Commonwealth Orange Book 2019: Policy priorities for the federal government

The winner of the 2019 federal election should defy the national mood of reform fatigue and stare down vested interests to pursue a targeted policy agenda to improve the lives of Australians, according to a new book from the Grattan Institute.

The Commonwealth Orange Book rates Australia’s performance against similar countries and proposes policy reforms to schools and universities, hospitals and housing, roads and railways, cities and regions, budgets and taxes, retirement incomes and climate change.

It includes Grattan Institute’s new ‘International Scorecard’, which shows Australians live longer than most other people, and public debt is relatively low. But our electricity supply is more polluting, less reliable and more expensive than in comparable countries; we lag behind other developed economies on school results; and housing costs and homelessness are relatively high.

Commonwealth Orange Book International Scorecard

Click here for the full scorecard for Australia

The challenge for the next Commonwealth Government is to revive Australia’s proud tradition of enlightened public policy. The next government needs to choose to do less, but deliver more. We can continue to be the lucky country, but we must make our own luck.

Drawing on 10 years of Grattan research and reports, the Orange Book finds Australians’ living standards have stagnated, the pace of economic reform has slowed, people are increasingly anxious about their financial prospects – and our political system is not dealing well with these challenges.

On health, the Orange Book calls for a universal dental care scheme, so all Australians can go to the dentist when they need to; a boost to primary care, with new reforms to Primary Health Networks and GP payments; and a comprehensive review of the private health sector, including private health insurance.

On housing, the book recommends that the Commonwealth provide incentives to states to loosen planning laws so that higher density is permitted in the established middle suburbs of our capital cities; a 40 per cent increase in the maximum rate of Commonwealth Rent Assistance; and funding for additional social housing tightly targeted towards Australians at high risk of homelessness.

On retirement incomes, it urges the next government to abandon the current plan to increase compulsory superannuation payments from 9.5 per cent to 12 per cent, which would force workers to accept lower living standards today even though they are already likely to enjoy living standards in retirement comparable to living standards while working. It advocates changes to the Age Pension assets test that would loosen the assets test taper but include more of the value of owner-occupied housing. And it backs proposals to select “best in show” funds for default superannuation, to drive down costs and improve returns.

Major tax reform is needed to support economic development. The book recommends reducing income tax and modifying welfare tapers and childcare benefits to remove barriers and increase incentives for second income earners (usually women) to participate in the workforce. It also advocates an accelerated depreciation scheme for new investment by companies. To pay for these changes (and avoid other tax increases), the next government should cut the capital gains tax discount from 50 per cent to 25 per cent; wind back negative gearing; tighten superannuation tax concessions; and broaden or increase the GST. To increase workforce participation of older Australians, the government should ask the Productivity Commission to investigate the costs and benefits of raising the pension age to 70.

On energy, the book urges the incoming government to develop a clear, credible policy to tackle climate change. Our political leaders must be honest with voters: Australia needs to move to a low-emissions economy, and that transition will cost money. A raft of reforms to electricity generation, distribution and retailing are also required to push down energy costs.

On transport, the book calls for a more disciplined approach to assessing, selecting and reviewing major projects, to put brakes on spending billions of dollars in the wrong places for the wrong (often politically motivated) reasons.

On school education, it suggests that the government needs to finish off school funding reforms, and set up a national evidence institute, while strengthening incentives for universities to improve initial teacher education.

On higher education, it recommends a return to demand-driven funding of universities. Reforms to the HELP loan scheme are needed to help fund this change, and potential increases in funding for vocational education. The government should encourage more students into vocational education, although better funding arrangements for vocational education need careful thought and negotiations with the states.

On budgets, it suggests enshrining fiscal targets in legislation, giving the Parliamentary Budget Office responsibility for macroeconomic forecasts that underpin the budget and publishing an Intergenerational Report that includes long-term projections of both Commonwealth and state government revenues and spending.

The Orange Book identifies a crisis of trust in politics in Australia, with a growing sense that people in government look after their own interests and can’t be ‘trusted to do the right thing’. It calls for institutional changes to help restore faith in our democracy, including introducing a strong integrity commission, capping expenditure on political advertising during election campaigns, and new rules to ensure voters know who is donating to the political parties and who is lobbying our political leaders.

