All posts by Megan French

Increase competition to give consumers a better deal

The widely held belief that powerful firms control the Australian economy is a myth, according to a new Grattan Institute report.

Competition in Australia: Too little of a good thing? shows that the market shares of large firms in concentrated sectors in Australia are not much higher than in other countries and that they have they not grown much lately.

But the report shows that where a few firms dominate markets, they earn higher profits.

Up to half the total profits in the supermarket sector (dominated by Coles and Woolworths) are ‘super-normal’ – that is, profits that exceed the cost of compensating shareholders.

In the banking sector (dominated by the Big Four), super-normal profits account for 17 percent of total profits.

Other companies and sectors with substantial super profits include Telstra, some major city airports, liquor retailers, internet service providers, sports betting agencies, and private health insurers.

“There’s nothing wrong with profits – they play an important and legitimate role in the economy and society,” says Grattan Institute Productivity Growth Program Director Jim Minifie.

“But where profits become super-profits because firms face little competition, they can come at the expense of customers or suppliers.

“There are no policy silver bullets here, but governments can do more to improve competition in the private economy.”

The report urges governments and regulators to do more to ensure customers get a good deal, especially in highly concentrated sectors where big firms have market power and potential competitors face high barriers to entry.

To intensify competition in banking, governments should free-up customers from the control of their current bank by making it easier for people to switch banks.

In the supermarket sector, where the big incumbents have expanded into liquor and petrol retailing, governments should consider relaxing zoning restrictions that limit the entry of new competitors.

Constraints on competition in retail pharmacy should finally be removed, as many reviews have suggested.

Regulators can put more pressure on electricity distributors, ports and airports, and on health insurers.

And governments need to make it less complex and confusing for people to compare and switch providers of retail energy, and superannuation.

Read the report

Further enquiries: Jim Minifie, Productivity Growth Program Director
T. 03 8344 3637 E. media@grattan.edu.au

How to improve school education in Australia

Australia’s school education system is not fit for purpose, and we need to rethink the way we teach students, support teachers and run schools, according to a new Grattan Institute discussion paper.

Towards an adaptive education system in Australia says that, despite individual bright spots, overall student performance is declining in international tests, and an unacceptably high number of our students are not ready for life after school.

Australian school education faces three major challenges: improving student learning in core academic areas; better preparing young people for adult life; and closing the gap between the nation’s educational have and have-nots.

The only way to tackle all these challenges at once is to make our education system more adaptive.

“At present, the system is spinning its wheels,” says Grattan Institute School Education Program Director Peter Goss.

“The status quo is not working. We have failed to create an education system that adapts and improves over time – a learning system that systematically learns.”

Student outcomes improve when teachers track how much their students are learning, identify the specific teaching practices that boost learning and those that don’t, and then adapt the way they teach.

However, this process should not be done independently in every classroom, and schools need more help from education systems to make good local decisions.

As a start, Australia should follow the lead of high-performing education systems such as Singapore and Hong Kong by making better use of our best teachers.

‘Master teachers’ should teach fewer classes and instead should spend more time teaching other teachers how to identify and practise the best ways to improve student performance.

And the system leaders – including education ministers and departments and the heads of the Catholic and independent sectors – need to ensure schools and teachers have good access to the evidence about what works best, and the time, tools, training and support to implement these best practices in the classroom.

“If we want to halt the decline and create a system of excellence that supports all students, we need a new approach to reform,” Dr Goss says.

Read the report

For further enquiries:
Pete Goss, School Education Program Director, Grattan Institute
T. 03 8344 3637 E. media@grattan.edu.au

How to make our hospitals safer

Australia needs to reform the way we collect and use information about patient safety, to reduce the risk of more scandals and tragedies in our hospitals, according to a new Grattan Institute report.

Strengthening safety statistics: How to make hospital safety data more useful shows that the health system is awash with data, but the information is poorly collated, not shared with patients, and often not given to the doctors and hospital managers responsible for keeping patients safe.

Hospitals boards are often blissfully ignorant of the level of safe care being provided in their own hospitals.

Co-author Stephen Duckett, who led an investigation for the Victorian Government after seven babies died potentially avoidable deaths at Bacchus Marsh Hospital in 2013 and 2014, says safety scandals in Australian hospitals are “depressingly frequent”.

