Category Archives: Media

Orange Book 2018: A state-by-state (and territory) policy agenda

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

The scorecard is in a new publication from Grattan, the State Orange Book 2018, which draws on 10 years of Grattan reports to outline the policy priorities for state and territory governments to improve the lives of their residents.

The State Orange Book 2018 is designed to inform voters and influence policymakers across Australia, particularly in the lead-up to the Victorian state election in November 2018, and the NSW state election in March 2019.

The State Orange Book 2018 covers a wide variety of policy areas, including:

  • Economic and regional development
  • Cities, housing, and transport
  • School education
  • Health
  • Energy
  • Budgets, taxes, and institutional reform

For example, the Health Scorecard shows Victoria has relatively good 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. The Energy Scorecard shows that South Australia has more expensive electricity and more outages. But it has lower carbon emissions.

Launching the State Orange Book 2018, Grattan Institute CEO John Daley said: “The State Scorecard shows how state and territory governments are doing on the issues that matter to Australians.

“Unfortunately, the 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.”

The book is by no means all bad news.

“Many worthwhile reforms have been implemented over the past decade,” Mr Daley said.

“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 report

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

Gaming of the wholesale market remains a concern

In July this year, we released a report, Mostly Working: Australia’s wholesale electricity market. This report concluded that the major contributors to high wholesale electricity prices of recent years were the closure of old, low-cost power stations and the rising cost of inputs, namely coal and gas. We also raised a concern that the current market rules allow generators in certain circumstances to make and change their bids in the market in a way that delivers highly favourable outcomes for them but not to the benefit of the market. We described this behaviour as “gaming” and recommended that the rules be changed or tightened to restrict or ideally eliminate such bidding.

On 11thOctober, as requested by the former Federal Minister for Environment and Energy, Josh Frydenberg, the Australian Energy Market Commission(AEMC) issued a report on these conclusions. It concluded that “rebidding is contributing to the delivery of efficient market outcomes but can be a problem where there is a lack of competition between generators”. They proposed that no rule changes are required and that the focus should be on policies that reduce market concentration.

We welcome the AEMC’s report and the analysis behind its conclusions. We acknowledged in our report that data access limitations would mean that our definition of gaming could include events that were consistent with an efficient market but could also could exclude the opposite. We also agree with the AEMC that market concentration can contribute to higher prices.

However, we also noted that concerns around bidding behaviour had led to a rule change in July 2016 to replace a requirement that generators bid “in good faith” to one that prohibits making false and misleading offers.  There was no reduction in price spikes due to this change and the only improvement occurred in mid-2017 when the Queensland Government directed the government-owned generators to “reduce volatility and put downward pressure on wholesale prices”.

We remain concerned that the incentives and rules in place lead to bidding behaviour that is inconsistent with a truly competitive market, ie lowest prices for consumers. Market power can arise and be exercised in relatively transient circumstances, such as a combination of high demand and outages of local generation or interstate transmission. Furthermore, concentration is a feature of the energy market that is likely to persist due to economies of scale which lower costs and provide effective risk management. Therefore, rules that are designed to reduce the impact of concentration on prices are likely to be more effective than rules to limit concentration.

The action by the Queensland Government does not solve the underlying problem and it could emerge in other states if transient market power opportunities emerge as the structure of the generation sector changes to include an increasing share of wind and solar power and greater dependence on transmission.

Finally, we note the Commonwealth’s support for the recommendation from the ACCC’s recent report on electricity affordability to give the Australian Energy Regulator powers to identify and remedy market manipulating behaviour. We are optimistic that our concerns will be addressed through the creation and exercise of these powers.

Read the report

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

New report card on NAPLAN results reveals big differences between the states

A new 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.

The Grattan Institute report, Measuring student progress, shows 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 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,” Grattan Institute School Education Program Director Peter Goss says.

“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.”

The report finds that 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 Grattan report card provides new insight on what’s happening in schools and contains important lessons for education policy makers,” Dr Goss says.

“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 report

For further enquiries:
Pete Goss, School Education Program Director, Grattan Institute
T. 03 8344 3637 E.

