Friday, April 05, 2013

Tax freedom at last

This Sunday is Tax Freedom Day! It is the day when Australians stop working for the government and begin working for themselves. It is the point in the year when the average Australian has theoretically paid off their annual debt to the government, and is able to keep the fruits of their labour henceforth to spend however they choose.

A Tax Freedom Day on 7 April means that roughly 26% of the wealth created by each working Australian throughout the entire year is sacrificed to pay for government services.

This year compares rather well against recent years. Throughout the 2000s, Tax Freedom Day has on average fallen on 19 April, which implies that Australians today are working less for the government and more for themselves.

This is a comforting statistic, but it is not the whole story.

The real impact of government largesse is not how much it taxes but how much it spends, for any shortfall in revenue creates a deficit which must be serviced in the future. Deficits mean higher taxes and less economic freedom for Australians.

We should recall that Treasurer Wayne Swan recently complained of collapsing commonwealth tax revenues since the Global Financial Crisis. What has happened in recent years is that tax revenue has declined, but spending has not declined simultaneously. Instead the government has recorded consistent deficits since the 2007-08 financial year.

If we were to calculate Tax Freedom Day according to spending, the situation would become more ominous. Government spending amounts to 34.5% of GDP, implying that Tax Freedom Day would fall on 7 May. Australians are, in fact, working over four months to pay for their government.

The trend towards greater government spending needs to be reversed. The CIS recently launched a campaign aimed at reducing the size of government. The campaign, called Target 30, provides practical and pragmatic solutions to reduce government spending to below 30% of GDP within the next ten years.

Should our ambitions be achieved, Tax Freedom Day under a balanced budget would fall on 21 April. This is an important and attainable goal that would reduce the tax burden on working Australians and ease their cost of living pressures.


Cure for a bloated public sector

Reckless government spending is imposing a burden on future generations. The plain fact is that spending across all three levels of government is exceeding $500 billion a year and, while some of this spending is necessary, a lot of it isn't.

The TARGET30 campaign recently launched by the Centre for Independent Studies (CIS) has identified areas of waste where government spending is ill targeted (such as welfare for wealthy families) or inefficient (such as welfare for wealthy corporations, aka industry assistance) - and there is more inefficiency and waste yet to be identified.

The growth trend in Australia's public spending is unsustainable. We need to look only at southern Europe to see what happens to countries with bloated, unsustainable public sectors. And while apologists for big government allege that the number of public servants has remained steady in recent years, this does not mean Australia's public sector isn't bloated. Employee-related costs have increased markedly over recent years despite improvements in information technology and electronic/virtual service delivery. In the past four years, workforce costs have grown 31 per cent across state, federal and local governments.

Since the launch of TARGET30, there have been predictable complaints that the CIS is proposing ''savage cuts'' (by Andrew Leigh, federal member for Fraser) in a ''shrill tone'' (by Nadine Flood, national secretary of the Community and Public Sector Union).

On the contrary, TARGET30 is not a slash-and-burn campaign; it simply asks people to consider what they really need government to provide. Put another way, ''we as a community need to look at what services and infrastructure we want'' - precisely what Flood says is necessary.

We need to address these issues now. The federal government's Intergenerational Report 2010 predicts that Australia will face increasing budgetary pressures, with an expected fiscal gap of 2.75 per cent of gross domestic product by 2050.

The government cannot continue its reckless spending habits if taxpayers want to receive essential government services in health, welfare and education.

Improving efficiency and productivity in the public sector workforce is a crucial element of TARGET30 and is necessary to ensure we can sustain a social safety net for our ageing population.

The NSW Intergenerational Report 2011-12 predicted that the NSW fiscal gap could be entirely closed if productivity growth in the public sector was raised just 0.5 per cent above the economy-wide average.

While some cuts to the public sector workforce are necessary, we do not advocate wholesale abolition of departments for ideological reasons. Productivity improvements will not arise simply from cutting public sector numbers or imposing blunt efficiency dividends.

Meaningful change needs to be instituted within the culture of the public service that recognises and rewards good staff and allows poor performers to be removed. Promotion based on time served must stop. Pay and conditions must be made comparable to the private sector.

Australia went through an extraordinary period of productivity growth in the 1990s and early 2000s as a result of micro-economic reforms such as deregulation of the labour market. Today, fewer than half of all non-government workers are under awards or collective agreements, yet only 3 per cent of government workers have the flexibility of an individual agreement.

Only the unions benefit from resisting structural changes to improve productivity. Resisting change certainly doesn't benefit the public; increasingly, it isn't even benefiting public sector workers.

For example, performance-based pay would enable good teachers to receive greater remuneration consistent with the enormous benefits they provide. Yet teachers unions have opposed any moves in that direction.

Unions could be part of the solution, using the expertise of their members to design appropriate performance indicators. Instead, they are part of the problem.

Governments cannot shy away from worthwhile reform because a small cohort of public servants and union members would be worse off.