These are evidence-based policy recommendations designed to serve the interests of all Australians rather than sectional interests. Our next government should seize the opportunity to forge a happier, healthier, more prosperous Australia.

Read the media release

Listen to a podcast with the authors discussing the report

Filling the gap: A universal dental care scheme for Australia

Australia should introduce a Medicare-style universal insurance scheme for primary dental care, to ensure all Australians can go to the dentist when they need to.

A universal scheme would cost an extra $5.6 billion a year, could be paid for in part by a rise in the Medicare levy, and should be phased in over 10 years.

It’s needed because about 2 million Australians who required dental care in the past year either didn’t get it or delayed getting it because of the cost – and the poor and disadvantaged are most likely to miss out on care.

This is because most spending on dental care comes straight out of patients’ pockets.

When Australians need to see a GP, Medicare picks up all or most of the bill. But when they need to see a dentist, Australians are on their own.

The consequence is widespread poor oral health. About a quarter of Australian adults say they avoid some foods because of the condition of their teeth; for low-income people, it’s about a third. Low-income people are more likely to have periodontal disease, untreated tooth decay, or missing teeth.

Bad oral health has painful and costly consequences. Oral health conditions can contribute to other health problems, including diabetes and heart disease. Most oral health conditions are preventable, yet people often end up going to a GP or hospital emergency department to be treated for conditions that could have been arrested with earlier care.

Existing public dental schemes are inadequate, uncoordinated, and inequitable across states and territories. Most states have waiting lists of well over a year for public dental care – and if people need to wait a year for care, their conditions are only going to get worse.

The Commonwealth Government should announce that it will take responsibility for funding primary dental care – just as it takes responsibility for primary medical care.

There’s no compelling medical, economic, legal or logical reason to treat the mouth so differently from the rest of the body.

But it would be impractical to move to a universal scheme overnight. It would cost a lot of money – about $5.6 billion in extra spending each year – and more dentists and oral health professionals would need to be trained locally or recruited from overseas.

So, the Commonwealth should announce a roadmap to a universal scheme, including plans to expand the dental health workforce, followed by incremental steps towards a universal scheme.

First, the Commonwealth should take over funding of services for people eligible for existing public dental schemes, fund them properly, and enable private-sector providers to deliver publicly-funded care. Then the scheme should be expanded – first to people on Centrelink payments, then all children. Within a decade, the Commonwealth should take the final step to a universal scheme.

Universal dental care is a big idea whose time has come. All Australians should be able to get the care they need, when they need it, without financial barriers.

Read the media release

Listen to a podcast with the authors discussing the report

Keep calm and carry on: Managing electricity reliability

The popular perception that Australia’s electricity supply has become less reliable with more renewable energy, and that this is inevitably going to get worse, is wrong and dangerous.

It’s wrong because almost all outages are caused by problems in transporting electricity, and have nothing to do with whether the power was generated from new renewables or old coal or some other technology.

And it’s dangerous because if politicians over-react to public concern and rush to intervene in the market, electricity bills could rise even higher.

Political leaders and media commentators have linked the 2016 state-wide blackout in South Australia with that state’s high level of wind power. But they haven’t recognised that the electricity market operator has since changed management practices to better suit the changing shape of the energy system, and a combination of regulatory obligations and market mechanisms are being applied to support grid stability as the system continues to evolve.

Equipment failures, falling trees, inquisitive animals and crashing cars can all cause the power to go out in the local distribution network. Over the past 10 years, more than 97 per cent of outages across the National Electricity Market could be traced to the poles and wires that transport power to homes and businesses.

But it would be prohibitively expensive to try to prevent all these outages. The NSW and Queensland governments spent $16 billion more than was needed on distribution networks over a decade, while achieving only very small improvements in reliability – and households and businesses are still paying for this through their power bills.

Regulators and network businesses need to carefully balance cost and reliability as technology and consumer preferences change. Consumers will not be happy to pay for another round of network ‘gold-plating’.