The myth of the bulging, out of control Australian city

Australia’s urban commuters have little to fear from population growth, if recent experience is any guide, according to a new Grattan Institute report.

Remarkably adaptive: Australian cities in a time of growth shows that the population boom has had little impact on commuting – contrary to frequent media reports.

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,” says Grattan Institute Transport Program Director Marion Terrill.

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,” Marion Terrill says.

Read the report

For further enquiries:
Marion Terrill, Transport Program Director
T. 03 8344 3637 E.

Australia’s gender pay gap narrows

The graduate gender pay gap in Australia is narrowing, with more women in paid work than ever before, a new Grattan Institute report has found.

Mapping Australian higher education 2018shows 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,” says Grattan Institute’s Higher Education Program Director Andrew Norton.

“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’s 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.

The report, 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 report

For further enquiries:
Andrew Norton, Higher Education Program Director
T. 03 8344 3637 E.

Making hospitals safer will save taxpayers’ money

Australia could save $1.5 billion a year on health spending by improving the safety of patient care in hospitals, a new Grattan Institute report has found.

Safer care saves money shows that safer hospital care doesn’t just reduce harm to patients, it also saves money for taxpayers.

One in nine patients who go into hospital in Australia suffers a complication. The report finds that those complications cost public hospitals more than $4 billion a year, and private hospitals more than $1 billion a year. If all hospitals in Australia lifted their safety performance to match the best 10 per cent of hospitals, an extra 250,000 patients would go home complication-free each year and the health system would save about $1.5 billion every year, freeing up beds and resources so another 300,000 patients could be treated.

Public hospitals get extra funding for treating a sicker patient even if the patient became sicker because of a complication suffered in the hospital. But Grattan analysis of Australia’s 20 biggest public hospitals shows that in every case, the cost of complications to the hospital was larger than the extra funding. On average, a complication cost the hospital more than three times the extra revenue it received.

The report concludes that hospitals don’t need extra financial incentives to reduce complications. Instead, they need better information, and accreditation systems that encourage useful improvements rather than ticking boxes. Complication rates and accreditation outcomes should be public, so that governments are held to account. And medical students should learn only in hospitals with lower complication rates.

State governments should make it clearer to their hospitals that improving patient safety also boosts the bottom line. States should give public hospitals – and the public – information on the estimated cost of and revenue from complications. Private health insurers also benefit from lower complication rates: their costs and future premiums fall. Insurers should increase pressure on hospitals to improve their safety performance, through contract negotiations and by making information on complication rates available to their members, either directly or through GPs.

Australia’s hospital accreditation system has failed: it does not improve patient outcomes; doctors dismiss it as irrelevant or a waste of their time; it provides no incentives for excellent safety performance; and accreditation reports are kept secret. Practically every significant hospital safety failure in recent decades – from Bundaberg in Queensland to Camden and Campbelltown in NSW, Bacchus Marsh in Victoria and, most recently, a gas mix-up at Bankstown-Lidcombe Hospital in NSW– has happened in a hospital that had passed accreditation with flying colours.

The report recommends replacing ‘one size fits all’ accreditation with a system based on measurable safety outcomes, tailored to each hospital’s situation.

“Hospitals would no longer be spruced up for a once-a-year visit by accreditation inspectors,” says Grattan Institute Health Program Director Stephen Duckett.

“Instead, surveyors would conduct safety tests without notice, but concentrate on helping hospitals to give safer care.

“And for the first time, patients and taxpayers would have access to detailed accreditation reports on all hospitals, so Australians could hold their governments to account on the quality and safety of hospital care.”

Read the report

Further enquiries: Stephen Duckett, Health Program Director
T. 03 8344 3637 E.

Reform primary care to improve health care for all Australians

Primary care policy needs an overhaul to ensure all Australians — especially the poor and the elderly — get the best possible health care, according to a new Grattan Institute report.

Mapping primary care in Australia shows many poorer Australians can’t afford to go to a GP when they need to or a dentist when they should, and people in rural and remote areas find it too hard to get to a pharmacist or medical specialist.