“They stimulate special reports and an immediate flurry of action. But the tragedy is that these safety incidents occur despite reporting, governance and oversight measures that – if they were working properly – might have detected the aberrant clinical care.”

Strengthening safety statistics shows there is no public reporting of safety data about private hospitals in Australia, and that private hospitals are left outside state government monitoring of hospital safety.

Australia has dozens of collections of detailed data about particular diseases or treatments – for example the Australian Genetic Heart Disease Registry, the Australian Bleeding Disorders Registry, and the National Joint Replacement Registry – but they operate independently. This means important information about an individual patient with multiple conditions – for example someone with a knee problem and heart disease – is kept in separate data sources.

To ensure hospital safety data is more useful, it must be more trustworthy, relevant and accessible. The many different data sets should be linked, and the information should be presented more clearly so doctors can act on it and patients can understand it.

The report calls for more and better safety data to be collected. And it says it is “unethical” not to better use all the data already available to improve patient care.

Some registries act like “secret squirrels” – they know about safety problems but won’t share the information with any body other that the person or clinical unit that contributed the data. Hospitals managers – and patients – remain in the dark.

“Clinicians and managers need to set high standards for what is acceptable in hospitals, and they need to have access to all relevant safety data so they can meet those standards,” Professor Duckett says.

Read the report

Further enquiries: Stephen Duckett, Health Program Director
T. 03 8344 3637 E. media@grattan.edu.au

How to fight congestion in our major cities

Congestion charges should be introduced in Sydney and Melbourne, according to a new Grattan Institute report that provides a uniquely detailed look at road congestion in Australia’s major cities.

Stuck in traffic? Road congestion in Sydney and Melbourne warns that, with their populations growing strongly, both cities could face traffic gridlock in future unless decisive action is taken to manage congestion.

The findings are based on an examination of 3.5 million Google Maps trip-time estimates across more than 350 routes over six months of this year.

In the middle and outer suburbs of Sydney and Melbourne, most drivers have a pretty smooth run most of the time. But commutes to the CBD can take more than twice as long as the same trips would take in the middle of the night.

In Sydney, CBD commuters from Balgowlah in the north and Hurstville in the south can expect delays of about 15 minutes on an average morning, far longer than commuters from other parts of the city.

In Melbourne, the worst delays are for people commuting from north-eastern suburbs, including Heidelberg, Kew and Doncaster. Drivers who have to use the Eastern Freeway and Hoddle Street in the morning peak are often delayed for more than 20 minutes, and the length of the delay can vary greatly from day to day.

The report recommends congestion charges in the most congested central areas of each city. Key bottlenecks in Sydney include The Spit Bridge and the commute to the CBD from Drummoyne via Balmain.

Melbourne should introduce a “CBD cordon” congestion charge, similar to London’s. The cordon could cover Hoddle Street to the east, Royal Parade to the west, City Road and Olympic Boulevard to the south, and Alexandra Parade to the north, with motorists charged when they drive across the cordon into the city during peak periods.

People who pay the charge would get a quicker and more reliable trip, because there would be fewer cars on the road at peak times. People who can travel outside of the peaks would not have to pay, because there would be no congestion charge when the roads are not congested.

To make clear that the new charges are to help manage traffic flows rather than boost revenue, the money raised should be used to fund a discount on vehicle registration fees and improvements to the train, tram, ferry and bus networks.

Melbourne’s CBD parking levy should be doubled, to match Sydney’s and to further discourage city commuters from driving to work.

And public transport fares in both cities should be cut during off-peak periods, to encourage people to shift their travel to times when the trains, trams and buses are not overcrowded.

The report dismisses the idea that new city freeways are the answer to road congestion.

New roads are important for areas of new growth or substantial redevelopment, but close to the city centres it is often more effective and always cheaper to invest in smaller-scale engineering and technology improvements such as traffic-light coordination, smarter intersection design, variable speed limits and better road surfaces and gradients.

“Don’t listen to the politicians who tell you big new roads will be ‘congestion busters’,” says Grattan Institute Transport Program Director Marion Terrill.

“You can’t build your way out of congestion.