Governments must be more transparent about the true cost of public services, including the administration costs of running government programs. Taxpayers can then make meaningful choices about what services they are willing to pay taxes for. People value ''free'' services far too lightly.


Haters out in force to greet a successful Australian:  Rupert Murdoch

Melbourne Lord Mayor Robert Doyle’s car was stopped by protesters in fiery scenes outside a dinner hosted by News Corporation boss Rupert Murdoch on Thursday night.

Police dragged protesters from Mr Doyle’s vehicle after they beat on the car’s bonnet and sides while chanting "shame, Doyle, shame".

As Mr Doyle’s car drove away, a phalanx of police forced protesters from the street outside the venue, the National Gallery of Victoria, using a rugby-style maul.

Earlier, about 40 protesters forced their way into the venue, delaying the start of the event and forcing some of Australia’s corporate elite to wait on the footpath.

Guests attending the dinner, to celebrate the 70th anniversary of right-wing thinktank the Institute of Public Affairs, ran a gauntlet of protesters including a man wearing a cape and a mask depicting Mr Murdoch as the devil.

Inside, attendees included Opposition Leader Tony Abbott, Cardinal George Pell, Ten Network executive Russell Howcroft and News Corporation’s Australian head, Kim Williams.

Australia’s richest person, Gina Rinehart, was seated between Mr Murdoch and Robert Thomson, the global head of News Corporation’s newspaper publishing division.

Mr Murdoch, whose family has a long association with the Institute of Public Affairs, was the guest of honour at the $495-a-head dinner while Herald Sun columnist Andrew Bolt served as master of ceremonies.

At the event, Victorian Premier Denis Napthine welcomed Mr Murdoch back to Melbourne.  "In this room are business leaders and community leaders who share a belief in the freedoms that the IPA espouses," he said.  "That is to your credit and to the credit of Victoria and Australia."

He said he was "very very proud to be a member of the IPA" and shared its values.

Mr Napthine said Victoria's finances were the envy of the other states.  "We see as the cornerstone of our work as a government good, sound economic management," he said.  "We will make sure that we deliver ongoing sound economic management."

He congratulated the Institue on 70 years of achievement defending freedom of speech and economic rights.

Bolt told guests it was strange that protestors had tried to stop them from "meeting and talking" in defence of freedom.

He said the institute, which received "zero" in government funding, defended human rights, including freedom of speech.


Bottom up and entrepreneurial, not top down bureaucratic health reform

It is good to see that the need for productivity improvements in the health sector is starting to receive policy and media attention.

Discovering cost-effective ways to deliver health care is essential to address the financial burdens that rising health costs associated with the ageing of the population are set to place on government budgets.

Unfortunately, many are wedded to the idea that the best way to achieve efficiencies is for the government to develop ‘new models of care.’

The well-rehearsed theory – which featured heavily in the rationale for GP Super Clinics and in the report of the National Health and Hospitals Reform Commission – is that the chronically ill should be kept well and out of expensive acute hospital beds.

This can allegedly be achieved through the provision of coordinated primary care delivered by GPs, nurses, and allied health professionals, in the belief that chronic conditions can be ‘best managed in the community…to prevent complications arising’ that necessitate hospital admissions.

But as this paper details, the evidence that coordinated care has reduced use of hospitals (particularly by elderly chronic disease patients) is ‘weak at best.’

This finding was supported by a 2012 report by the United States Congressional Budget Office that examined 34 coordinated care demonstration programs run by the US Government, which found, on average, little or no effect on hospitalisation.

There are a range of reasons why even ‘promising pilot programs’ are not successfully replicated when translated into larger population-based interventions. An excellent list (drawn in part from the work of Megan McCardle) is in John Goodman’s recent book on market-based health policy.

The reason most pertinent to health reform is that coordinated care programs are examples of ‘top down’ reform. They involve health bureaucrats and central planners in charge of the funding purse strings mandating what frontline health providers do and how they do it.

This is the antithesis of the process by which efficiency is increased in the rest of the economy. In other sectors, independent providers, driven by competitive incentives and market-disciplines, discover innovative ways to deliver higher quality goods and services at lower cost, which they can market to their customers.

This begs the obvious question – how do we unleash the entrepreneurial spirit in health?

Contestability – creating real buyers and sellers of health services – is the key. Creating a contestable health system is one of the main arguments for transforming Medicare into an insurance voucher system along the lines of the Medicare Select proposal.

If all Australians were free to choose with whom they insured their health, health funds would aim to contain costs and attract members by providing access to the best quality care at the most efficient price.

The competitive pressures would encourage health entrepreneurs to enter the market and find better, more cost-effective ways to treat chronic illness in order to win service contracts from health funds.

Reforming health from the bottom up, not the top down, is the only way to achieve more efficient outcomes. The theory that assisting chronic patients to avoid having to go to hospital will only become a reality if the right market incentives are put in place in the health sector.


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