This part of the report may be code for supporting calls by Malcolm Turnbull and ALP member and Australia Worker’s Union leader Bill Shorten to reduce the top marginal rates of taxation. Turnbull has called for reduction in the top rate from 47% to 35%. Shorten has called to reduce it to 30%.
The SL Policy Development Group strongly opposes reducing the top marginal income tax rate in Australia from 47%.
While it is true that the point at which the top marginal rate of tax cuts in has become lower in Australia in recent years this is largely because of the fact that the top marginal rate was lowered from 66% to 47% in the 1980s. The point at which the 47% rate cuts in has barely changed relative to average earnings in 30 years. Income tax has become less progressive with the big change that has taken place being the failure to adjust the minimum threshold in line with increases in prices and incomes.
OECD’s figures show that of the 30 OECD countries 13 have top marginal tax rates (including social security taxes) in the range 45 per cent to 50 per cent, eight above this range and nine below it. Similarly, in terms of purchasing power, the income level at which the top rate comes in Australia is very close to the OECD median.
While, as Julia Gillard has pointed out, the Commonwealth Government’s tax take as a percentage of GDP has increased from 23.1 per cent in 1995/96 to 25.7 per cent by 2003/2004, Australia tax take as a proportion of GDP remains low compared to other OECD countries and there can be no justification for focusing tax cuts at the higher income tax brackets.
We regard AWU leader Bill Shorten’s call to cut the top marginal rate to 30% as extraordinary and as potentially prejudicial to the ALP’s electoral prospects.
Three years ago Bill Shorten stated that “Executives’ excessive payouts and bloated salaries are a workplace hazard threatening the future viability of Australian workplaces”. Mr. Shorten specifically cited the case of Wesfarmers’ chief executive Michael Chaney who he said had received $8 million in incentives and salary the previous year. Mr. Shorten described this type of largesse as “a key industrial issue for AWU members.”(6) Now by calling for reduction in the top marginal tax rate from 47 to 30% Mr. Shorten seemingly wants to deliver the likes of Mr. Chaney a tax cut in the order of $1.36 million a year.
The main arguments advanced in favour of the proposals to cut the top rates are that:
a) It is necessary to avoid brain drain; and
b) It is necessary to prevent tax avoidance through incorporation;
c) It will allow for simplification of the system if deductions are abolished.
These arguments are not convincing. Australia experiences a net “brain gain” under current arrangements and it appears that a substantial number of those leaving are simply returning to their country of origin. As Federal MP Craig Emerson has argued:
“Even strong advocates of abolishing the top marginal rate of tax conclude that: ‘… in all likelihood taxation is not a primary driver in emigration for most Australians’.
In relation to incorporation Craig Emerson has argued:
“It is true in principle that more closely aligning the top marginal rate of personal income tax with the company tax rate would reduce incentives for individual taxpayers to set themselves up as companies. Incorporation allows them to pay only the company tax rate on current income and to defer personal income tax until they distribute company profits to themselves and to family members as dividends. But now for a reality check. The gap between the top marginal personal income tax rate and the 30 per cent company tax rate is 18.5 cents in the dollar. Incorporation in Australia costs the small amount of around $800. Removing incentives of individuals to incorporate would require dropping the top marginal rate to a level very close to the company tax rate – say 36 per cent. Cutting the top marginal rate and the second-highest marginal rate of 43.5 per cent to 36 per cent would cost a massive $6.2 billion in 2006-07 and even more in 2007-08 – all to prevent a deferral of personal income tax payments.”
In relation to abolition of deductions, deductions have certainly been growing and abolition of some or all of them would simplify the system and be progressive to the extent that higher income earners have more deductions. But abolition of them may favour established businesses over businesses starting out and it is not clear that deductions are a significant component in reducing taxable income for highly paid employees eg senior managers, CEOs etc.
One option that may provide for simplification might be to give individual taxpayers a choice between a reduced marginal rate without deductions (or with capped deductions) and paying the current rates but allowing taxable income to be reduced through legitimate deductions.
Labor leaders need to be good economic managers and be perceived as such by the community. But this does not obviate the need for Labor leaders to provide a distinctly Labor economic narrative to the community. This narrative is not based on the politics of envy but unashamedly and consistently commits to the views that:
- The market, including the labour market, does not produce just rewards for effort or even necessarily skill. Low income earners tend to be under-rewarded and higher income earners over-rewarded and part of the role of a taxation system is to redress this injustice;
- The fact that the minimum wage in Australia is relatively high compared to the OECD average is something that we, as a nation, should be proud of and seek to maintain;
- Increasing economic inequality is neither socially desirable nor a requirement of economic efficiency. In fact the opposite is true. Increased economic inequality increases crime, poverty, drug abuse and social dislocation. Nordic nations of comparable size to Victoria are combining high levels of economic equality with world-class entrepreneurship and prosperity.