Events in Victoria and SA in January highlighted the current tight balance between supply and demand. As old coal generators are closed and summer heatwaves become more severe, outages will increase unless investment in new supply follows. But a lack of generation capacity on hot days caused only 0.1 per cent of all outages over the past decade. To encourage investment and keep this problem rare, governments need to create a stable policy framework to reduce greenhouse gas emissions and ensure that retailers have enough supply.

What Australia needs now is not panic and politicking, but cool-headed policy responses to manage electricity reliability without unnecessarily adding to consumer bills.

Increased renewable generation does create challenges for managing the power system. But if we keep calm and carry on, these challenges can be met without more big price increases for households and businesses.

Read the media release

Listen to a podcast with Guy Dundas and Lucy Percival discussing the report

 

Summer Reading List for the Prime Minister 2018

Six books the PM should read over the holidays (and you might like them too)

It’s been an extraordinary year in politics – and no doubt many politicians are well and truly ready for a summer holiday. To help our leaders make the most of their time off, Grattan Institute has curated a list of this year’s must-reads – a curiosity-piquing platter of novels, think-pieces, memoirs and manifestos.

These books have three things in common: they’re thoroughly readable, they have something worth saying, and they’ll stick with you. We think they deserve a place on the bookshelf in Kirribilli House, as well in as your own office or beach-bag.

Here’s our Top Six for 2018, in no particular order:

Factfulness: Ten reasons we’re wrong about the world – and why things are better than you think Hans Rosling

The People vs Democracy: Why our freedom is in danger & how to save it Yascha Mounk

Rusted Off: Why country Australia is fed upGabrielle Chan

No Friend but the Mountains: Writing from Manus Prison – Behrouz Boochani

Women & Power: A ManifestoMary Beard

FlamesRobbie Arnott

See our reviews here:
Prime Minister’s Summer Reading List 2018

Register to attend the launch of this year’s list on Tuesday, 4 December to hear how we chose the books, and what messages the government might take away from them. Melbourne-based journalist Madeleine Morris will join Grattan Institute CEO John Daley in Melbourne to discuss how this year’s titles illuminate some of Australia’s most important debates.

                       
This year we are proud to publish our list in partnership with Readings – an Australian independent retailer. The books can be purchased at Readings’ table which will be set up at the event, at any of Readings seven shops in Melbourne, or via Readings online.

 

Money in retirement: more than enough

The conventional wisdom that Australians don’t save enough for retirement is wrong. The vast majority of retirees today and in future are likely to be financially comfortable.

Retirees are less likely than working-age Australians to suffer financial stress such as not being able to pay a bill on time, and more likely to be able to afford optional extras such as annual holidays.

Grattan Institute modelling shows that, even after allowing for inflation, most workers today can expect a retirement income of at least 91 per cent of their pre-retirement income – well above the 70 per cent benchmark endorsed by the OECD, and more than enough to maintain pre-retirement living standards.

And many low-income Australians will get a pay rise when they retire, through a combination of the Age Pension and their compulsory superannuation savings.

Australians tend to spend less after they retire, and even less into old age. Their medical costs increase, but are largely covered by the taxpayer. Many retirees are net savers, and current retirees often leave a legacy almost as large as their nest egg on the day they retired.

But the retirement incomes system is not working for some low-income Australians who rent, particularly in Sydney and Melbourne. And this problem will get worse because on current trends home ownership for over-65s will decline from 76 per today to 57 per cent by 2056.

To boost retirement incomes for the poorest Australians, the maximum rate of Commonwealth Rent Assistance should be increased by 40 per cent – worth more than $1,400 a year for a single retiree.

Loosening the Age Pension assets test could boost retirement incomes for around 20 per cent of retirees today, rising to more than 70 per cent of retirees in future. It would also deal with anomalies in the system: some people who save $100 while working increase their total retirement income by less than $100 in real terms.

But because most Australians will be comfortable in retirement, there is no need to boost retirement incomes across the board. The legislated plan to increase compulsory superannuation contributions from 9.5 per cent to 12 per cent should be scrapped, saving the Budget about $2 billion a year.

And superannuation tax breaks and age-based tax breaks should be reduced, to ensure the retirement incomes system does not become an excessive burden on future budgets, and endanger funding for aged care and health.

