Catallaxy Files

Michael Foot, former UK Labour Party leader, has passed away aged 96. In her autobiography Mrs Thatcher described him as being a gentleman.

as an AGW policy sceptic, I would very much welcome serious debate and commentary that seeks the truth w.r.t the existence of AGW and, then, what if anything to do about it.

Tom N

Last year I was asked to speak at a conference on the CPRS and prepared some slides. The conference got cancelled at the last minute so I never got around to writing the paper. I suppose I should at some point, but the heat has gone out of the debate. Anyway in response to Tom’s point I’m posting a decision tree and some talking points that I had relating to the tree. It might be a bit wonkish for some tastes.
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Looks like we will be waiting a while for any meaningful or coherent tax reform

KEVIN Rudd has put the Henry tax review firmly on the backburner, confirming today that his $50 billion public health takeover plan is his top priority.

The Prime Minister said this morning he had not decided on a specific timetable for the release of the review, which was delivered to the Rudd government by Treasury secretary Ken Henry in December.

“I believe what Australian people wanted me to do is to get on with the business of delivering health and hospitals reform. Number one priority,” he told ABC radio.

“Each thing in its season, we’ve got to do one thing at a time.

“But in terms of specific timetables for doing it, no, I don’t have anything particular in mind.”(The Australian 04/03/2010)

My guess is the Henry report is going to suggest a range of necessary, but unpopular,  changes. Rather than fight that battle now,  Rudd will presumably go to the election with health reform his major focus and deal with tax reform later.

As Andrew Norton is fond of pointing out – health and education are ALP owned issues so making health reform (and perhaps MySchool) the focus of the next election  seems like a good strategy for the ALP.

Kevin Rudd November 14, 2007

I stand before you today as a candidate for the Prime Ministership of Australia. I am proud of the plan we have put forward for Australia’s future. And I am proud of the team that I lead – the team that will work with me implementing this plan.
The nation now needs new leadership for the future. The nation now wants new leadership for the future. And today, I stand before you ready to deliver that new leadership for Australia’s future.

Kevin Rudd February 28, 2010

So we need to lift our game – I need to lift my game – in terms of delivering on these undertakings. That’s fair criticism. The reason that we’ve had problems with this is we didn’t … we didn’t properly, I think, estimate the complexity of what we are embarking on.

I have an op-ed in The Australian today talking about the Rudd health policy. Like Samuel J I am underwhelmed by the proposal and believe it to be fundamentally flawed.

Do we really want some Canberra bureaucrat (note the “no net increase in bureaucrats” promise) determining how much should be spent on our health? Do we really want to have health spending allocated on the same basis that the Commonwealth Grants Commission divvies up the GST?

This policy is to be financed by one-third of the GST revenue. People may think that to be sensible, but hang on to your wallets. Rudd promised further ostensible reform. He identified that the gap between expected GST revenue and demands on the health system is expected to increase.

That’s code for a future increase in the GST rate. No doubt, through time the commonwealth will find that it needs to spend more and more on health. “GST up” will become the new perennial budget headline.

The Commonwealth doesn’t need a constitutional amendment to change the GST formula, but probably does need one to implement its health policy if the States don’t cooperate. Bypassing the States to finance ‘regions’ is probably unconstitutional.

The Commonwealth shall not, by any law or regulation of trade, commerce, or revenue, give preference to one State or any part thereof over another State or any part thereof.

Rudd has promised a referedum on this issue before or at the next election. That means no early double dissolution. It also means that the biggest health reform in Australian history is coming to be planned, negotiated and debated and explained and a constitutional amendment organised in less than nine months or so. Unless Rudd now plans to hang on beyond the end of this year.

What I said.

Rudd points to Australia’s high vertical fiscal imbalance as being part of the problem in health care. It is true that the healthcare costs are expected to grow rapidly in future and that the states have poor fiscal bases to meet those costs. It is not clear that greater centralisation is the solution to this problem. It is especially unclear whether Canberra is up to the challenge. The home insulation program was a locally managed, centrally funded program and that just didn’t go well.

The solution to high vertical fiscal imbalance is not stripping authority and funding from the states but ensuring that the states have a sound fiscal basis for service delivery. That means the commonwealth needs to collect less revenue and the states more revenue. It looks like the Henry tax review won’t be making that recommendation.

Effective service delivery requires that decision-making and funding be localised as much as possible. That means greater powers to the states and less to the commonwealth.

Rudd also spoke of directly funding regional areas and bypassing the states. That is a recipe for a huge boondoggle. He will also need a constitutional amendment to do so. Hopefully the states will refuse to co-operate and force a referendum.

This will be the largest healthcare reform in Australian history. The electorate deserves an opportunity to express an opinion of this reform separately and over and above considerations that come bundled up at elections. This policy isn’t only about health; it is about taxation and about the nature of our federation.

On one side, the health package announced yesterday by the Prime Minister is just sleight of hand: reducing GST payments to the states and territories and using that to directly fund hospitals. That doesn’t provide more resources per se to hospitals. And, in any case, the Commonwealth could have under the status quo increased funding to hospitals in any case. So the only effective change from reducing the GST payments may be the split of the payments to the states, which is decided by the Commonwealth Grants Commission. Presumably the 30 per cent claw back will now be allocated among the states by a different formula – specifically through analysis and planning by the federal health department.

As an aside, I don’t think that a referendum would be needed for the Commonwealth to reduce payments of the GST – while the Intergovernmental Agreement signed under the Howard Government specifies that changes to the GST arrangements – paying GST receipts to the states and territories less an administration charge from the ATO – requires agreement of all states and territories, the GST legislation is an Act of the Federal Parliament which can be amended or repealed by the Parliament without reference to the states.

But where are real reforms, such as ensuring a price signal for the use of hospitals? Or reducing distortions between the use of private and public hospitals? Or the structure of medicare? The problems are well known and have been identified in previous reports, yet no action is proposed in areas which would make a significant difference. Getting incentives right is the key, and allowing full competition between hospitals without distortions by government funding – perhaps by providing funding through the individual (a form of voucher).

And then we find the forward to the policy states

The Third Intergenerational Report released this year showed that these pressures will only intensify as a result of the ageing of the population. In addition, demand for high standards of care will place pressure on the Government to increase expenditure, as will technological innovation.

Yet technological innovation does not necessarily increase expenditure – generally we observe technological innovation reducing costs. If patients are getting better care due to the technological innovation – perhaps new diagnosis techniques – why shouldn’t they pay for it? In general I’d expect that technological innovation would have two effects: a reduction in the cost of providing existing services and an increase in service quality.

The “solution” to the hospitals problem is for patients to pay for more of their services – perhaps through health insurance.