“We need more sophisticated solutions. Some of the great cities of the world have successful congestion pricing schemes, including London, Stockholm and Singapore.

“For Sydney and Melbourne, congestion pricing would deliver city-wide benefits: not only reducing the amount of time we spend stuck in traffic, but also funding better public transport and a cut to car registration fees.”

Read the report

For further enquiries:
Marion Terrill, Transport Program Director
T. 03 8344 3637 E. media@grattan.edu.au

How to make sure Australia has enough electricity in the future

Australia should start work immediately on a new way to ensure reliable electricity supplies, according to a new Grattan Institute report.

Next Generation: the long-term future of the National Electricity Market calls for preparatory work on a ‘capacity mechanism’ to encourage investment in new electricity generation and reduce the threat of shortages and blackouts.

The report warns, however, that the costs of such peace of mind would ultimately fall on consumers through higher electricity prices. So a capacity mechanism should be introduced only if all other market reforms have been exhausted and supply is still under threat.

Through a capacity mechanism, generators would be paid not only for the electricity they produce to meet current demand, but for committing to provide power for years into the future. The market operator or retailers could contract for sufficient electricity to meet future demand, to ensure new generation and storage is built in time.

“Australians have endured a decade of toxic political debates about climate change policy, South Australians suffered a state-wide blackout last year, consumers across the country are screaming about skyrocketing electricity bills, and energy companies are shutting down big coal-fired power stations,” says Grattan Institute Energy Program Director Tony Wood.

“It is understandable that governments feel the need to ‘do something’. But the danger is they will rush in and make things worse. What Australia needs now is perspective, not panic.”

The Australian Energy Market Operator (AEMO) last week called for a ‘longer-term approach’ to ensure electricity supplies. The Grattan report identifies a capacity obligation on retailers as the most effective and lowest-cost approach.

The report calls for a three-step policy. First, the Federal Government should implement all recommendations of the June 2017 Finkel Review, including a Clean Energy Target or a similar mechanism to price greenhouse gas emissions.

Second, alongside the Australian Energy Market Commission’s work on the market’s reliability framework, AEMO’s annual assessment of future supply and demand should be extended to include a more comprehensive assessment of the future adequacy of generation supply.

And third, if the newly created Energy Security Board concludes that projected shortfalls are unlikely to be met under the current market design, AEMO should introduce a capacity mechanism.

“This pragmatic, planned approach offers the best prospect of affordable, reliable, secure and sustainable power for Australians,” Tony Wood says.

Read the report

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

Australia’s city-country divide is not as wide as you may think

 

The popular idea that the economic divide between Australia’s cities and regions is getting bigger is a misconception, according to new Grattan Institute research.

The working paper Regional patterns of Australia’s economy and population, released today, shows that beneath the oft-told ‘tale of two Australias’ is a more nuanced story.

Income growth and employment rates are not obviously worse in regional areas.

Cities and regions both have pockets of disadvantage, as well as areas with healthy income growth and low unemployment.

And while cities have higher average incomes, the gap in incomes between the cities and the regions is not getting wider.

Grattan Institute CEO John Daley says the research casts doubt on the idea that regional Australians are increasingly voting for minor parties because the regions are getting a raw deal compared to the cities.

“Given that people in regions have generally fared as well as those in cities over the past decade, major parties may need to look beyond income and employment to discover why dissatisfaction among regional voters is increasing,” he says.

The paper shows that the highest taxable incomes in Australia are in Sydney’s eastern suburbs, followed by Cottesloe in Perth and Stonnington in eastern Melbourne. The lowest taxable incomes are in Tasmania and the regions of the east-coast states, especially the far north coast of NSW, central Victoria and southern Queensland.

But income growth in the regions has kept pace with income growth in the cities over the past decade. The lowest income growth was typically in suburban areas of major cities.

While unemployment varies between regions, it is not noticeably worse in the regions overall. Some of the biggest increases in unemployment over the past five years were along transport ‘spines’ in cities, such as the Ipswich to Carole Park corridor in Brisbane and the Dandenong to Pakenham corridor in Melbourne.

