Ideas@TheCentre – The Centre for Independent Studies

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.

Urgent case for reform

Tom Switzer

21 May 2020 | IDEAS@THECENTRE

For more than two months, federal and state governments have shut down much of Australia’s commerce, and Canberra spent big to compensate for the losses the lockdowns have caused. As a result, we’ve flattened the curve of virus infections and prevented an economic collapse.

Now comes the hard work. Our leaders need to liberate what Keynes called the economy’s ‘animal spirits’ — that is, the passions and competitive instincts that are essential to economic growth.

At CIS, we’ve long promoted the intellectual case for classical liberalism in Australia: limited government, light regulation, low taxes, free markets, competition and, of course, private ownership of capital and property. During the Hawke-Keating and Howard-Costello eras, our ideas helped influence public policy.

The result was two decades of productivity-enhancing reforms and, from the early 1990s, almost 30 years of growth with low inflation, low unemployment and, according to the Productivity Commission, no great widening in inequality.

However, in the Rudd-Swan era, Australia just rested on the windfall of our China boom. Ever since, the political class has essentially settled into the complacency of prosperity. Those days are over.

Alas, the coronavirus crisis has given a worrying boost to those who say the state is the only feasible guardian of our prosperity. However, a high-taxation, big spending, protectionist agenda can only lead to the suppression of enterprise, starvation of investment, lack of innovation and rise of the power of organised labour as we outline in our latest video.

Unless the intellectual case for economic reform and free enterprise is made rigorously and repeatedly by those of us who can influence policy makers, there will be a tendency towards state intervention in the marketplace. And with that, inevitably comes the death of enterprise and a sluggish economic recovery.

We are hardly alone in making the case for reform, but we must be ready for what William Hague has called “an immense ideological conflict.” As the former British foreign minister and Conservative party leader argued in the UK Daily Telegraph this week:

“It will be a conflict in which the natural supporters of free enterprise as the foundation of human progress, and fiscal responsibility as the bedrock of a confident economy, will suddenly find themselves on the back foot. In [recent months], the state has intervened in the lives of families and businesses more than ever before in peacetime. It is only too easy to think that what has happened can become the new normal.  

“There is a danger that, subtly and imperceptibly, the public will grow accustomed to a smaller space for individual liberty and a bigger role for the state, changing the acceptability of other ideas — supposedly to secure a better future through larger, more powerful and more dominating governments.

“Conservatives, and other champions of an open, free and enterprising society based on sound money, need to think about this now. Otherwise we will emerge from the dark and tragic tunnel of this crisis to find ourselves in a landscape we don’t recognise.”

We at CIS fully agree with Hague. And we hope you do too.

Smart school funding a problem-solver

Glenn Fahey

21 May 2020 | IDEAS@THECENTRE

As is customary, new changes to school funding have carved up winners and losers. To finally put to bed, it’s time for a market-based makeover.

New Department of Education data shows how much schools’ funding will alter under the new means-testing ‘direct measure of income’ system. Reforms almost always increase the funding pie, but this shakeup doesn’t increase the pie so much as change the way it’s sliced up.

Parents who choose schools with higher median incomes are expected to chip in more, as they should generally. But the new ‘direct measure’ approach is no cure-all either.

First, the subsidy is based on the median parents’ income across the whole school, rather than what each parent actually earns. Second, parents’ income level isn’t always the perfect guide to how much parents can afford to pay in fees — for some, assets or help from family members would make a better proxy.

And, third, parents’ incomes don’t necessarily measure a child’s educational advantages — which is what school funding ultimately is supposed to address in the first place.

But it’s not necessarily fair to call these failures of the new approach though. There are simply so many flaws with school funding that tweaking around the edges just won’t cut it.

For a start, any subsidy should be paid to parents directly, not to schools — cutting out the middlemen in administration who re-calculate what goes to schools.

The amount of subsidy should be based on each students’ and families’ needs, not their schools’ needs. While the Gonski formula is notionally based on a child’s needs, there’s not necessarily any nexus to supporting individual students’ learning needs.

And the subsidy should be genuinely means-tested for each household, not the schools’ median.

We already provide welfare payments directly to households, adjusted to income and assets tests. Why not provide families with school-aged children a cheque each year equivalent to a basic, means-tested amount to spend directly on schooling?

Schools could then set their fees based on demand factors — like how popular they are and how much parents are willing to pay. Parental choice would keep fees in check, since schools with excessive fees will be less attractive. And public schools could offer market-based fees too; perhaps with some regulation to make sure they remain within reach of locals.

Parents could choose to pay more than the cheque’s amount — much like they do already — but the subsidy would be better targeted. And parents might use the cheque to pay for additional out-of-school support too to provide for their child’s needs. That’s far more transparent, competitive, and efficient than anything currently on the table.

School funding can be improved — not by spending more, but by spending it more wisely.

Call for failed past policies

Simon Cowan

21 May 2020 | IDEAS@THECENTRE

As we get nearer to all major coronavirus restrictions being lifted, again we are seeing calls to reduce our migration intake, cutting off the supply of foreign skilled labour and forcing businesses to deliver training and reskilling opportunities to Australian workers as a way of boosting economic recovery.

It’s worth unpacking the generic terms ‘skills’ and ‘training’ because it is nowhere near as simple as glib calls would make you believe.

First, a lot of the more generic ‘training’ delivered to the unemployed is useless, serving only to enrich training providers. Subsidising it further, or making it compulsory, will only result in a proliferation of dodgy providers and scams — as it did in the vocational education sector.

Second, workers are not blank boxes into which skills can be installed like a computer program. The assumption that they can be trained up quickly and easily is wildly optimistic. Many lack the aptitude or interest for available jobs.

An even bigger issue comes from the difference between a certificate denoting supposed skills in an area and experience proving real competence. Training may deliver the former, yet it is overwhelmingly the latter that is needed.

The simple fact is that if there was a benefit to business in delivering a certain type of training, they would be doing so already. If they aren’t, it is because the costs outweigh the benefits.

Proponents of this ‘Australia first’ solution like ‘boosting manufacturing’ or ‘investing in skills and training’ know this; they are calling for businesses to shoulder the cost of developing skills AND experience.

In many industries, this was how it used to work. Large businesses, often government-run, heavily unionised enterprises, would take far more apprentices, trainees or graduates than they needed. They would train them up and see them filter out into the broader workforce.

This was only a viable model when market competition was severely restricted. In a global market, with ever-increasing complexity of skills, this is a losing proposition for business. It will also make Australian companies less competitive internationally. Ultimately, this costs jobs.

This is really a call for a return to the failed policies of the past. Proponents want to disempower consumers and individuals and instead give that power back to government, unions and business.

That ‘cure’ may well be worse than the disease.

This is an edited excerpt of an opinion piece published in the Canberra Times as As we edge towards post-COVID life, Australia’s economic choices remain the same