Grattan Institute continues to update the retirement income projections contained in this report as new data becomes available. You can find the latest version of the projections here.

Read the media release

State Orange Book 2018: Policy priorities for states and territories

State and territory governments can do more to improve the lives of Australians. The State Orange Book 2018 shows that outcomes vary between states across a broad range of areas. In many cases, states are different because their governments adopted better policies.

State Orange Book Scorecard

Click here for the full scorecard for states and territories

For example, Victoria has relatively good health outcomes – and has improved more – on a range of measures such as mortality, cost and waiting times, whereas South Australia and the Northern Territory lag well behind. Other states and territories could learn from how Victoria has managed its hospitals.

Other policy areas require more difficult trade-offs. South Australia has more expensive electricity and more outages, but it has lower carbon emissions.

State and territory policy problems aren’t hard to find. Per capita income has been flat for five years as the mining boom subsided. State and territory governments continue to announce large infrastructure projects without doing enough homework beforehand. Home ownership is falling fast among the young and the poor, and homelessness is rising. Our schools are not keeping up with the best in the world. In most states, people are waiting longer for medical treatments. Wholesale electricity prices have increased significantly over the past few years.

Many worthwhile reforms have been implemented over the past decade. Victoria’s hospitals cost less per patient and contribute to better health outcomes than elsewhere. Queensland’s school students learn more in Years 3-5, and this has improved significantly in the past few years. The ACT has started to replace inefficient stamp duties with a much more efficient broad-based property tax. NSW has used the good times to improve its budget position. Victoria, South Australia and the ACT have all increased the transparency of political decision-making and tightened controls over money in politics.

But every state and territory could learn from the others and do better.

State governments – particularly NSW and Victoria – face population pressures. They should resist political pressure to wind back planning reforms that have helped to increase housing supply, and instead should go further to ensure enough housing is built, particularly in established suburbs, to accommodate rapidly growing populations. NSW and Victoria should commission work to enable the introduction of time-of-day road and public transport pricing to manage congestion in Melbourne and Sydney. All states should stop announcing transport projects before they have been analysed rigorously, and they should evaluate completed projects properly.

There are other important priorities for economic reform. All states should follow the lead of the ACT and replace stamp duties with broad-based property taxes. States should reform electricity markets to encourage reliability and reduce emissions – whether or not the Commonwealth Government cooperates.

States could deliver services better. Other states should follow Victoria’s lead and reduce the overall cost and the variation in cost between public hospitals. And they should develop more prevention programs to reduce the disparity between regional and urban health outcomes. States should lift progress for all students by identifying and spreading good teaching practices at the same time as strengthening the evidence base. They should also invest more in early learning for the most disadvantaged students.

Institutional reforms are needed as well. States need more visibility of their long-term budget positions. While institutional accountability is improving in many states, Western Australia, Tasmania and the Northern Territory need to limit election spending, and make political donations and lobbying more transparent.

Read the media release

State Orange Book 2018: Policy priorities for states and territories

Measuring student progress: A state-by-state report card

A new Grattan Institute national report card on NAPLAN school results reveals big differences between the states on the rate of progress students make over the course of their schooling.

Queensland is the star performer in primary school. Queensland primary students make two months more progress in reading than the national average between Year 3 and Year 5, and about one month more progress in numeracy over the same two years.

NSW stretches advantaged secondary students, but is not so good at supporting disadvantaged secondary students.

Victoria is the reverse: students in disadvantaged Victorian schools make four months more progress than the national average from Year 7 to Year 9, but the state does not do as well in stretching advantaged students.

Contrary to popular perception, Tasmanian and Northern Territory schools are not under-performers. The report shows that their students progress broadly in line with students in schools of similar socio-economic advantage in other states.

South Australia’s primary students make slightly less progress than the national average; Western Australia’s make progress roughly on par with the national average.

The ACT is the worst performer on the Grattan Institute’s measure of student progress, which takes account of the fact that some states and territories have more advantaged students than others. On this like-for-like basis, students in the ACT make two to three months less progress than the national average in both primary school (between Year 3 and Year 5) and secondary school (between Year 7 and Year 9).