The biggest difference between regions and cities is that inland regional populations are generally growing slower – particularly in non-mining states. Cities are attracting many more migrants, particularly from Asia, the Middle East, and Africa. The east coast “sea change” towns are also getting larger, but unemployment is relatively high.

The research will contribute to a forthcoming Grattan Institute report examining why the vote for minor parties has risen rapidly over the past decade, particularly in regional electorates.

Read the report

For further enquiries: John Daley, CEO
T. +61 (0)3 8344 3637 E. media@grattan.edu.au

How to restore confidence in Australia’s electricity system

Urgent action is needed to reduce the risk of power blackouts and restrictions across eastern Australia this summer, according to a new Grattan Institute report.

Powering through: how to restore confidence in the National Electricity Market says the state-wide blackout in South Australia last September and a series of smaller outages and incidents over the past 18 months exposed weaknesses in the system and underscored the need for targeted reform.

Action must be taken. But there is an acute danger of politicians panicking and rushing to decisions that push electricity prices higher and make it harder to reduce Australia’s emissions.

The report calls for market reforms, rather than government investments in generation. New market rules would help to ensure reliable supply when something in the system breaks. And regulators should use their existing powers to recall to service some mothballed generators to ensure reserves are on hand in an emergency, even if that increases costs a little in the short run.

Greater effort is needed to ensure efficient responses to shortages in generation. Power generators should be rewarded for being flexible and responding quickly. And more customers should be offered a financial incentive to relieve stress on the system by limiting the amount of electricity they use during peak times.

In the longer-term, new generation will be needed and the best way to rebuild investor confidence in the National Electricity Market (NEM) is for Australia to finally agree on a serious and sustainable emissions reduction policy.

“A decade of toxic political debates, mixed messages and policy backflips has prevented the emergence of credible climate change policy,” says Grattan Institute Energy Program Director Tony Wood. “Investment in electricity generation, including renewables, is stalling as market participants await clear policy signals from government.”

Knee-jerk policy responses to the electricity market crisis, such as the Federal Government’s “Snowy Hydro 2.0” scheme and the South Australian Government’s “go-it-alone” power plan, risk destroying the NEM’s capacity to drive the new investment Australia needs for low-cost, reliable and low-emissions electricity.

“If that happens, the NEM will be judged to have failed. But in fact, policy decisions will have systematically, if unintentionally, destroyed it,” Tony Wood says.

“The survival of the NEM cannot be assumed. But we should not give up on the market. If governments take matters fully into their own hands, the results are likely to be painful: customers will pay more for their electricity, supply could become even less reliable, and Australia still may not reduce emissions as we have promised.”

Read the report

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

How to provide better care for Australians with chronic disease

Simple reforms to Australia’s health system could help save more than $320 million a year on avoidable hospital admissions and provide better care for people with diabetes, asthma, heart disease and other chronic conditions, according to a new Grattan Institute report.

Building better foundations for primary care says that the primary health system, Australians’ first point of contact for health care, was designed in and for another era and is now failing in the prevention and management of chronic disease, the heaviest burden on today’s health system.

The government spends more that $1 billion each year on planning, coordinating and reviewing chronic disease management, yet many people with chronic conditions do not receive best care and end up having hospital stays that could have been avoided with better care.

The report says Medicare’s fee-for-service payment system for one-off visits to GPs needs to change, in favour of broader payments to health teams for integrated, long-term care of patients with chronic conditions. GPs would be financially rewarded for getting the best results for their patients, rather than for seeing their patients more often.

The bickering and blame-shifting between the Commonwealth and the states needs to stop. The federal government should sign an agreement with each state that sets specific goals for disease prevention and management.

Under these agreements, Primary Health Networks should be given more responsibility to create more effective and efficient primary care systems in their local areas, and should be held accountable for making improvements that reduce unnecessary hospital admissions.

GPs should be paid to provide more data on why people visit their doctor and what advice and treatment they get.

“These are simple reforms that will save money for taxpayers and improve care for patients,” says Grattan Institute Health Program Director Stephen Duckett.

“The 2017 federal budget is expected to commit more than $500 million over the next few years to lifting the Medicare rebate freeze. The Government should seize this opportunity to buy system change.”

