Category Archives: Uncategorized

How to rebuild trust in politics

Protest politics is on the rise in Australia, and the main cause is collapsing trust in politicians and the major parties, according to a new Grattan Institute report.

A crisis of trust says that if the major parties and politicians want to rebuild trust with voters, they will need to change the way they do politics: stop misusing their entitlements, strengthen political donations laws, tighten regulation of lobbyists, and slow the revolving door between political offices and lobbying positions.

They will need to stop over-promising and under-delivering, on everything from reducing power bills to making houses more affordable and developing regional Australia. And the major parties will need to increase the size of their ‘gene pool’, by preselecting candidates who have broader work experience than being political staffers or union officials.

The vote share for minor parties and independents has been rising for a decade. At the 2016 federal election it hit its highest level since the Second World War. More than one-in-four Australians voted for someone other than the ALP, the LNP or the Greens in the Senate. First-preference Senate votes for minor parties and ‘outsider’ candidates leapt from 12 per cent in 2004 to 26 per cent in 2016.

Voters in regional and remote areas are particularly disillusioned. The further from a capital city GPO, the higher the minor party vote and the faster it has risen.

The report identifies voter disillusionment with the political establishment as the major cause of the rise in protest politics; it’s an ‘anyone but them’ vote.

Voters for ‘outsider’ politicians such as Pauline Hanson, Jacqui Lambie, Derryn Hinch and Nick Xenophon have much lower trust in government than those who vote for the majors. Australians increasingly believe politicians look after themselves and government is run by a few big interests rather than in the public interest. More than 70 per cent of Australians think our system of government needs reform. Voters are choosing parties and candidates that promise to ‘drain the swamp’.

Economic factors are less important. The rise in the minor party vote doesn’t seem to be about stagnant wages or rising inequality: the vote grew most strongly when real wages were rising and inequality wasn’t. And the biggest increase in the minor party vote was between 2010 and 2013 – a period when Australians were particularly optimistic about their immediate financial future.

But the loss of economic and cultural power in the regions looms large in regional voters’ dissatisfaction. Regions hold a falling share of Australia’s population, and consequently of the nation’s economy. Australia’s cultural symbols are becoming more city-centric – from mateship to multiculturalism, The Man from Snowy River to MasterChef. Regional voters increasing fear they are being ‘left behind’ and that ‘the Australian way of life is under threat’. The rhetoric and policies of some minor parties tap into these concerns and values.

Grattan Institute CEO John Daley says: “Our leaders need to heed the warning signs and focus on what matters to voters: restoring trust and social cohesion.”

Report co-author and Grattan Institute Program Director Danielle Wood says: “Politicians need to take a leadership role, by stressing the common ground between city and country and between communities with different backgrounds.”

Read the report

For further enquiries: Danielle Wood, Budget Policy and Institutional Reform Program Director
T. +61 (0)3 8344 3637 E.

Smarter money: a better way for Australia to select big transport projects

Australia should revamp the way it selects major transport projects, so that governments can better know which new roads and railways are worth building and avoid squandering billions of dollars of public money on the wrong projects, according to a new Grattan Institute report.

Unfreezing discount rates: transport infrastructure for tomorrow shows that the ‘discount rate’ Australian governments have applied to assess the value of proposed projects has been stuck at 7 per cent since at least 1989, despite the price of money having fallen from about 8 to 1 per cent since then.

The discount rate is a tool that puts present and future costs and benefits onto a comparable footing: it expresses how much we value the costs and benefits of a major project for young people and future generations relative to the costs and benefits for citizens today.

The report calls for the 7 per cent standard rate to be abandoned in favour of two lower rates: 3.5 per cent for low-risk transport projects (typically trains, buses and urban roads), and 5 per cent for slightly higher-risk investments (such as ferries and freight rail).

This new discount rate regime would cast fresh light on the value of some of Australia’s biggest transport projects. Under the present 7 per cent rate, the benefits of the $10 billion Melbourne Metro rail project and the Commonwealth Government’s $10 billion Inland Rail Freight project are both assessed to be only marginally higher than the costs, with Metro Rail ranked slightly better.

But under a lower discount rate, both projects would be assessed to deliver benefits about two-and-a-half times higher than the costs, and Inland Rail Freight could be ranked even higher.

“Interest rates have fallen dramatically since the 1980s, and it makes no sense that discount rates in Australia have been stuck since then,” says Grattan Institute Transport Program Director Marion Terrill.