The report card challenges the idea that students in Australia’s high-achieving schools are ‘cruising’. In fact, students in low-achieving schools make only half the progress in numeracy from Year 7 to Year 9 as students in high-achieving schools, and 30 per cent less progress in reading.

This finding should ring alarm bells in cabinet rooms and education departments across Australia. If governments are serious about delivering on the Gonski vision of ‘at least one year’s growth in learning for every student every year’, then disadvantaged schools must be a big priority.

Whether a student attends a government, Catholic or independent school has little impact on how fast they progress in NAPLAN. Low rates of progress in regional and rural schools are mainly explained by their high levels of disadvantaged students. And whether a student goes to a big or small school has little relationship to how well they will learn.

The report card provides new insight on what’s happening in schools and contains important lessons for education policy makers.

Governments should investigate why students make more progress in some states than others, with the goal of identifying the teacher practices and school policies that produce the best results for our children.

Read the media release

Listen to a podcast with Peter Goss and Julie Sonnemann discussing the report

Remarkably adaptive: Australian cities in a time of growth

Australia’s urban commuters have little to fear from population growth, if recent experience is any guide. Contrary to frequent media reports, the population boom has had little impact on commuting.

The average commute distances and times barely increased over the five years to 2016, even as Sydney and Melbourne’s populations grew at rates among the highest in the developed world, by 1.9 per cent and 2.3 per cent each year. Brisbane, the Gold Coast, the Sunshine Coast, Canberra and Darwin also grew strongly.

The benign impact of population growth is partly explained by the spread of jobs within the major cities. It’s a misconception that jobs are centred in CBDs, which become harder to get to as cities grow. In reality, fewer than two in ten people work in CBDs, whereas three in ten work in a suburb just away from home.

The importance of suburban `employment centres’ is overblown. Parramatta is the location of only 2.3 per cent of Sydney’s jobs, and Clayton, home of Monash University and medical centre, accounts for only 1.7 per cent of Melbourne’s jobs. In Sydney, Melbourne, Brisbane, Adelaide and Perth, three quarters of jobs are dispersed all over the city, in shops, offices, schools, clinics, and construction sites.

Even though commutes are not getting much worse, the level of congestion in the largest cities is a problem. Trains, buses and trams can be overcrowded, and commuting times can be unreliable. While most drivers are delayed no more than five minutes getting to work, the delay can be much longer on bad routes.

But the situation is not spiralling out of control. Migration has not brought cities to a standstill. Cities have coped even though major new projects including Melbourne Metro, WestConnex in Sydney, and Brisbane’s Cross River Rail have not yet been completed.

People adapt – they are not hapless victims of population growth, depending for their wellbeing on governments building the next freeway or rail extension.

Governments should focus on facilitating the natural adaptations people make. They should limit zoning and planning barriers to people and firms locating where they want to be. They should follow the ACT’s lead and phase out stamp duty, which effectively locks people into staying put when they otherwise might move house. And Sydney and Melbourne should introduce congestion charges, to encourage drivers who don’t really need to travel at peak times to stay off the most congested roads.

With these changes, the benefits that draw people to live and work close together can outweigh the congestion and crowding that trigger demands to shut new people out.

Listen to a podcast of the authors discussing the report

Read the media release

Who’s in the room? Access and influence in Australian politics

Powerful and well-resourced business groups, unions and not-for-profits are influencing policy in Australia to serve their interests, sometimes at the expense of the public interest.

Businesses with the most at stake in government decisions lobby harder and get more access to senior ministers.

The gambling and property development industries are hugely over-represented compared to their contribution to the economy.

Major donors to political parties are more likely to get a meeting with a senior minister, and time with ministers is explicitly ‘for sale’ at party fundraising events.

The major parties rely heavily on a handful of big donors to fund their election campaigns: just 5 per cent of donors contributed more than half of the big parties’ declared donations at the 2016 federal election.

Industries at the crosshairs of policy debate sometimes donate generously and then withdraw once the debate has moved on – suggesting that they believe money matters.

