Posts Tagged ‘policy’

Putting the customer back in front: How to make electricity prices cheaper


A new report from the Grattan Institute’s Energy program, Putting the customer back in front: how to make electricity cheaper, presents a concrete set of proposals for substantially reducing the power bills of Australian households.

The main problem driving excessively high prices for consumers is that the regulation of electricity distribution networks is broken. Changes over recent years to the way distributors operate and charge customers have allowed them to make unduly high profits, given the relatively low level of risk they face.

Governments have also intervened to ensure that distributors deliver power at a level of reliability no serious cost-benefit analysis can justify.  Again, it is consumers who pay. To restore the balance, governments should:

  • Direct and empower the Australian Energy Regulator (AER) to set the parameters that determine customer costs and company profits, and ensure that the parameters are consistent with the low risks these businesses face.
  • Reduce the risk of political interference by transferring responsibility for setting reliability standards from state governments to the Australian Energy Market Commission (AEMC) and the AER, the national bodies that set and enforce the rules of the market.
  • Implement more robust corporate governance standards for government-owned businesses to ensure they operate as efficiently as those that are privately owned. Otherwise they should be privatized.
  • Prevent over-investment in the networks by empowering the AER to review the companies’ capital expenditure forecasts annually against credible market demand forecasts, and subject any over-expenditure to a rigorous cost-benefit analysis.

Recent rule changes proposed by the AEMC are going in the right direction, but are still too general to instill confidence that the desired result will be delivered.

Of course distribution companies should be allowed to make fair and reasonable profits. At the same time, regulators should not only have more resources and power – but should be directed – to act in the long-term interests of consumers.

The Report states the recommendations in this report could save customers about $2.2 billion a year, or $100 a year for every household, as well as creating a fairer, more efficient electricity distribution system.

O’Farrell Government’s Attacks and Cuts

Since taking office in March 2011, Barry O’Farrell and his Government have made a number of cuts to funding, jobs, workers’ rights and services. Here is an overview of what the workers of NSW have endured thus far.


Attacks on Workers’ Rights

Taken Control of IRC and Frozen Wages

-                   The Government passed the Industrial Relations (Public Sector Conditions of Employment) Act 2011. Consequently the Government has given itself complete power to determine wage increases (or not) and conditions for public sector staff through Regulations which do not have to pass any votes in the Parliament.

-                   The Industrial Relations Commission has had its power to arbitrate wage disputes removed.

-                   So far, the Government has frozen wage increases for public sector workers at 2.5%. Whilst the O’Farrell Government has claimed this will not leave public sector workers worse off, the University of Sydney’s Workplace Research Centre found that a nurse would be $12, 232 worse off and a teacher $14, 580 worse off each year had the O’Farrell policy been applied over the past decade.

Attacked Injured Workers

-                   Government amendments to the Workers Compensation Act saw significant cuts to the support and compensation provided to injured workers.

-                   The cuts to Workers Compensation means weekly payments will cease after 2.5 years and medical costs will stop being paid after 3.5 years for most injured workers.

-                   Additionally, workers will have almost non-existent coverage for accidents on their way to or from work.

-                   No lump sum payments can be made for pain and suffering, regardless of the severity of the injury.

-                   Changes to weekly benefits, medical costs and duration of payments are to apply as soon as possible to existing claims.

-                   The O’Farrell government attributed the needs for the cuts to a ‘deficit’ in WorkCover. The cuts have shifted the blame of the ‘deficit’ onto injured workers, with the Government hoping for a reduction in insurance premiums for employers.

 

Stripped Police of their Death and Disability Protection

-                   The Government’s Police Amendment (Death and Disability) Act 2011 severely cut the support and rehabilitation provided to police who are injured on the job, as well as support for families of police officers killed at work.

Attacked Workers’ Rights to Fairly Bargain Collectively

-                   Currently before Parliament is the Government’s Industrial Relations Amendment (Dispute Orders) Bill 2012. If this Bill is passed, it will increase fines for taking industrial action from $10,000 a day to $110,000 a day.

-                   It is also important to remember as mentioned above that unions no longer have the right to independent arbitration over wages and conditions and unlike the Federal industrial relations system have no legal right to strike through protected action.