This report builds on two 2016 Grattan Institute reports that exposed the need for changes to the evaluation and selection of major projects in Australia. Cost overruns in transport projects found that governments spent $28 billion more on transport infrastructure between 2001 and 2015 than they told taxpayers they would. Roads to riches found that a big portion of the large sums governments allocated to transport projects between 2005 and 2015 was spent unwisely.

“With our cities growing rapidly, smart investment in infrastructure is vital,” says Marion Terrill. “We need to improve our project evaluation, so we build the right transport projects in the right order. Better discounting would be a big step in that direction.”

Read the report

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


A new research organisation for Australian school education

Australia should establish a national school education research organisation to investigate the most effective ways of teaching and spread the word across schools, states and sectors, according to a new Grattan Institute report.

The Commonwealth’s role in improving schools calls for a national debate on how to boost the performance of Australian students.

It says the new research body should be charged with lifting the standard of education research in Australia, creating a long-term research agenda for school education, and promoting key findings across the country.

It could link-up all research on education for people from birth through to age 18, so policy makers and the community better understand the continuum of learning, from early childhood to school and vocational education.

The Australian peak body could be modelled on successful overseas organisations such as the US Institute of Education Sciences. It should be independent of government but backed by the Commonwealth and the states.

The report says that the Commonwealth-commissioned review on ways to achieve excellence in Australian schools (known as the ‘Gonski 2.0 Review’) should focus on reforms like this where the Commonwealth can make a genuine contribution.

The danger is that the Gonski 2.0 Review is used as a platform for Commonwealth interventions into school education that sound good, but don’t actually help on the ground. Experience shows that well-meaning Commonwealth interventions into systems primarily run by the states and territories can end up just increasing red tape and destroying policy coherence.

The ‘Gonski 2.0’ funding deal struck last year will deliver an extra $23 billion in Commonwealth funds to schools over the next ten years. But it needs to be kept in perspective: the extra money will be only 3 per cent of all government spending on schools over the decade. The states and territories still overwhelmingly fund and run schools.

Key priorities for states and territories include supporting schools more so that teachers know what works in the classroom, and know how they can adapt their methods to better target their teaching to the needs of their students.

“Because it doesn’t manage schools or school systems, Commonwealth intervention in school management is likely to be counter-productive,” says Julie Sonnemann, the report’s co-author and Grattan’s School Education Fellow.

But the Commonwealth could help with a research body. “If Australia wants to achieve excellence in schools, we need more and better education research,” says Peter Goss, co-author and Grattan Institute School Education Program Director.

Read the report

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.

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.

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.

Government has a billion reasons to wind back unfair age-based tax breaks

The Commonwealth Government could save about $1 billion a year by winding back three tax breaks for older Australians that have no sensible policy rationale, according to a new Grattan Institute report.

Seniors pay less tax and get a higher rebate on private health insurance than do younger workers on the same income as a result of the Seniors and Pensioners Tax Offset (SAPTO), a higher Medicare levy income threshold, and higher Private Health Insurance rebates that are available only to older Australians.

Age of entitlement: age-based tax breaks shows that fewer people paying income tax – the rise of the “taxed-nots” – is in part due to age-based tax breaks. Despite their rising incomes and workforce participation rates, the proportion of over 65s paying tax has halved in the past 20 years.

At the same time, the Commonwealth is running annual budget deficits of about $40 billion and must make tough saving and spending decisions if it is not to hand an unsustainable bill to future generations.

The report recommends winding back SAPTO and the Medicare levy to save about $700 million a year. Reducing the private health insurance rebate so that seniors get the same rebate as younger Australians would save about $250 million.

Only pensioners should qualify for SAPTO, and those with enough private income that they do not qualify for a full Age Pension should pay some income tax.

The proposed changes would have little effect on the 40 per cent of seniors who receive a full Age Pension. They would most affect seniors who are wealthy enough to receive no pension or just a part pension.

Grattan CEO John Daley said that, “Some people think that the tax breaks are a fair reward for paying tax while under 65.”

“But in fact, large tax breaks for seniors are a relatively new invention not provided to previous generations. And the current generation of seniors receive much more than their predecessors from government spending, particularly on their health.”

“Age-based tax breaks are badly designed to achieve valid policy purposes, such as increasing workforce participation or preserving adequate retirement incomes for poorer Australians,” says Grattan CEO John Daley.

“These tax breaks might have been affordable when they were introduced over the past 20 years, but the country can no longer afford the bill.”

Read the report

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