Read the report

Further enquiries: Stephen Duckett, Health Program Director, Grattan Institute
T. 03 8344 3637 E. media@grattan.edu.au

Is the retail electricity market failing consumers?

Competition in electricity retailing has failed to deliver lower prices for consumers, and governments will need to step in and re-regulate prices if the industry does not lift its game, according to a new Grattan Institute report.

Price shock: Is the retail electricity market failing consumers? finds prices in Sydney, Melbourne, Brisbane and Adelaide have almost doubled over the past decade.

In Victoria, the profit margin for electricity retailers appears to be about 13 per cent – more than double the margin regulators traditionally considered fair when they had responsibility for setting prices. Victorians would save about $250 million a year – about $100 per household – if the profit margin of their electricity retailers was the same as for other retail businesses.

Although lower price deals are available, consumers find the market so complicated that many give up trying to find them. As a result many Australians, including some of the most vulnerable, pay more than they need to.

The way retailers advertise their discounts is confusing and possibly misleading. An advertised “30 per cent discount” can end up being a discount on only a small part of the bill, not the whole bill. And even consumers who take advantage of discounts can end up paying much higher prices when their contract expires.

Competition has also failed, so far, to deliver the promised innovation in customer services. Most ‘offers’ merely provide a discount for people who switch their retailer or pay their bills on time or via direct debit. But retailers have been slow to build offers based on the benefits available through smart meters, or the bundling of new technologies such as solar-power and battery-storage systems.

The report urges governments to act to ensure customers get lower prices and better service.

Retailers should be required to tell customers, in ways that are easy to compare, how much they will pay under ‘discount’ deals. They should also tell customers how much extra they will pay if they do not act when the discount expires. And retailers should provide detailed data on their profit margins to an independent body such as the Australian Energy Market Commission.

“It is too early to give up on competition,” says Grattan Institute Energy Program Director Tony Wood.

“We may yet see fairer prices and better service. But if competition still fails to deliver the promised benefits, then government will have no choice but to return to price regulation.”

Read the report

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

How to cut the price of prescription drugs

Australians pay more than $500 million a year too much for their prescription drugs, a new Grattan Institute report has found.

Cutting a better drug deal shows taxpayers and patients would pay less if the Federal Government made some simple changes to the way prices are set under the Pharmaceutical Benefits Scheme.

The report finds drug prices in Australia are more than twice as high as in the UK and more than three times higher than in New Zealand.

Australians on average pay five times the best international price for a group of seven commonly prescribed drugs. The price of the cholesterol medicine atorvastatin (Lipitor), the most prescribed drug in Australia, is about 1.5 times the best international price. In Australia, a box of 30 1mg tables of the breast cancer drug anastrozole (Arimidex) costs $19.20. In the UK it is just $2.45.

The high price doesn’t just hit Australians in the hip pocket, it harms their health: in the past 12 months about 8 per cent of Australians didn’t get, or deferred getting, prescribed drugs because they couldn’t afford them.

The Commonwealth Government is overpaying for generic medicines that are no longer covered by patents. Drug companies are already forced to reveal how much pharmacies actually pay for generic medicines, and the government reduces the amount it pays to pharmacies for each drug accordingly. But this policy is working too slowly. The report calls on the government to benchmark the prices of generic drugs in Australia against prices paid overseas. This would save $93 million a year and cut the price of 16 commonly prescribed drugs in Australia by an average of $6.43 per pack.

In addition, the government needs to overhaul the rules for interchangeable drugs that are equally effective and safe for most people. Such drugs are supposed to be put into “therapeutic groups”, and within each group the government only pays the price of the cheapest drug.

But Australia’s “therapeutic group premium policy” is riddled with loopholes. The report finds that taxpayers and patients could save a further $445 million a year if the policy were strengthened and broadened to cover 18 therapeutic groups, which are all included in a similar policy in Germany.

“Australia is buying and pricing its drugs the wrong way,” says Grattan Institute Health Program Director Stephen Duckett.

“Fixing this policy mess would give patients a better deal and improve the budget bottom line.

“The reforms we propose are easy to implement. The Government should get on with it.”

Read the report

Further enquiries: Stephen Duckett, Health Program Director, Grattan Institute
T. 03 8344 3637 E. media@grattan.edu.au