Australians’ access to general practice varies according to their wealth. Two-thirds of patients are bulk-billed for all their visits to the GP, but the financial barriers for those who are not can be high. About 4 per cent of Australians say they delay seeing a GP because of the cost.

Individuals or their private health insurer have to pay for the bulk of dental care. As a result, about one in five Australians do not get the recommended level of oral health care. Worse, people on low incomes who can’t afford to pay often wait for years to get public dental services.

Access to allied health services such as physiotherapy and podiatry varies significantly according to where people live. People in the Northern Territory are about four times less likely to use Medicare-funded allied health services than Victorians.

The report finds that the funding, organisation and management of primary care has not kept pace with changes to disease patterns, the economic pressure on health services, and technological advances.

In particular, primary care services are not organised well enough to support integrated, comprehensive care for the 20 per cent of Australians who have complex and chronic conditions.

Nor is primary care well organised to prevent or reduce the incidence of conditions such as type 2 diabetes and obesity.

Governance and accountability are split between various levels of government and numerous separate agencies, making overall management of the system difficult. Neither the Commonwealth nor the states take the lead.

The report calls for:

  • A comprehensive national primary care policy framework to improve prevention and patient care.
  • Formal agreements between the Commonwealth, the states and Primary Health Networks to improve management of the primary care system.
  • New funding, payment and organisational arrangements to provide better long-term care for the increasing number of older Australians who live with complex and chronic conditions, and to help keep populations healthy in the first place.

“Primary care policy in Australia is under-done,” says Grattan Institute Health Program Director Stephen Duckett.

“Australia has good-quality primary care by international standards, but it can be better. This report shows how.”

Read the report 

Further enquiries: Stephen Duckett, Health Program Director
T. 03 8344 3637 E.

Get used to high electricity prices

High electricity prices are here to stay, according to a new Grattan Institute report that calls on politicians to tell Australians the truth about the future of energy costs.

Mostly working: Australia’s wholesale electricity market finds that wholesale electricity prices rose across the National Electricity Market (NEM) by 130 per cent between 2015 and 2017.

The price paid for electricity traded in the NEM also more than doubled, from about $8 billion to $18 billion, and household bills increased by up to 20 per cent in 2017 alone.

But it is impossible for governments to fix the problem, because most of the price rises have been caused by issues beyond their control.

The report identifies three underlying causes. First, big, old, low-cost, coal-fired power stations closed (Northern in South Australia in 2016 and Hazelwood in Victoria in 2017). Although they were low-cost to operate, they faced big maintenance bills that weren’t worth paying given low market prices as a result of historic oversupply. Their closure reduced supply and so pushing prices up. This accounts for about 60 per cent, or $6 billion, of the increase in the value of electricity traded annually in the NEM between 2015 and 2017.

Second, the price of key inputs, especially gas and black coal, rose just when the plants they fuel were needed more often, pushing prices up still further. This accounts for nearly 40 per cent of the increase. In both cases, the market responded efficiently and appropriately to the changing circumstances.

The third cause is that major electricity generators ‘game’ the system: they use their power in concentrated markets to create artificial scarcity of supply and so force prices up. Gaming has mainly occurred in Queensland and South Australia, but there are signs of it in Victoria since the closure of Hazelwood, and it could emerge in NSW as supply tightens with the scheduled closure of the Liddell coal-fired power station in 2022.

Gaming has been part of the market for years and appears to be permitted by the current market rules. But it may add as much as $800 million to the price paid for electricity traded in the NEM in some years, and the report calls for changes to the rules to eliminate or at least limit gaming.

Grattan Institute Energy Program Director Tony Wood said the report was not good news for households or businesses banking on lower electricity prices.

“Wholesale prices are very unlikely to return to previous levels of around $50 per megawatt hour,” he said.

“Historic over-supply is disappearing, gas prices will stay higher than they were in the past, and new generators using any technology – including coal – cost more.

“Politicians should tell Australians the harsh truth: high wholesale electricity prices are the new normal.”

Read the report

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

How to reduce university drop-out rates

More than 50,000 students who started university in Australia this year will drop out, according to a new Grattan Institute report.

