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How infrastructure spending is hurting State budgets


Unprecedented infrastructure spending by states and territories is largely responsible for a $106 billion decline in their finances since 2006, a new Grattan Institute report has found.

The 2014 edition of Budget pressures on Australian governments finds that claims of a “massive infrastructure gap” are not borne out by analysis of state and territory budgets.

Instead, states and territories have spent more on infrastructure – mainly road and rail projects — in each of the past five years than in any comparable year since the Australian Bureau of Statistics first measured infrastructure spending in the 1980s.

Capital spending in real terms in 2013-14 is four times higher than it was in 2002-03, even after excluding stimulus projects in response to the global financial crisis.

Prime Minister Tony Abbott has pledged to use the May Budget to boost infrastructure funding, but Grattan Institute CEO John Daley says that runaway state contributions to infrastructure spending are already hurting state and territory budgets.

The report shows that state and territory borrowing for capital expenditure over the last seven years drove their finances backwards from $37 billion in the black in 2006 to $69 billion in debt in 2013.

“States and territories are spending 3 per cent more of their budgets on interest and depreciation for past infrastructure. This really hurts state and territory budgets already under strain from extra health spending.”

“States and territories can only afford to continue their current contributions to infrastructure spending if they post substantial recurrent surpluses to pay for new capital works.”

Budgeting for big surpluses will be difficult. The report finds that on current trends Australian government budgets risk deficits of about 4.5 per cent of GDP within 10 years.

“Closing that gap requires savings and tax increases of $70 billion a year,” Mr Daley said.

“Governments have to make tough choices, such as increasing the pension age, and targeting Age Pensions and superannuation tax concessions more tightly. We will be far better off if they make these decisions sooner rather than later. Leaving the problem to future taxpayers is deeply unfair.”

Read the report

For further enquiries: John Daley, Chief Executive Officer

T. +61 (0)3 8344 3637 E.

Time to save Australians from the $10 billion super sting


Australians are paying up to three times more than they should for superannuation, according to a new Grattan Institute report.

Excessively high fees are seriously damaging individual retirement balances and hurting taxpayers, who pay more for pensions when superannuation runs short,

Super sting: how to stop Australians paying too much for superannuation finds that reducing fees by at least half could save account holders $10 billion a year.

“It’s the largest single opportunity for micro-economic reform in the Australian economy and it is long overdue,” said Grattan Institute Productivity Growth Program Director Jim Minifie.

The report finds that Australians on average pay fees of 1.2 per cent on their superannuation account balances, more than three times the median OECD rate.

On conservative assumptions that means a 50-year old Australian today will have his or her super balance reduced by almost $80,000 in fees (in today’s dollars) at retirement.

A 30-year old will lose more than $250,000, or about a quarter of his or her total balance. Under a fairer and more transparent fee structure, at least half that money could be saved.

These high fees are not justified by high returns – Australian funds that charge the highest fees consistently deliver lower returns than other funds once their fees are taken out.

Dr Minifie says costs are too high because the system wrongly assumes that choice in the market will drive enough account holders to choose low-price funds, thereby forcing others to lower their fees.

“But this approach has not worked in Australia or anywhere in the world,” he says.

“Superannuation is inherently opaque and most people do not make an informed choice, instead paying into a default fund chosen by their employer.”

The report recommends two reforms to reduce the cost of superannuation: creating a new low-price default fund for new job starters, and using the tax return process to allow taxpayers to match their fund against the new fund — and to be able to switch on the spot.

“These reforms might reduce the revenues of super funds, but more importantly, they will take the nasty sting out of super for most Australians,” Dr Minifie says.

Read the report

For further enquiries: Jim Minifie, Productivity Growth Program Director
T. +61 (0)3 8344 3637 E.

For better hospitals we must unlock the skills of health workers


Enabling less highly-trained hospital workers to play a bigger role could improve jobs for doctors and nurses, save public hospitals nearly $430 million a year and fund treatment for more than 85,000 extra people, says a new Grattan Institute report.

Unlocking skills in hospitals: better jobs, more care finds that doctors, nurses and allied health professionals such as physiotherapists and occupational therapists are squandering their valuable skills on work that other people could do.

“It doesn’t take 15 years of training to provide light sedation for a stable patient having a simple procedure, or a three-year degree to help someone bathe or eat – but that’s where we are now,” says Grattan Health Program Director Stephen Duckett.

The mismatch of skills and jobs is putting heavy pressure on hospitals when there are already long waiting lists for many treatments and demand is growing fast.

The report suggests three ways – among many – that hospitals can get a better match between workers and their work.

Nursing assistants could free up nurses’ time by providing basic care to patients.

Specialist nurses could free up doctors’ time by doing common, low-risk procedures now done by doctors.

