Category Archives: Media

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

Beware ‘easy money’ schemes to fund new transport projects

State governments should be wary of following the Turnbull Government’s advice to introduce “value capture” schemes to fund major new transport projects, according to a new Grattan Institute report.

As Australians in capital cities struggle to cope with clogged roads and crowded trains, the Turnbull Government wants to stop being just “an ATM for the states” and is urging them to use value capture taxes to fund infrastructure.

Value capture is the name given to a policy whereby governments “capture” some of the windfall gains for landowners that result from building a new piece of infrastructure, and use the money to help fund the project.

At first glance, value capture seems marvellously fair, because it only applies to those who benefit from the particular new project. So the people of western Sydney do not help fund a new railway station on the North Shore.

But in practice, value capture schemes are less obviously fair.

Drawing a boundary around a new project to distinguish between those who must pay the new tax and those too far away to benefit is bound to involve rough justice. People on one side of the boundary will not be happy to get a tax bill when their next-door neighbour doesn’t.

The apparent fairness of value capture may be an illusion, because it is hard to apply to infrastructure such as roads and hospitals where the benefits tend to be spread more broadly. There is nothing fair in the beneficiaries of rail projects paying extra tax while the beneficiaries of road and other projects do not.

Value capture schemes are also less efficient than broad based taxes because they require more precision in valuation and create opportunities for corruption.

While many financiers are keen on “tax increment financing”, the arguments for them are specious. Ultimately such innovative financing mechanisms, cost governments more than borrowing for themselves, don’t necessarily improve risk management, and still involve taxing landowners.

As a result, an additional broad-based, low-rate property tax on all land may be a better option for governments seeking to fund major new projects.

If governments nevertheless want to try to capture value from specific projects, then the tax should be part of a consistent legislative regime designed to minimise corruption, and levied on all properties within a designated zone at a fixed rate of the increase in the unimproved land value between the date of official commitment and 2 years after completion.

Whatever the taxation arrangements, governments can realise additional value from infrastructure projects by joint development around them. They can sell government land that is no longer needed after construction, or sell new development rights from rezoning land in the neighbourhood. But the value of such schemes will depend on how much the government already owns, and the demand for new intensive development.

“It may be attractive in theory, but there is nothing easy about capturing value,” says Grattan Institute Transport Program Director Marion Terrill.

Read the report

For further enquiries:
Marion Terrill, Transport Program Director
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

How to stop Australia becoming a Stagnation Nation

Australia risks descent into economic stagnation as the mining investment boom fades, according to a new Grattan Institute report.

Stagnation Nation? Australian investment in a low-growth world urges governments and policymakers to do more to ensure Australia remains a dynamic, growing economy.

Australia is experiencing its biggest ever five-year fall in mining investment, as a proportion of GDP. And non-mining business investment has fallen from 12 per cent to 9 per cent of GDP, lower than at any point in the past 50 years.

What’s needed is perspective, not panic. The shift to a services economy, and a fall in the price of capital goods, mean businesses can thrive with lower levels of investment. And there are some green shoots in the non-mining states.

But this is no excuse for complacency. A third of the fall in non-mining investment is a result of slow economic growth, and that’s a problem requiring concerted action.

The report says the Federal Government’s key policy prescription – a cut in the company tax rate from 30 per cent to 25 per cent over ten years – would attract extra foreign investment, but at a cost: it would also reduce national income for years and hit the budget. Committing to the plan now, before the budget is on a clear path to recovery, risks reducing future living standards.

Any cut in the company tax rate should be part of a wider package of reforms that explicitly funds the cost to the budget.  The package could include an increase in the GST rate from 10 per cent to 15 per cent, which would bring in about $11 billion of extra revenue a year, even after compensation for lower-income households. The tax treatment of capital gains, borrowing and superannuation could also be adjusted.

Federal and state governments should also introduce broader reforms to promote growth. They could invest more in infrastructure – but only if they can build better infrastructure. They should improve workforce participation, by ensuring tax, transfer, and childcare support do not impose high effective marginal tax rates on the second earners in households. They should improve the efficiency of urban land use, by permitting more density in the middle and inner suburbs of Australia’s major cities.