Dropping out: the benefits and costs of trying university shows that not every incomplete degree amounts to a waste of time and money. A Grattan Institute online survey of students who dropped out reveals many found their course interesting, learned useful skills and made new friends. More than 40 per cent said they would enrol again if they had their time over.

But the report also identifies the costs of dropping out. On average, students pay $12,000 for their incomplete course. They miss out on the additional lifetime earnings that university graduates typically receive. The time they spent at university could have been used working or studying at TAFE. And the online survey shows that most people who drop out feel they have let themselves or others down.

The report pinpoints factors that increase the risk of dropping out. It shows that people who study part-time are much more likely to drop out than full-time students. People who enrol in three or four subjects a year – half as many as a full-time student – have only about a 50 per cent chance of completing their course in eight years. Students who enrol full-time have about an 80 per cent chance.

School results are important. Students with ATARs below 60 are twice as likely to drop out of university as otherwise similar students with ATARs above 90.

Students in health courses are more likely to complete their course than students in IT or engineering courses. And people who study off-campus have a slightly higher risk of dropping out.

The report calls on governments and universities to do more to alert prospective students to their risk factors. People planning to study part-time should be particularly warned. Universities should check that prospective part-timers have a credible plan to complete their course.

Once they accept students, universities have a responsibility to help them succeed – or, if things are not working out, universities should help students exit at least possible cost.

In the lead-up to the university ‘census date’ – the deadline for students to dis-enrol before they pay for their subjects – universities could send students a text message alert. And universities should do more to follow up on students who are not engaged with their studies, to get them back on track or encourage them to leave before they accrue a HELP debt.

“Too many students drop out of Australia’s universities. Fewer would if we helped them to make better decisions,” says Grattan Institute Higher Education Program Director Andrew Norton.

“The aim is not to reduce the number of drop-outs to zero: Australia makes it easy to try university, and some students will always decide it is not for them.”

“But we can and should aim to reduce the number of young Australians who leave university with nothing but debt and regret.”

Read the report 

For further enquiries:
Andrew Norton, Higher Education Program Director
T. 03 8344 3637 E.

If Australians want cheaper housing, we have to build more of it

Building an extra 50,000 homes a year for a decade could leave Australian house prices
5 to 20 per cent lower than they would be otherwise, and stem rising public anxiety about housing affordability, according to a new Grattan Institute report, Housing affordability: re-imagining the Australian dream.

Within living memory, Australia was a place where housing costs were manageable, and people of all ages and incomes had a reasonable chance to own a home with good access to jobs. But home ownership rates are falling among all Australians younger than 65, especially those with lower incomes.

Owning a home increasingly depends on who your parents are, a big change from 35 years ago when home ownership rates were high for all levels of income. Those on low incomes – increasingly renters – are spending more of their income on housing.

Affordability will only get a lot better if governments ensure more homes are built. State governments should fix planning rules to allow more homes to be built in inner and middle-ring suburbs of our largest cities. More small-scale urban infill projects should be allowed without council planning approval. State governments should also allow denser development ‘as of right’ along key transport corridors.

Development in middle suburbs has increased in recent years, especially in Sydney. But today’s record level of housing construction is the bare minimum needed to meet record levels of population growth driven by rapid migration. Meanwhile a decade of accumulated shortages are forcing younger people to set up their own homes later in life.

The Commonwealth government can improve housing affordability somewhat – and immediately – by reducing demand. It should reduce the capital gains tax discount to 25 per cent; abolish negative gearing; and include owner-occupied housing in the Age Pension assets test. And unless the states are prepared to reform their planning systems, the Commonwealth should consider tapping the brakes on Australia’s migrant intake.

“It took neglectful governments two decades to create the current housing affordability mess. They preferred the easy choices that merely appear to address the problem,” says Grattan CEO John Daley.

“The politics of reform are fraught because most voters own a home or an investment property, and mistrust any change that might dent the price of their assets. But if governments keep pretending there are easy answers, housing affordability will just get worse. Older people will not be able to downsize in the suburb where they live, and our children won’t be able to buy their own home.”

Read the report

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