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.

Promoting the benefits of smaller government

08 March 2013

simon-cowanOver the last 40 years, the size of government has increased substantially. Government spending relative to the size of the economy has increased even though Australia has come through a period of extraordinary economic growth, with sustained increases in GDP stretching back for decades. The economy has grown, but government has grown quicker still.

Spending across all 3 levels of Government has increased at an average rate of 4% a year since 1972. Today the government rakes in more than a third of everything this country produces. Around the world, decades of these misguided policies have created serious debt crises (particularly in Europe).

Australia is not yet in crisis but in the future we will face substantial challenges from an ageing population, rising healthcare costs and expected slower economic growth.

To meet these challenges, we must cut wasteful spending and stop the unbridled expansion of government. If government is not reined in, spending could exceed 50% of GDP by 2050, burdening future generations with higher taxes, higher debts and a further breakdown in society.

Without TARGET30, governments could be wasting $150 billion by 2021.

TARGET30 promotes the benefits of smaller government and aims to reduce government spending to less than 30% of GDP in the next 10 years.

The initial research in TARGET30 will focus on health, welfare and education, because together these areas make up more than 60% of governments budgets. TARGET30 will focus on ways that these essential services can be delivered efficiently and effectively, while reducing wasteful spending.

While forthcoming TARGET30 publications will deal in more detail with ways to cut spending, there are some practical steps we can take now to get us on the right track.

The starting point needs to be an audit of all existing government departments and programs to determine what programs are really necessary, and what programs are effective.

Obvious areas of inefficiency and waste should be cut immediately. This includes the billions provided in corporate welfare to the foreign car makers and others and the massive duplication of functions at the state and federal level.

To meet the challenges of an ageing population, we must spur improvements in public sector efficiency and productivity, especially in aged care and hospitals. This should be linked with improvements in public sector workforce productivity stimulated by appropriately rewarding good performers and, more importantly, making removing poor workers easier.

The CIS is excited to bring the TARGET30 campaign to you, and we hope that you will add your voice to the fight for smaller government, because smaller government means a bigger future for us all.

Simon Cowan is a Research Fellow at The Centre for Independent Studies and author of the foundation report for the TARGET30 campaign, TARGET30 – towards smaller government and future prosperity, released Wednesday, 6 March 2013.

Health savings a super idea

08 March 2013

jeremy-sammutThe Target 30 campaign is not just about reducing government spending. It is also about promoting better and more sustainable ways to deliver high-quality health services for all Australians.

The escalating cost of Medicare is set to place unsustainable financial pressure on state and federal government budgets by the middle of the twenty-first century.

If saddling future generations with unfeasibly high tax rates is to be avoided, governments will be forced to cut health funding and this will inevitably impact on the availability of health services.

There are many practical things that policymakers should do now to prevent onerous tax-hikes or patients having to endure even longer waits for hospital treatment.

Copayments for Medicare-funded services (as proposed by the Hawke Government in 1990) should be introduced, and eligibility for Medicare entitlements should be means-tested (same as for the private health insurance rebate).

Federal and state health bureaucracies should be down-sized, and financial and managerial responsibility for public hospitals should be devolved to the local level.

Public hospitals should also be selectively privatised, creating a more competitive environment and encouraging all hospitals to improve their productivity.

These policies would help create a more cost-effective health system. But to lay the foundations of a truly sustainable health system we need to fundamentally change how health care is financed in this country.

Medicare is a Pay-As-You-Go system. Every tax-dollar collected for health purposes each year is spent in the same year, and nothing is saved and invested for the future. This is why there are huge unfunded liabilities going forward for the health costs of Australia’s rapidly ageing population.

Imagine if instead of Canberra doling out money to pay for our GP visits and prescriptions each year (an arrangement that encourages over-use and waste), we each had an annual tax-credit or transfer payment deposited into our personal Health Savings Accounts (HSA), which we would draw upon to pay for medical expenses.

Because we would be spending our own money, we would become far more cost-conscious consumers of health services (up to30% more cost-conscious according to the famous Rand experiments). As HSA balances grew (tax-free), more and more health care would be self-funded instead of relying on government to foot the bill.

This isn’t as radical as it sounds. HSA’s are very similar to the compulsory superannuation system, which has successfully lowered the cost of the Old Age Pension in coming decades.

It’s time for us to apply to health the same principles of self-reliance and personal responsibility. Saving-As-We-Go to self-fund our own health care will reduce the burdens that Medicare will otherwise impose on future generations.

Dr Jeremy Sammut is a Research Fellow at The Centre for Independent Studies. He is the author of a forthcoming Target 30 publication, Saving Medicare – But Not As We Know It.

A European-style welfare crisis for Australia?

08 March 2013

andrew-baker This year the Commonwealth will spend more than 35% of its $376 billion budget on social security and welfare, or about $131 billion dollars. Through a combination of higher pension indexation rates and an ageing population, government expenditure on social security and welfare will increase to around $150 billion by 2015-16.

Government expenditure on assistance for people with disability, through the disability and carer pension, is expected to increase rapidly.

Once the National Disability Insurance Scheme is fully operational in 2018-19, it will cost government $22 billion and will grow rapidly at a rate of around 6% every year. This will be on top of the $15 billion a year currently spent on the disability support pension (DSP) and another $6 billion on carers.

Likewise, payments for families and children currently cost the budget around $30 billion (of which about $20 billion is for family tax benefits), and are expected to grow rapidly.

Future levels of welfare spending are setting Australia on the path of a European style catastrophe.

What do we have to do to stop a similar crisis from happening here?

The CIS has launched the TARGET30 campaign to get government spending and the corrosive welfare state back under control. An immediate TARGET30 action could be taken by scrapping Family Tax Benefit Part B which costs taxpayers $4.5 billion a year. The Schoolkids Bonus should go too for a saving of around $1.2 billion. The exemptions from means testing for Carer Allowance and the Child Care Rebate are other opportunities for savings.

In the medium-term, changes to the DSP and the age pension are needed for further budget savings. The DSP can be reformed to include participation and activity test requirements for people with a partial capacity to work, and the eligibility of current DSP recipients should be reassessed under the tougher rules introduced last year.

Raising and aligning the age pension and preservation ages (the age which you can access your superannuation), and requiring the mandatory annuitisation of retirement benefits, would help ensure more people are using more of their own money to pay for their retirement.

While Europe and the USA are reforming their pension systems and cutting spending through austerity programs, Australia is increasing spending and adding to its welfare state. If we don’t stop now and reverse, the prospect of a European-style financial catastrophe in Australia will become more and more real.

Andrew Baker is a Policy Analyst at The Centre for Independent Studies. He is the author of a forthcoming Target30 publication, Tax-Welfare Churn and the Australian Welfare State.