Politas Blogger - Phil Bayley

Phil is the Principal of Strategy 42 South, an economic and strategy consultancy.


April 2015


My op-ed in today's Mercury, in which I argue government's should step-up and champion change:



Comments (0)


February 2015


Reform in local government is one of the key policy issues facing Tasmania, with powerful forces on both sides of the debate. The State Government is steering a path that stimulates the community discussion without forcing reforms that doesn't have broad support in local communities.

With that in the background, yesterday I had the privilege of presenting to the inaugural LGMA Tasmania Finance Conference. Here are the slides I used to identify some challenges the councils face, the economic and regulatory context of local government, and the challenges I set for managers in the local government sector.

Comments (0)


August 2014


The new state Government has been very clear that its pre-election promises will be kept. So instead of looking at hypotheticals, it is worth looking at four points that could, and I would argue should, be in the budget.

It’s a cliché that governments should act more like businesses. This means that they should continually review the services they provide and reduce their costs when there is insufficient revenue.

We are facing deficits of at least half a billion dollars. That is serious money, and the Budget must start the process of reducing the cost of government.
However, while every job is important to the individuals affected, reducing the overall number of State service jobs should be an outcome of budget reforms not a target in itself. Similarly the proposed wage freeze, while painful for many households, is a key business-like response to mitigate further job cuts.

The first (and critical) point to look for in the budget is an indication that the government is committed to a cultural change that recognises it cannot solve every problem through new spending.

Strategic reviews need to be undertaken of the big-spending agencies, particularly focusing on what services the community expects from government and the efficiency and effectiveness of in-house service delivery. If the community still wants services that government agencies do not deliver efficiently or effectively, it is time to look at different delivery models with public servants having a narrower role to manage funding and contracts.
The government has already started this in health, committing to a single Tasmanian Health Organisation and a public strategic review of service delivery to be completed by March 2015.

Education should be next. It is well known that Tasmania spends more money and gets worse results in education. Tasmania’s NAPLAN scores continually fall behind minimum standards. Year 11 and 12 retention rates are unacceptable. Far too many students leave school with no idea what career or further education they will pursue.

As a case study in the effectiveness of government education spending, a program called Guaranteeing Futures costs in the order of $7 million per annum. The outcomes clearly show that it isn’t working very well. In contrast, the Beacon Foundation has always relied on private sector funding to run its school-based programs, with a very small contribution from the former government, but it achieves retention rates of 95 per cent for students after they complete year 10.

The government is providing additional funding to Beacon for three years, but a deeper reform could be making a large share of that $7 million available in a contestable process to any organisation to manage school participation and career pathway programs.

The second point to look for is a clearly articulated strategy to respond to Federal funding cuts to health and education totalling $2.1 billion over the next decade, while improving health and education outcomes. This is self-evident, particularly as the State government has committed to funding its share of the “Gonski” education reforms for six years. Ultimately, the Federal budget may mean pressure for all the States to raise their own inefficient taxes — which the new government has ruled out — or broadening or raising the GST.

The third point is increasing transparency in the State budget. When it was making strong early progress on its savings strategies and curtailing the rate of spending growth, the former government published quarterly data on the number of State servants employed by agencies, and the associated full-time equivalent positions. However, it quietly dropped less than a year later, at the same time it stopped chasing harder savings and instead pushed back further job losses beyond this year’s election

The Budget papers could also provide more information on individual program spending within agency budgets and the associated KPIs, otherwise the success or failure of much of the government’s spending is impossible to measure from the outside.

The fourth point to look for in the budget is the financial performance of its government businesses, and a focus on ensuring they are efficient, effective and delivering stronger dividend and tax returns. This is particularly important as the government has ruled out privatising its major commercial assets during this term of Parliament, notwithstanding that privatisations do not provide a quick fix to the budget nor address unsustainable government spending.

Hydro Tasmania is clearly under pressure from an oversupplied wholesale market and policy changes such as the removal of the carbon tax and threat to the renewable energy targets, and has announced its own restructuring and job losses in response.

TasNetworks is the newest government business. The budget needs to show that significant synergies will flow to its owners from combining the management of publicly-owned transmission and distribution networks. At the same time, it must continue to hold back upward pressure on electricity prices for all customers, including major industrial users that have a greater exposure to transmission costs, and respond strategically to the ongoing strategic challenges of slowing demand growth and increasing solar penetration.

The smaller government businesses also need to pull more weight. Several are essentially unprofitable or reliant on government funding. And one of the riskier assets — at least until its customer book can be sold at some point in the future — is Aurora Energy, which as a small standalone retailer has an effective monopoly in the residential market but is confronting competition in its business and commercial market and the threat of other new entrants.

Tasmania is not alone, as every State government is facing similar fiscal challenges that have been exacerbated by the Federal budget. Given the size of the deficits being faced, this reform will take several years. The Government’s efforts need to be judged over several years, but starting with these basics of public sector management and transparency will demonstrate that they are committed to the journey.