“There are no silver bullets for Australia, only tough choices,” says Grattan Institute Productivity Growth Program Director Jim Minifie.

“Australians cannot take economic growth for granted, and the risk is real: we could join the global low-growth pack as our mining boom winds down.”

Read the report

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

How to create classrooms that improve learning

Australia’s education system needs comprehensive reform to tackle widespread student disengagement in the classroom, according to a new Grattan Institute report.

Engaging students: creating classrooms that improve learning reports that as many as 40 per cent of school students are unproductive in a given year.

Unproductive students are on average one to two years behind their peers, and their disengagement also damages their classmates and teachers.

The main problem is not the sort of aggressive or even violent behaviour that attracts media headlines. More prevalent, and more stressful for teachers, are minor disruptions such as students talking back or simply switching off and avoiding work.

What is taught and the way it is taught are crucial in engaging students. But creating a good learning environment in the classroom will also help.

The report calls for an integrated assault on the problem, requiring new approaches by governments, universities, school principals and teachers.

The government and non-government systems should target more support to schools in poorer parts of Australia, where the problem is most severe.

Universities need to change their courses to give trainee teachers more supervised time in classrooms, so they are better prepared for the challenge of engaging students.

Teachers must be given better information about what strategies work best in the classroom, and they need more time to learn how to use those techniques in the heat of the moment.

The report finds that teachers are crying out for more guidance on classroom strategies. As many as 40 per cent of teachers say they have never had the chance to watch colleagues and learn from how they engage students in class. And only about one-third of the practices promoted in textbooks and training courses for new teachers have been shown to work well.

“Australian classrooms are not ‘out of control’, but student disengagement is a hidden problem in schools,” says Grattan Institute School Education Program Director Pete Goss.

“When a student switches off, there is the risk of a downward spiral. If the teacher responds badly, more students can become distracted and the momentum of the class can be lost.

“We owe it to future generations of Australian students to make these reforms now. If we get it right, we will help create a virtuous circle in which students are more engaged, teachers are less stressed, classes become more compelling and students learn more.”

Read the report

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

A loan fee for all tertiary students who borrow would make HELP fairer and stronger

A 15 per cent fee on all new tertiary education loans could save the Commonwealth $700 million a year and make the Higher Education Loan Program more affordable for government, according to a new Grattan Institute report.

Shared interest: a universal loan fee for HELP argues that the fee would offset the government’s interest costs, while being fair to all students and preserving the loan program’s social goals.

Interest subsidies are the difference between the interest rate the government charges students – CPI – and the cost of government borrowing on the commercial market.

HELP’s potential interest costs are masked by current low interest rates. Interest costs would increase substantially if real interest rates returned to their average level over the last ten years.

Grattan Institute Higher Education Program Director Andrew Norton said that since its introduction in 1989, HELP has greatly expanded access to tertiary education.

But he warned that with $52 billion of HELP debt outstanding the government has to find ways to control its costs.

A 15 per cent universal loan fee would replace the existing fees – of 25 and 20 per cent respectively – paid by full-fee undergraduate and vocational education students. Postgraduate and government-supported students currently pay no loan fee. Charging some students high loan fees and other students no loan fees is unfair and has no policy rationale.

As now, there would be no upfront charges with a universal loan fee. The loan fee would be added to the student’s total debt. The fee would only affect graduates at the end of their repayment periods when their incomes are generally higher.

And because of HELP’s income contingent repayment system, students and graduates on low incomes would not have to repay their loan fee.

But loan fees would encourage students who can afford to pay upfront to do so.

“Loan fees are both fair and necessary. Without change, HELP’s costs will escalate, risking damaging cuts to other education programs,” Mr Norton said.

Read the report

For further enquiries:
Andrew Norton, Higher Education Program Director
T. 03 8344 3637 E. media@grattan.edu.au

Australia has a historic opportunity to fund all schools properly, at no extra cost

A new deal among governments and school systems can end Australia’s toxic school funding debate and transform teaching and learning in schools, without costing the Commonwealth more money, according to a new Grattan Institute report.