More assistants could be employed to support physiotherapists and occupational therapists.

The first two of these alone would save public hospitals $390 million a year and fund treatment for almost 80,000 more people.

Dr Duckett said that while these ideas were supported by successful trials and evidence, formidable barriers of culture, tradition, industrial relations and vested interest stood in the way of change.

However, “government budgets are under pressure. Hospitals have to get more efficient, or much tougher decisions about who should miss out on care will become inevitable.
”Current workforce roles were designed in the days of the horse and buggy. The choice to update them should be easy, because it means more and better care, more rewarding jobs for health professionals and a more sustainable system.”

Read the report

For further enquiries: Stephen Duckett, Health Program Director

T. +61 (0)3 8344 3637 E.

To keep HELP healthy, more student loans need to be repaid


The Commonwealth Government could save more than $800 million a year by 2017 if it recovered outstanding student loans from deceased estates and people living overseas, a Grattan Institute report has found.

Doubtful debt: the rising cost of student loans reveals that total doubtful debt – loans that are not expected to be repaid – is likely to be as high as $13 billion by 2017.

The Higher Education Loan Program (HELP) lends students more than $6 billion a year to finance their education, as much as the Government spends on funding higher education tuition.

Grattan Institute Higher Education Program Director Andrew Norton says that for 25 years student loan programs have been a great success, financing the education of millions of students.

“But as student numbers increase and new loan schemes are established, HELP is getting expensive,” Mr Norton says.

“A few targeted reforms could radically improve HELP’s finances and free up money for teaching and research, without creating hardship for students, graduates or their families.”

The report finds that while graduates of performing arts and visual arts and crafts are the least likely to repay their student loan in full, graduates of commerce, education, nursing, science and humanities contribute most to doubtful debt, once their larger numbers are taken into account.

The report calls on the Government to stop writing-off HELP debt in deceased estates – the biggest cause of doubtful debt – when estates are worth more than $100,000.

It also recommends that graduates living overseas repay a flat annual amount until their HELP debt is cleared.

“HELP’s repayment system was never designed for lending on the scale we see today,” Mr Norton says.

“With these modest reforms, we can achieve the goals of HELP at a much lower cost.”

Leading journalist joins Grattan board


Grattan Institute is delighted to announce that ABC presenter, Geraldine Doogue, has joined the Grattan Board.

Ms Doogue, whose 40-year journalism career features numerous roles and awards, presents Saturday Extra on Radio National and Compass on ABC TV1.

Julianne Schultz and Terry Moran have retired from the board, after seeing Grattan Institute through its first five years of operation.

For further enquiries: John Daley, CEO
T. +61 (0)3 8344 3637 E.

Making time for great teaching


Read the report

Schools must make time in their day to help teachers develop or Australia will continue to slide in international school education rankings, according to a new Grattan Institute report.

Making time for great teaching finds that Australian school systems and schools are struggling to allocate the time and resources needed to put teaching and learning first.

The world’s highest-performing school systems provide time for teachers to be mentored, research best practice, have their classes observed and receive constructive feedback on their performance, says Grattan School Education Program Director Ben Jensen.

“The world’s best systems are relentless about teacher development. We are committed to it in principle but struggle in practice. This report shows how schools can do it,” Dr Jensen says.

Making time for great teaching examines the timetables and budgets of six diverse schools across the country to identify ways they can change their practices in order to free up time for teacher development.

It recommends, among a range of options, that schools make this time by reducing teacher presence at meetings and assemblies, extra-curricular events and professional development days that do not improve teaching.

Yet Dr Jensen says that while schools can make substantial changes, governments and school systems must lead the way by changing regulations in order to give teachers time to improve their classroom practice.

“Right now we’re going the opposite way – schools are being asked to take on more subjects, more student welfare support, more extra-curricular activity and smaller classes,” Dr Jensen says.

“We cannot expect teachers to lift our students to the best in the world while also insisting they undertake child minding in the playground and on busses on the way home from school.”

“The best way to improve schools is to make the time to improve teaching. We know it. Now we have to do it.”

Ben Jensen talking about the report

For further enquiries: Dr Ben Jensen, School Education Program Director
T. +61 (0)3 8344 3637 E.

Much more work needed on Government emissions reduction plan


View the submission

The Federal Government’s Direct Action Plan and Emissions Reduction Fund do not make up “a comprehensive climate change policy” consistent with holding global warming to two degrees, a Grattan Institute paper has warned.

A submission responding to the Emissions Reduction Fund Green Paper finds that the Green Paper lacks vital detail and “does not provide confidence” that key elements of the Government’s design principles for the Fund will be met.

The submission, published today, argues that the Fund “can achieve effective and cost-efficient reductions” towards meeting Australia’s unconditional emissions target of 5 per cent below 2000 levels by 2020.

