Ideas@TheCentre

Ideas@TheCentre brings you ammunition for conversations around the table.  3 short articles from CIS researchers emailed every Friday on the issues of the week.

Federalism key to saving states from Medicare

Jeremy Sammut, David Gadiel

21 July 2017 | Ideas@TheCentre

Dg JS  hospital medical doctor nurse 1If you thought the Gonski and NDIS ‘funding gaps’ were problems, the cost of schools and disability services pales by comparison to the future cost of Medicare. Health funding remains the single largest budgetary challenge facing Australian governments.

The size of the ‘health funding gap’ is indicated by state governments’ continued calls for the Turnbull government to fully reverse the so-called $50 billion ‘cuts’ to federal funding and for the GST to be increased from 10% to 15% to fund the long-term cost of hospital services — a 50% tax hike that would be the largest single peace time taxation increase in Australian history.

Instead of praying for a non-existent magic funding pudding to save state budgets from the crippling cost of public hospitals, it’s time for states honestly to confront the unsustainability of Medicare, and instead lead the way on reform of the federation.

Reclaiming their constitutional power to levy a state income tax — as proposed and rejected by state premiers under Malcolm Turnbull’s ‘tax swap’ federalism reform plan at the April 2016 COAG meeting — is essential to curb unaffordable growth in the cost of public hospitals in an ageing Australia.

The percentage of the federal income tax surrendered  and hereby designated the ‘state income tax’ could initially be equivalent to the amount of federal hospital funding, and thereafter rise or fall as states deemed necessary to meet the cost of public hospitals.

Crucially, a state income tax would free state governments from their onerous obligations under Medicare to provide public hospital care for ‘free’. This would also give states the freedom and incentive to introduce rational cost-sharing policies — a compulsory co-payment to control the cost of hospital services.

Bold reform in health to end 30 years of financially-disastrous federal meddling in state health systems is the only way state governments can save themselves from Medicare.

David Gadiel is a Senior Fellow and Dr Jeremy Sammut is Director of the Health Innovations Program at The Centre for Independent Studies. Their report is Medi-Mess: Rational Federalism and Patient-Cost Sharing for Public Hospital Sustainability in Australia.

Investors not to blame for rise in renters

Michael Potter

21 July 2017 | Ideas@TheCentre

MP renters 1The release of the latest Census figures has shown home ownership is down, and (unsurprisingly) investors are being blamed, particularly the negative gearing ‘tax concession’ for investors.

Well not so fast.

MP graph to insert where shownIt is true that over the decade to 2016, the proportion of the population living in homeowner properties fell by 4 percentage points to 61%. The decline was largest, at 8 percentage points, for people aged 32. The graph shows the proportion of the population living in homeowner properties declines sharply after 18 as young adults move out of home. This decline has sharpened over time, while the proportion of older retirees moving out, likely to aged care, has flattened.

There are a host of causes of declining homeownership, including delayed marriage and childbearing, a greater desire to be mobile for social and employment reasons, and high immigration rates (as most migrants would initially live in rental accommodation).

Nevertheless, declining home ownership is also likely to be caused by high prices; but negative gearing is not driving this price growth. First, the price growth in Australia is similar to the growth in many other developed countries — including countries with very different tax systems. Second, modelling to date of reducing or removing negative gearing says it will cause small to moderate price declines, not large price falls, but potentially major short term disruption.

And third, RBA research finds that 70% of house price movements since 1991 can be explained by just three factors: the housing demand-supply gap, the availability of finance, and the introduction of the GST — not leaving much space for negative gearing. This research also suggests boosting home ownership would be best achieved by ensuring housing supply meets population growth, and cutting the substantial taxes on housing supply. Slashing negative gearing won’t have much of a beneficial effect, while cutting access to finance would lower prices but at a great cost to the whole economy.

Gonski 2.0: next step

Blaise Joseph

21 July 2017 | Ideas@TheCentre

BJ gonski hands 1Phase 2.0 of Gonski 2.0 is now officially under way, with the announcement of the panel line-up for the Review to Achieve Education Excellence in Australian Schools — and an extension of the reporting deadline from the end of this year to March 2018.

So what exactly are they reviewing? In the official words: “The Review will build an evidence base to ensure funding is used in ways that make a difference to student outcomes.”

This is actually quite a novel approach in the context of Australian school funding policy.

While there have been a few questions raised about some of the panel members’ lack of expertise, the Review certainly presents a valuable opportunity to ensure evidence-based policies and programs are implemented in Australian schools.

A ‘one-size-fits-all’ approach, whereby the federal government mandates exactly what schools should spend money on as a condition of funding, would be an imprudent attack on school autonomy.

But equally, the Review will be almost pointless if it doesn’t recommend specific cost-effective school investments.

Some school investments are objectively better than others. Many are evidence-based and cost-effective while some other common ones are not.

The panel should ensure it looks to the best sources and types of evidence available, such as high quality, large sample quantitative analyses, while avoiding less rigorous evidence such as case studies and policies for which the effects cannot be isolated.

The Review should conduct a comprehensive analysis of the evidence base of various school investments, and empower schools with the information they need to spend their money most effectively.

There is definitely a strong case for better allocation of school spending: between 2006 and 2015 — despite a 15.4% real increase in total government spending per student — Australia’s PISA and TIMMS results declined significantly.

The government should be commended for finally conducting a review of how to get the most out of its Gonski 2.0 funding.

It would, of course, have made infinitely more sense to do this before deciding to spend an extra $23.5 billion of taxpayer money. But better late than never.