No Consultation around Significant Industrial Changes

-                   By way of example The Technical and Further Education Commission Amendment (Staff Employment) Act 2011 saw 13,000 TAFE teachers transferred to the Federal industrial relations system where they now fall under the Fair Work Act

-                   No consultations with unions or teachers were attempted prior to the introduction and subsequent passing of this Act.

-                   Similarly, Government abolished the Transport Appeals Board with no discussion with unions.

Forcing Retail Workers to Work on Public Holidays

-                   The Retail Trading Amendment Bill 2012 presented by the O’Farrell Government will allow all retailers to trade on Boxing Day and Easter Sunday which will see employees being forced to work on what should be a day for families.

-                   The Bill will also lead to backroom staff and staff of retail businesses working on Christmas Day and Good Friday.

 No Support for Equal Pay

-                   The most recent State budget has not allocated any funding to equal pay for social and community sector workers in line with the recent Fair Work findings.

-                   There are 30,000 community and public sector workers in NSW. Without NSW funding these workers will not receive the awarded increases in full which range from 19 – 41 per cent.

-                   Prior to the election O’Farrell promised social and community sector workers a fair and equitable pay rise.

Slashing Public Sector Entitlements

-                   The O’Farrell Government has applied to the NSW Industrial Relations Commission to change 98 different Public Sector Awards and enact massive cuts to entitlements and benefit.

-                   Some of the cuts include: slashing annual leave loading, cutting penalty rates for shift workers, removal of additional sick leave entitlements and parental leave.

Harnessing monopoly for the common good

by Karl Fitzgerald

All other things being equal, the owners of the earth have a comparative advantage over those in business or earning a wage. With $21 trillion hidden in global tax havens revealed this year (), and Starbucks, Amazon and Google being grilled in the UK Parliament this week, the need for a fairer tax system is growing.

The clamour for the expansion of the GST is at fever pitch here in Australia. What are the motivations behind this?

Few have noted the spree of government reports advocating for a fairer system via the ‘transfer of tax bases’ – the move from mobile to fixed tax bases. Such a move would wipe out the ease of using tax havens and tax trickery. This is code for saying ‘those who own the land must pay for the governing of the land’.

Ken Henry’s Australia’s Future Tax System, the NSW Lambert report, the ACT’s Quinlan Report, the UK’s Mirlees Report and the NZ Tax Working Group have all advocated to some extent the need to move to fixed tax bases.

In effect they are discussing the ability of people like Gina Rinehart to make $2 million an hour whether she gets out of bed or not.

In economic parlance, this is a discussion about economic rents – in broad terms the naturally rising value of the earth (or licensed monopolies). Bureaucrats are trying to awaken the people to the fact that the tax system can be used to harness these powers of monopoly for the common good.

But what have been the policy responses?

With austerity pressures blindsiding the people in mass sackings, the IMF has been busy installing the next layer of inequality. The global land bubble has blown the world economy apart but yet the answer has been to hit the consumer with regressive sales taxes. Someone earning $20,000 pays the same amount as someone on $20 million. Sounds great right?

This is the plan set out by far right think tanks such as the Cato Institute and the Heritage Foundation.

Rising sales taxes have occurred in the UK, France, NZ, and Japan to name a few. American consumers experienced 542 increases across jurisdictions in (2010).

However, this won’t stop the property speculation that was the catalyst to these problems.

It is only a matter of time until the same bubble mentality takes hold of the most precious asset – our homes. This is in effect what Bernanke’s QE3 is trying to trigger – the next land bubble.

Economists have long acknowledged that ‘asset bubbles always end in tears’. Why then are we encouraging the same mistakes?

Considerable resources must be spent educating society about the advantages those with monopoly rights have over the rest of the economy. Similar to climate sceptics, property bubble sceptics see nothing wrong with First Home Owners committing to a lifetime of historically high mortgage payments. A blind eye is turned from the $100′s of extra dollars fleeing local communities each week and heading towards deep pockets in the banking and real estate industries. The multiplier effect of such behaviour is damaging small local business, our largest employer.

TV shows such as Location, location location feverishly promote the value of prime locations as an investment strategy.