But “it will require extension and/or enhancement” to go beyond that target or past 2020.
Grattan’s submission also argues that the Government’s “firm and capped” commitment of $2.55 billion over four years may constrain the effectiveness of the Fund.

It warns that the Green Paper does not provide confidence that the three guiding design principles of the Fund – that reductions should be lowest cost, they should be genuine and administration should be streamlined – will be met.

The submissions sees strengths and weaknesses in the Government’s plan to use a competitive auction system to fund the lowest-cost emissions reduction activities.

While auction schemes generally reduce the cost of low-emission energy technology projects, they have a mixed record, and can induce developers to bid low in order to win the auction, then fail to deliver the project.

The government’s proposed Emissions Reduction Fund is intended to create a form of carbon price and work in parallel with the Renewable Energy Target to cut emissions effectively and efficiently.

Grattan Institute’s submission argues that “only an economy-wide carbon price can achieve the scale and speed of emissions reductions required for Australia to meet its 2020 commitments without excessive cost to the economy or taxpayer”. It remains unclear whether the Emissions Reduction Fund will achieve this goal.

The deadline for submissions to the Green Paper process closed on Friday and the Government will release a White Paper on the Emissions Reduction Fund in March.

View the submission

For further enquiries: Tony Wood, Energy Program Director
T. +61 (0)3 8344 3637 E.

Turning around troubled schools: it can be done


Some of Australia’s most troubled schools are turning around their performance to achieve remarkable results and serve as a model for low-performing schools across the country, a new Grattan Institute report has found.

Turning around schools: it can be done examines two secondary and two primary schools to show that all of them have succeeded by following the same five steps.

They are: strong leadership that raises expectations, effective teaching with teachers learning from each other, development and measurement of student learning, a positive school culture, and engagement of parents and the local community.

“People think turning around a school only happens with superhuman leaders and teachers – it doesn’t,” says Grattan Institute School Education Program Director Ben Jensen.

“Many of these schools have inspirational figures but the lesson of both Australia and overseas is that any school that rigorously follows these five steps can succeed.”

Dr Jensen stressed that governments had a key role in supporting schools to make behavioural and cultural change, but they had to do more than simply focus on the five steps.

“Governments need to find a way to commit all parties – government, the education sector and schools – to lasting change” Dr Jensen said.

Governments and schools must develop the skills for change in the five steps for school turnaround, and then reinforce them with comprehensive evaluation and accountability mechanisms.

But Dr Jensen said these mechanisms had to focus on achieving change in the five steps, not just on test scores.

“If school turnaround is done well, it will make huge dent in inequality and enrich the lives of the students who need it most,” he said.

The four schools examined in the report are Ellenbrook Primary School in Perth, Ravenswood Heights Primary School in Launceston, Holroyd High School in Sydney and Sunshine College in Melbourne.

For further enquiries: Dr Ben Jensen, School Education Program Director
T. +61 (0) 8344 3637 E.

Lower power use but higher bills: why governments must respond


Australians are using less power but paying more for it, with potentially highly damaging consequences for the electricity system, a new Grattan Institute report finds.

Shock to the system: dealing with falling electricity demand shows that while the average household has consumed 7 per cent less power since 2006, its average power bill has gone up over the same period by more than 85 per cent: from $890 to $1660 a year.

Prices have stayed high in part because network businesses – which carry power through poles and wires from the generator to the home – have spent billions of dollars on infrastructure that falling consumption has made redundant.

“A nasty correction is coming and the question is who will pay for it – power companies, governments or consumers again?” says Grattan Institute Energy Program Director Tony Wood.

Network businesses, unlike electricity generators, are regulated monopolies not subject to market forces.

For years regulators have allowed these companies to earn excessive profits by setting tariffs that are too high, given the low risk they face as monopolies.

This was less of a problem when consumption was rising but when it falls, the high cost of the network is spread over a smaller volume of power use, and everyone pays more.

In response, governments must ensure that network companies make future investments that better match future power needs, and begin the hard task of reforming electricity tariffs so that they better reflect the cost companies incur.

“Even with these changes, redundant assets may have to be written down, and it’s a hard job deciding who will pay for that,” says Tony Wood.

“Reforms in this area will be neither simple nor painless, but governments must act now to prevent even higher prices and more pain down the track.”

For further enquiries: Tony Wood, Energy Program Director, or Lucy Carter, Energy Fellow
T. +61 3 8344 3637

New partnership brings public policies to the forefront

The State Library of Victoria last night announced a new collaboration with Grattan Institute to create The Policy Pitch, a series of free public seminars that examine key policy issues facing Australia today.

The Policy Pitch series begins in February next year with the inaugural session Shock to the system: why power use is falling but bills keep going up that will highlight some of the most pressing problems facing the Australian electricity sector.