28

August 2014

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Last Saturday The Mercury published an interview Matt Smith did with the Treasurer Peter Gutwein.  Smith did a good job - he managed to expose Gutwein's blandness, his intellectual vacuity, and his lack of policy courage.  Despite constantly harping about the  'Labor-Green mess' he has inherited, Gutwein gave no indication he had any interest in seriously addressing Tasmania's absurdly large state sector and the drain it represents on the State's budgetary position.

According to Mr Gutwein state ownership of power and transport assets is a good thing!  The budget will not be back in surplus for six years, Gutwein told us.  In a world where a week is a long time six years is the never never.

There was no sense in the interview that Gutwein had any philosophical underpinning to policy.  Like the Premier Will Hodgman he stands for very little other than reactionary illiberal policies on the power of the state.

Contrast this with Michael Field.  On being elected to office in 1989 Field as the first Labor Premier in almost a decade took seriously his other role as Treasurer.  In language described by the media as 'remarkable' for its honesty and policy integrity, Field outlined the urgent need for Tasmania to reform itself.  Before being voted out in 1992, having paid a high price for his policy courage, Field produced budgets that slashed the size of the over weaning Tasmanian state.  He adopted the reformist policies of New South Wales Liberal Premier Nick Greiner in areas such as GBE accountability and financial management.  Field did so with the background of a shaky accord with 5 Green MPs.

None of this for Mr Gutwein.  Despite years in opposition this man and his Party has no economic policy framework.  It defaults to a populist left position on asset sales and its only budget policy of note is to freeze the wages of public servants.

And this is in the context of Gutwein's first budget - the one where he has the best chance of making his mark.  If only he had 10 percent of Michael Field's vision.

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28

August 2014

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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.

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1

July 2014

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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. 

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17

June 2014

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This was first published in The Mercury.

This is the original, full version.

Former Australian Prime Minister and Treasurer, Paul Keating’s public appearances are a nostalgic reminder of a golden era of economic leadership.

Reforms like floating the dollar, reducing tariffs on imports, reforming the tax system, moving to enterprise bargaining and deregulating the banking system meant when his time was up, he had shaped a modern, robust Australian economy.   

Under Keating's economic leadership, Australia's real GDP per capita increased by 32% over 13 years. A staggering figure when you consider the level of changes he was implementing – many of which led to short-term pain for long-term gain.

Keating’s unquestionable thirst for economic reform contrasts strongly with today’s economic policy malaise at both a state and federal level.

In Tasmania today, economic reform is inevitably difficult.  We deal with three waring political parties instead of two, we are instinctively distrusting of Government (perhaps even more than the rest of Australia) and education levels are the lowest in the nation.

Opponents’ voices always cry loudest and the need for reform is not acknowledged, communicated or understood. 

Politicians with longevity (or perhaps ‘success’ under their own definition) are almost always guilty of taking few risks, shirking difficult decisions and as a consequence, upsetting very few.

There is little meaningful policy debate.

That’s why Tasmania needs its own Paul Keating.  I don’t mean Labor, arrogant or conceited (although I don’t really care if any of those attributes apply), but at some point we need a leader who has the policy credentials and communication skills to cut though the haze of today’s political quagmire, articulate a vision and executes a plan that gets reform happening.

Reforms like water and sewerage centralisation, electricity competition and even the most minor of voluntary public service redundancy measures caused the former State Labor Government considerable pain. 

In 1998, proposed local government reform and electricity asset sales caused the Liberal Government so much pain it was fatal. 

It is little wonder there is no political appetite for reform.  There’s no reward for it.

Tasmanian politics isn’t being contested by waring philosophies.  It is being run in as a cyclical game of Government vs Opposition.  Politics is always the key consideration while policy is a distraction from winning or losing elections.

If you’re in Government you’re a realist; restricted by political realities, boring bureaucrats and the distrust of your electorate.  You’re pandering to a pre-existing public opinion and you’re unwilling to risk making the case for change.

