Catallaxy Files

Last September the Prime Minister announced that he wanted to turn the Australian Public Service into the best in the world. He commissioned his departmental secretary – Terry Moran – to head an advisory group to develop options for public service reform.

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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of all states and territories, the GST legislation is an Act of the Federal Parliament which can be amended or repealed by the Parliament without reference to the states.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.

In Greek mythology, the gods were anthropomorphic. They were spiteful, vengeful and capricious. People knew that they had to offer sacrifice or earn the wrath of the god they offended.

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Anecdotal evidence suggests that the introduction of cycle paths adjoining Canberra roads has led to an increase in bicycle rider injuries. Often cyclists travelling between 20 and 30 km/h are riding alongside cars doing 80 km/h.

A report in the Canberra Times cites a survey that found that:

Canberrans are more likely than anyone else in Australia to find cyclists to be a road hazard

and that cyclists make up around 1/4 of road accident related hospital episodes in Canberra.

I have observed some appalling behaviour by some cyclists – colleagues have observed similar behaviour. (Note I am an occasional cyclist too).

Bad behaviour in motorists and motorcylists is punished.

Motorists and motorcyclists are required to drive/ride roadworthy vehicles. They are required to meet competency standards. They are required to pay for a license and to register their vehicles. They are required to take out third party insurance.

Each vehicle and motorcycle has a number plate. This assists the police in the enforcement of road rules.

Motorists and motorcyclists pay substantial taxes to help fund roads among other things.

So why should cyclists enjoy the benefits of our roads without making a contribution?

Why shouldn’t cyclists have their bicycles registered (at a relatively modest cost) with a number plate? Why shouldn’t cyclists undertake competency tests and be licensed?

And we now see a department with a split personality.

One part of the department seeking to implement an emissions trading scheme with the aim to reduce carbon emissions

and

a second part of the department seeking to install insulation with the effect on increasing carbon emissions (see article by Hedley Thomas in the Australian of 26 February 2010 Woolly claims on insulation and that of Henry Ergas Energy Efficient, Benefit Deficient).

Only it seems that the insulation part of the department has been more successful in increasing emissions than the other part of the department has been in reducing emissions given the CPRS is dead.

Bizarre.

Canberra is now Constantinople under the Byzantine Empire.

Reflecting further on my previous post on the failed insulation program, perhaps we should consider the program from the perspective of putting the insulation industry permanently on the taxpayer life support?

Before the original insulation program, the industry existed nicely without government subsidies.

Then, on the pretext of insulating us from the global financial crisis (excuse the pun), the Government rolled out the insulation program in February 2009.

Now it is clear that even proponents of the stimulus program would find it difficult to justify further new stimulus measures.

We discover that the original insulation subsidy program is a failure for various reasons and the government rightly cancels it.

So why do we need a replacement? Has the Government turned the insulation industry from a subsidy-free industry into one – like the automotive industry – that has become addicted to subsidy?

When the so-called $42 billion ‘economic stimulus plan’ was announced on 3 February 2009, the Prime Minister stated that it was to support jobs during Australia’s response to a severe global recession.

One of the measures was the ceiling insulation program which has been badly mismanaged and now cancelled. The Government has announced a replacement program.

Yet we have not analysed the existing program for its efficacy and whether it met its objectives:

The Energy Efficient Homes investment will:

Install ceiling insulation in around 2.7 million Australian homes;

Cut around $200 per year off the energy bills for households benefiting from these ceiling insulation programs;

Reduce greenhouse gas emissions by around 49.4 million tonnes by 2020, the equivalent of taking more than 1 million cars off the road.

Did it meet these objectives (notice that the Prime Minister on 3 February 2009 used the word “will” not “should”?

Haven’t we learned that rushed policy tends to have unfortunate side-effects and creates various distortions? And that among these distortions is to bid up substantially the cost of the labour being employed in the subsidised activity?

In the case of the insulation program, the cost per job has been estimated to be between $300,000 to $600,000.

And wasn’t the raison d’être of the stimulus package to assist Australia during a downturn? Well why do we need a stimulus package now when growth is solid and unemployment low?

In truth the Government’s stimulus package was far too much and focussed on spending measures which it was incapable of managing and that significantly distorted activity in the construction sector. In addition, the stimulus is likely to have been ineffective in its purpose, crowding out private sector activity.

But whatever the merits or demerits of a stimulus in February 2009, it is very clear that it is unnecessary in February 2010.

So the Government should take the opportunity of the cancellation of the failed insulation program to move on – accept that it was a mistake and use the money saved to reduce the deficit. Perhaps it might have some legal obligations for compensation, but it does not need a replacement program.

Unfortunately the Government hasn’t learned from its failure and is about to throw good money after bad.

Boskin’s article in the Wall Street Journal is worth reading and outlines how politicians have been seeking to change statistical collections to achieve better results. Fortunately most people can see through such charades.

I have a significant concern that the wellbeing framework (which comprises the triple bottom line of economic, environmental and social) promoted by the Sarkozy Commission including Stiglitz will result in meaningless, symbolic statistics.

It would be nice to directly measure utility, but the Sarkozy approach is in the wrong direction. The status quo – national accounts with GDP etc – remains the most useful such statistic until an alternative is proven to be superior.

Earth Hour is this year being held on Saturday 27 March at 8:30pm. That otherwise sensible people can think that turning off their lights for an hour demonstrates their commitment to the fight against climate change shows the morphing into a religion is this cause.

And as the Canberra Times on 23 February demonstrated, it is symbolic. The article says that the ACT’s environment minister Simon Corbell said that Earth House was

more than a symbolic gesture.

Later in the article Corbell was quoted as stating:

Turning off lights for one hour is an important symbolic gesture to help protect the world from the threats of climate change …

So there you have it: Earth House isn’t a symbolic gesture, it’s an important symbolic gesture.

And finally we have it confirmed that the ACT government is a local council. By no less an authority than the WWF.

When Earth Hour arrives, I won’t be doing anything differently. I won’t be specially switching lights off, nor on.

When I wrote that Peter Garrett’s position was untenable back on 11 February, I had assumed that he would have departed by now.

It seems that I might have been wrong with a common view now being put that Garrett will survive as a weakened minister because the Prime Minister can ill afford to lose a minister at this stage of the political cycle.

This is very sad. While I disagree with much of what Garrett stands for politically, I’ve always thought of him as an honourable person who had strong principles.

I can’t imagine why he wouldn’t resign. His conscience must be torn – he is clearly upset that his pet project has gone so awry. He is very aware of ministerial standards and responsibility for the design and implementation of the insulation program rests entirely on his shoulders. Is it so important to remain a minister? There are so many better things in life he could be doing.

Come on Peter – follow your conscience and resign on principle. You’ll feel better for doing so and you will be doing the right thing.