One of the reasons most commonly offered for cutting taxes is that this allegedly creates incentives for people to “work harder”. Reducing high effective tax rates for those wanting to transfer from welfare to work is obviously a sensible measure. It has been estimated that almost a million low income earners face rates so high that 60 cents or more of every dollar they earn goes to government. Removing these penalties must be the first priority of tax reform. But there is in fact no evidence that cutting tax rates will lead to other segments of the workforce working harder. This assertion is ideologically rather than empirically based. Further even if it were true that cutting taxes would create incentives for people to work harder there is no justification for such a measure. Australians already work the longest hours in the developed world- 1855 hours a year compared to 1835 in the USA and 1643 in the OECD. Further increases in working hours are likely to result from the mooted IR changes as workers are pressured to cash in annual leave and to work longer hours to make up for loss of penalty rates or shift allowances. Longer working hours can diminish quality of life and or contribute to breakdown in family relationships with severe impact on human capital. A study commissioned by the Federal Government has found that longer working hours are associated with lifestyle illnesses such as obesity, alcoholism and vascular disease.
Increasing the minimum tax free threshold is expensive. But in our view this measure (which benefits all taxpayers) should be the major focus for taxation reform. The current tax free threshold of $6,000 can only be described as cruel and inefficient.
Other priorities in the area of taxation include:
- Where and when possible and appropriate, gradually easing the burden on low and middle income earners by raising the 30%, 42% and 47% thresholds, NOT by lowering the rates;
- Reform of negative gearing which currently operates to produce large tax expenditures, house price increases, reduced housing affordability and little increase in supply for low and middle income earners;
- Closing off tax avoidance evasion options and ensuring that the ATO is adequately resourced to pursue recovery.
Other problems in the Premier’s paper
The Premier’s paper ignores major problems that confront the Australian economy. It ignores the facts that:
- Much of the increase in wealth in Australia between 1995 and 2005 has been based upon debt and unsustainable increases in the value of houses and land which is making home ownership unaffordable for a younger generation of Australians. Victoria and New South Wales, which together represent 60 per cent of the country’s economy, are already two of the most unaffordable places to buy a home in the world. A study by American researchers Wendell Cox finds that every Australian city except Darwin is severely unaffordable. Many young Australians may hope that inheritance will enable them to acquire home ownership. But in many instances the value of the parental home will diminish due the need to fund prolonged aged care;
- Although commodity prices have increased, improving the terms of trade, growth in imports continue to exceed growth in exports;
- There has been a reduced growth in Australian export of Elaborately Transformed Manufactures (ETMs). The reduction is from 18% in 1996 to 1.7% per year since 1997;
- Australia’s current account deficit relative to GDP is the highest in the OEDC;
- The deficit means that we are constantly borrowing or selling assets to pay the interest on a growing foreign debt.
In conclusion we believe that these economic problems will not be overcome by another round of deregulatory reform or privatization. We agree with the Premier that enhancing educational and health outcomes and increasing provision of infrastructure are an important part of the solution. But we do not share his views, or all his views, on the means by which these outcomes are to be achieved. Further we believe that enhancing skills training and innovation and industry policy is an essential component of improving Australia’s economic performance.
We do not accept any propositions that may be advanced, explicitly or impliedly, in the Premier’s paper that:
- Current prosperity has been based on de-regulation of the labour market and the implementation of National Competition Policy;
- There should be a further round of national competition policy with a strong involvement of the productivity commission;
- Benchmarking of economic success should be based on a single measure of GDP per head of population – a measure which ignores issues of distribution of wealth, power and services;
- There should support for policies such as privatisation of the NSW electricity industry, removal of anti-dumping restrictions which protect Australian industry, further free trade measures (at a time when the labour movement is concerned about the effects of a free trade deal with China), privatisation of Telstra, and removal of cabotage protecting Australian shipping. Many of these proposals do not sit well or are contrary to ALP policy or platform.
Other priorities for national reform
There are at least four other areas where efforts at national reform should be focused. These are the inter-related areas of regional development, the environment and particularly the need to solve water shortage issues in the regions and the need for community building. All of these factors directly affect the development of human capital.
In the context of global warming it would be highly irresponsible for Labor to commit to a model designed to foster ongoing economic growth without identifying the need to protect the environment as an area in which fundamental reform is required.
Threats to life and security posed by global warming need to be treated just a seriously, and with the same sense of urgency, as the threat posed by terrorism. George W. Bush has now conceded what majority scientific opinion has asserted for some time that human activity is contributing to global warming.
Carbon sequestration technology is new and unproven and requires 20 per cent of the energy generated from burning the coal in the first place. It is likely that the world will be past the dangerous threshold of climate change before cleaner coal-burning technologies take effect. The national reform effort should focus on more renewable energy and less carbon-intense fuel. There are exciting, relatively new, developments with geothermal power or hot rocks (7) and with Miscanthus giganteus, a type of elephant grass that can be burned to produce electricity and which is already being used in Britain and Illinois (8).
For further inquiries contact Peter Holding, SL Policy Development Co-Coordinator 0411287930 or phold@optusnet.com.au
(1) Our group is made up of SL members on various policy committees of the Victorian branch of the ALP as well as other SL policy activists. Input into the paper has been received from Victorian state parliamentary members.
(2) http://www.abc.net.au/4corners/content/2005/s1480656.htm
(4) Source: Oral Health Alliance report, quoted in Jenny Austin, “The Decay in Dental Health”, Advocate (Journal of the NTEU), vol 12. No.1, April 2005, p.35.
(5) National Worker’s Compensation and Occupational Health and Safety Frameworks, Productivity Commission Inquiry Report No. 27, 6 March 2004
(6) http://www.awu.net.au/national/news/1045709527_23710.html
(7) http://www.abc.net.au/lateline/content/2005/s1468878.htm
(8) http://www.environ.uiuc.edu/EA/EA_2005_2_24.html