More than one-quarter of federal politicians go on to post-politics jobs for special interests, where their relationships can help open doors.

As well as seeking access via backrooms, special interests also try to influence the public debate. Only well-resourced groups such as unions, industry peak bodies and GetUp! can afford major advertising campaigns.

Who’s in the room – and who’s in the news – matters for policy outcomes.

Powerful groups have triumphed over the public interest in some recent debates, from pokies reform to pharmaceutical prices, to toll roads and superannuation governance.

Stronger checks and balances on policy influence are needed, to make Australian politics cleaner and fairer.

Federal ministers should publish their diaries, as state ministers in NSW and Queensland already do. A list of all lobbyists with security passes to federal Parliament House should be made public and kept up-to-date. Big donations to federal political parties should be disclosed in close to ‘real time’, as they are already in Queensland. Federal MPs and their staff should be legally prevented from moving straight into lobbying roles, with the rules enforced by an independent body. And political advertising expenditure should be capped to reduce the ‘arms race’ between parties and their reliance on a few big donors.

Australians don’t like or trust the current system. The changes recommended in this report would improve the quality of policy debate and boost the public’s confidence that policy is being made for all Australians – not just those in the room.

Read the media release

Listen to a podcast with Danielle Wood, Kate Griffiths and Carmela Chivers discussing the report

Mapping Australian higher education 2018

 

The graduate gender pay gap in Australia is narrowing, with more women in paid work than ever before. Women’s earnings generally outpaced men’s over the past decade – but the pay gap remains large.

Female university graduates are now expected to earn 27 per cent less than men – or $750,000 less – over their career. Ten years earlier, the gap was 30 per cent.

The median-income female graduate from 2016 can expect to earn about $2 million over her career. Early-career female graduates from 2016 are earning about 4 per cent more (after allowing for inflation) than their counterparts from 2006. Early-career male graduates from 2016, by contrast, are earning about 3 per cent less than their counterparts from a decade earlier.

The driving force behind women’s earnings growth over the past decade is a big increase in the number of women with children staying in the workforce – up by nearly 10 percentage points among graduates aged 25-34, and 5 percentage points among graduates aged 35-44.

This is a policy success story. As paid maternity leave has become more widely available, more women are choosing to stay employed when they become mothers, rather than quitting the workforce. And this trend is expected to continue. As subsidies make childcare more affordable for women returning to work, more are doing so full-time.

Gender equality in the workforce is not yet a reality in Australia, but it is slowly getting closer.

More broadly, growth in professional jobs in Australia did not keep up with the growing number of graduates over the decade, and recent graduates are getting less financial benefit from their degrees than earlier graduates at the same point in their careers.

In early 2017, 28 per cent of recent graduates who were looking for full-time work were yet to find it four months from completion, up from 15 per cent in early 2008, before the global financial crisis.

Earnings either grew weakly or declined over the past decade for early-career graduates from all disciplines except education, nursing and medicine. A median-income male graduate in science, commerce or law earned less in 2016 than in 2006, although law graduates still have above-average incomes.

Although the labour market remains tough for young graduates, it has improved since its lowest point in 2014, reflecting recent growth in professional jobs.

Mapping Australian higher education 2018, the fifth in a series going back to 2012, shows that in 2016 a record 41 per cent of Australian 19-year-olds were enrolled in higher education institutions.

Health-related courses have experienced the strongest growth over the last decade.

After a decade of rapid growth, domestic commencing bachelor-degree enrolments are now growing slowly and so higher education participation will plateau over the next few years.

International student enrolments are still booming, bringing in more than $9 billion in fee revenue in 2017. China and India are the largest source countries.

Australian public universities still receive more than half their cash flow from government grants or loans, but are becoming less reliant on government.

In 2018, the Commonwealth Government will spend less in real terms on tuition subsidies than it did in 2017, the first annual drop since 2003.

Public spending on research has fallen in recent years, although total research spending by universities is up slightly, to $11 billion in 2016.

Apart from international students, most higher education indicators are stable. After a decade of rapid change, Australian higher education is in a consolidation phase.

Read the media release

Listen to a podcast of Andrew Norton and Ittima Cherastidtham discussing the report