Circuit breaker: a new compact on school funding argues that historically low inflation rates give the Government an unprecedented opportunity to reduce excessive school indexation payments that are locked into legislation, saving the nation billions of dollars.

The report calls on all governments to use part of the savings to create the needs-based funding system all main parties say they want, as well as new roles for expert teachers to lift student performance.

As education ministers prepare to meet next month to discuss a new funding model, Grattan Institute School Education Program Director Peter Goss says the compact offers the circuit breaker Australia’s 50-year old argument over school funding desperately needs.

“It shows how we can reallocate funds to get all schools to their needs-based funding target by 2023, without spending any more money over the next four years than the Turnbull Government proposed in its 2016 Budget.”

Under its proposals, under-funded schools are much better off compared to the model legislated by the Gillard government in 2013 and the 2016 Budget. Chronically disadvantaged schools gain the most.

About half of schools close to or at their targets would have slower funding growth than under the legislation. But they maintain their purchasing power and most of them will be better funded than today.

A very small number of over-funded schools (only 3 per cent) would get less money.

“These changes are essential to create a school system that gives every Australian child a fair chance in life,” Mr Goss said.

“But money alone cannot create that system. It must be spent well. All the evidence shows that if you want to lift student outcomes, you have to invest in the most effective teaching.”

The compact recommends a structural change to create two new roles: Master Teachers and Instructional Leaders who will work in schools and across clusters of schools to improve teaching effectiveness in maths, science, English and other fields.

“It is time to end the exhausted funding debate and to start the debate that counts in this century – how to improve teaching for all students in all schools,” Mr Goss said.

Read the report

For further enquiries: Pete Goss, Program Director, School Education
T. +61 (0)3 8344 3637 E. media@grattan.edu.au

Why we should tax sugary soft drinks

Australia should introduce a tax on sugary drinks to help recoup some of the costs of obesity to the community, according to a new Grattan Institute report.

A sugary drinks tax: recovering the community costs of obesity calls for a new excise tax of 40 cents per 100 grams of sugar, on all non-alcoholic, water-based drinks that contain added sugar.

The tax would increase the price of a two-litre bottle of soft drink by about 80 cents, raise about $500 million a year, and generate a fall of about 15 per cent in the consumption of sugar-sweetened beverages, as consumers switched to water and other drinks not subject to the new tax.

The report, to be released at Parliament House in Canberra on Wednesday, calculates obesity costs Australian taxpayers more than $5.3 billion a year.

Obese people are more likely to go to doctors and be admitted to hospital more often than other people. They are also more likely to be unemployed and therefore paying less tax than the rest of the population.

These costs – more taxpayer dollars spent on healthcare and welfare, and less tax raised – are caused by obesity but borne by the entire community. The new tax would help redress that imbalance.

Obesity is rising dramatically in Australia: one in four adults are now classified as obese, up from one in ten in the early 1980s. Perhaps even more worryingly, about 7 per cent of our children are obese.

The report stresses that a new tax is not a “silver bullet” solution to Australia’s obesity epidemic – that would require a whole suite of new policies and programs. But the proposed tax would encourage healthier lifestyles.

“Obesity is one of the great public health challenges of modern Australia, and so this is a reform whose time has come,” says Grattan Institute Health Program Director Stephen Duckett. “We target these drinks because most of them contain no nutritional benefit.”

The many countries that already have or are planning to introduce a tax on soft drinks include France, Belgium, Hungary, Finland, Chile, the UK, Ireland, South Africa and parts of the United States.

The report says the Australian government could use the $500 million a year raised by the new tax to reduce the budget deficit or boost healthcare funding, or the money could be spent on programs designed to treat obesity and promote healthy eating.

“How we use the money is a debate for later,” Dr Duckett says. “For now, Australia should introduce this tax because it offers twin benefits: it will reduce the number of people who become obese and it will ensure fewer taxpayer dollars have to be spent on the damage done by obesity.”

Read the report

For further enquiries: Stephen Duckett, Health Program Director
T. +61 (0)3 8344 3637 E. media@grattan.edu.au