If you’re in opposition you’re a populist. Unencumbered by reality, you’re prepared to say whatever is needed to get into Government.  Your policy-making vehicle is public opinion.  If what you actually believe in lines up with public opinion – good.  If not, you’ll sacrifice what you believe to be good policy (and your beliefs) for the chance to win.

All of that is ‘overseen’ by an outdated Legislative Council which sees itself only as a house of review and contributes almost nothing to public policy development or debate. 

Tasmania desperately needs a leader capable of smashing that now tried-and-trusted opposition populism via sound bite model. 

Ordinary leaders pander to public opinion.  The best leaders change it.  They can reform because they have a vision, understand policy and they can sell their message. 

Tasmania’s critical issue continues to be its unsustainable budget position.

The Tasmanian budget problems are undeniable.  Operating deficits are forecast through the estimates with no realistic chance of delivering an operating surplus unless wholesale reform is undertaken.

We can only hope the August Budget contains a plan to fix it.

Basic logic says the only two options to solve the problem are to raise revenue or reduce spending.  But raising taxes will only make Tasmania more uncompetitive compared with other states and territories.  New businesses won’t come here and existing ones may disappear.

That leaves the only option: reduce spending. That means review of the services we provide and the way we provide them.

A sustainable budget on the back of a more efficient public sector will provide the flexibility that is desperately needed to undertake taxation reform.  Tasmania should attract business by offering the lowest taxation environment in the country.

Whatever the option, Tasmania needs a vision people can believe in and a way to get there we understand. 

The status quo is completely unsustainable and needs to change.  Tasmania needs our own Keating. 

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16

March 2014

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I wrote three blogs on Tasmanian State Election betting before the election.  You can find my complete roundup of the chances here, an update specifically on the Adam Brooks betting plunge here and my final roundup of the market movers here.

Things I got right:

  • Hodgman smashed everyone (but that wasn't a hard one)
  • Bacon won Denison and smart punters got the $4 return on him.
  • Brooks won Braddon and smart punters got the $3.50 return on him.

Things I got wrong:

  • The biggest surprise was in Bass, where it looks like Peter Gutwein has outpolled Michael Ferguson.  I expected Gutwein to make up a little bit of ground, but nowhere near the 7,000.  Never mind though because I dont think Ferguson will be too upset about polling 14,000 votes.  Gutwein was my other listed chance and was paying $5 by polling day.  Sportsbet would have had a very strong result from this after Ferguson was actually backed into $1.15 by election day.
  • Like most people I'm shocked at the Greens' result in Lyons.  2010's winner, Tim Morris win looks like he'll actually lose his seat.  His vote halved in the worst result for a sitting candidate in the State. The Liberals' five (excellent) candidates did all have a strong showing as I predicted, but the sum of the vote was so large that both Barnett AND Hidding outpolled my predicted winner, Rebecca White.  I didn't rate Hidding's chances because he doesn't have a history of topping the poll and his vote actually went backwards from 2006-2010 (although the fact he was Leader in '06 may explain this on reflection).  I was dead wrong and he actually beat Barnett who I predicted would top the Liberal ticket.  Punters didn't like Hidding either and he'd slid from $3 to $4 by election day.  That suggests the bookie was smarter than the punters here.

How I did

A lot of people were asking me what I bet on last night so here it is.

Overall my personal bets on Scott Bacon saved my election punting.  I had $150 at $4 and $100 at $3.  My original request was to put $1000 on him at $4 but sportsbet wouldn't allow me to do that (#%&@ers).

I lost $200 on Ferguson at $1.75, $150 on Rebecca White at $6 and $50 at $9 on Tim Morris.  I also had $50 on Rockliff just because I thought he was ridiculously good value at $5 and I said I would do it if he got passed $4.50 in this blog series.  So overall a net positive result of $450.  Not what I'd hoped for by still a decent return.

I hope you didn't lose too much money backing White or Ferguson like I suggested! 

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