Comments (0)


July 2014


Today is an auspicious day in Canberra, with the terms of new Senators commencing. Once they are sworn in next week, the real challenge starts and the fate of the several key policies announced in the Federal Budget will be decided.  For a reminder of how the Senate looks, and the influence of the PUPettes and their Motoring Enthusiast mate Ricky Muir, the numbers are here.

Amongst all the noise on the budget, this was my contribution published by the Mercury on 5 June 2014, which puts the budget in a broader policy perspective and highlights a number of sectors that have job vacancies potentially suitable for unemployed people in Tasmania.

Budget not all doom, gloom

It seems most of Australia is opposed the federal Budget for at least one reason or another. However, key parts are worth defending.

A major gap in all of the budget analysis is a failure by most people to look beyond policies announced on budget night.

Just like household finances, all policies change over time. As an example, many low and middle income households may not realise that they have a double windfall coming soon.

In its carbon pricing package, the former Federal Government estimated that the cost of living for an average household with two teenage children would rise by $653 in 2013-14, and receive $679 in compensation.

The package was designed to overcompensate low income families to a greater degree. In other words, Australia had a government that was actively and openly actively redistributing wealth.

When carbon pricing is abolished (or if depending on the whims of the Senate cross-benches) there are windfall gains from both reversing the price impacts and keeping the compensation. Nevertheless, many households will have receive less financial support than they would have under previous s settings.

Another angle for the attacks on the budget is the “disproportionate” impact, where low income households are “doing the heavy lifting” to repair the budget. Again, this ignores the evolution of policy.

Through various policies — such as changes to tax scales associated with the carbon pricing package, introduction of a means test for the private health insurance rebate and the temporary deficit levy on incomes exceeding $180,000 — the tax system is becoming more, not less, progressive over time.

Clearly the Government has missed the opportunity to address some of the financial privileges enjoyed by high-income earners. It also did not proceed with 55 “unlegislated tax and superannuation measures” that were announced by the former government, costing $2.9 billion.

Nevertheless, it is seemingly a matter of time before politics gives way and the crackdown on superannuation concessions arrives. When it does, and the fate of the excessive generosity of the paid parental leave scheme is known, the disproportionate nature of the 2014 Budget will again have a different complexion.

As a wealthy country, we must provide a safety net for people who genuinely cannot work. Slowing future growth in welfare payments that form this safety net is part of a strategy to ensure the fiscal position is sustainable in the long-term.

However, the budget doesn’t really address the challenge of how we fund health and education for coming decades. Instead, it transfers this challenge to the States. In their current form, the projected cuts ($2.1 billion over a decade in Tasmania’s case) must mean pressure to raise State taxes that have significant economic costs or the unfairly maligned GST, or reduce service levels.

Instead of being a vehicle to address this challenge, this budget is more focused workforce participation, one of the 3Ps that drive long-term growth (the others are productivity and population).

The endemic problems of unemployment in Tasmania have been described at length. However, it is worth noting that no adults are working in 27 per cent of Tasmanian households, and in almost half, no adults are working full-time.

Changes to the Newstart allowance and waiting periods, the earn-or-learn policy and Work for the Dole are designed to encourage people into the workforce, whether directly or by acquiring new skills.

These policies rebalance the existing carrot of Job Services Agencies working to place the unemployed in jobs and the very light stick of job search obligations that appear to be widely ineffective. They do have risks, especially with cuts to programs that established pathways into the workforce and lengthy waiting periods for some to receive Newstart or Youth Allowance.

Many critics have argued that the policies can’t work because there are few jobs available in Tasmania for those who left school early, have low skill levels and/or are currently unemployed. However, the evidence suggests there are many opportunities in diverse sectors around the State. And not just in fruit picking.

The Department of Employment statistics show shortages in automotive and engineering (metal) trades, with over a third of vacancies unfilled in the most recent surveys. These jobs do not require years of training. Instead they may merely require Certificate II level qualifications, which means around 17 weeks of training at TasTAFE.

Other important sectors of the Tasmanian economy are well-matched to Tasmania’s educational history, with at least 60 per cent of employees in most of the mining and manufacturing sectors leaving school by year 10.

The dairy sector has a shortage of workers, and aged care will continue to grow with Tasmania’s ageing demographics. New programs have been announced to provide training and pathways into employment in both sectors.

While high-level skills are important in many jobs, the reality is basic training is sufficient for many jobs as employers will invest money to provide further training and skill development. If literacy and numeracy are barriers then other programs are available, such as the successful 26TEN Network, before stepping on the path to training and work.

The Prime Minister has been criticised for suggesting Tasmanians may need to move. However, we can’t lock ourselves into a view that people shouldn’t move to get a job and we can’t afford a system that says welfare is a legitimate option to keep unemployed people in the same communities for years.

The criticism also overlooks the potential for people to move within Tasmania, not interstate, where greater support from family and friends is often available.

The budget also implicitly asks whether society should continue to provide assistance to people who won’t move for training or employment. The Government’s answer is obvious.

While that is a choice Tasmanians must face, the long-term social benefits may be profound if the budget successfully increases participation. In the meantime, the budget impacts on individuals and some policies have risks, but let’s not overstate the impacts by ignoring the fact that all policies evolve. 

Comments (0)