Why then does the economics profession ignore the role of location?

The advantage of living near a new train station or public hospital is delivered in higher land values. These publicly funded advantages result in private windfalls, leading to the deadweight losses of inefficient taxation. The recent Committee of Melbourne’s Moving Melbourne report identified the need for ‘value capture policy’ to finance the infrastructure deficit. Lucy Turnbull has advocated for similar policies in Sydney’s Cities Expert Panel.

Meanwhile small business struggles with rising rents, while surrounding them here in Melbourne is a commercial vacancy rate of some 24% (PDF, Appendix C). Such speculative supply kept off the market forces up rents, undermining our export competitiveness.

Treasurer Swan’s recent business tax reform initiative asked the corporate community to orchestrate their own tax cuts. They threw in the towel early when competing lobbyists couldn’t come to an agreement within the terms of reference. The stalemate was a call out to government to tax those without a strong lobby group – the consumer, with a higher GST. Chris Jordan, the head of this body, has now been appointed the lead of the ATO.

Those locked out of the housing market see some $2.6 billion per year given to negative gearing property investors over the last decade, 92% of which is spent on existing housing. The latest addition to Treasurer Swan’s ‘price of inequality’ is the booming Self Managed Super Fund industry. All other things being equal, those who already own a home are now permitted not just negative gearing write-offs, but a capital gains tax exemption for residential property investments via an SMSF vehicle.

Gen X, Y and Z will soon realise that baby boomers own nearly half of housing wealth. The latest empowerment of SMSF’s announced in the MYEFO will only enhanced this generational inequity. Treasurer Swan seemed genuine in his pre-budget moves to remove the capital gains exemptions for SMSF’s barely two years after their introduction into the residential sector. Unfortunately the lobbyists cornered him and single mums were hit with the cutbacks instead.

The power of organised oligopoly was dramatically demonstrated in the challenge to pokie reform when PM Julia jumped at the thought of a $20 million campaign across marginal seats by the Australian Hotels Association. The blight on democracy was compounded by the revelation that only $3 million was required for the desired policy outcome.

Lest we forget – the Victorian pokie licence auction, slammed by the auditor general as a $3 billion giveaway.

For the level playing field to truly exist, the power of monopoly must be broken down for all to see. The cheekily titled ‘digital dividend’ Senator Conroy is proposing could well hold the key. Instead of a fee simple auction of the electromagnetic spectrum’s 700 khz bandwidth, an annual lease could be charged for what is described as ‘the waterfront real estate’ of the EMS. This lease would be based on an annual valuation of the bandwidth’s value. The value of these property rights is destined to escalate once iphone 10 allows individuals to holographically transport themselves to the other side of the globe. Over time, government could share in the rising value of the earth, the economic rent, to keep price overheads low as classical economists once championed.

Within this lease could be a caveat that X amount of free airtime be provided to each political party in a campaign year, as New Zealand allows. Politicians would then face less pressure to pawn their principles as they wouldn’t have to pay for advertising on the once public airwaves.

The scientific community have been very open in accepting its failure to simplify core messages to the public over climate change, allowing breathing room for climate sceptics to control the debate. Similarly in the economics profession, some responsibility must be taken for the current situation where the global property bubble has been ignored as a catalyst for the credit crisis (falling land prices → bank write downs).

To be a science, economics must relate to reality. Thankfully economists such as Joseph Stiglitz, Michael Hudson and Martin Wolf are raising the flag as we re-frame economics as the essential science, never dismal.

In closing, the pot of gold at the end of each property flip must face closer scrutiny if we are to give equal opportunity to future generations. The tax system must be directed to equalise the opportunities between those who own our common wealth and those who are contributing to the community. Otherwise, rent seeking in the race for the rising value of the Earth will distort both economic and political decision making.

Karl Fitzgerald is the Projects Coordinator for Earthsharing Australia.

This article was first published at www.onlineopinion.com.au

Sharp rise in youth homelessness shatters stereotypes

by James Farrell

The number of Australians who were homeless on census night increased by 17% to 105,237 in the five years to August 2011. When adjusted for population growth, the increase the increase is still worryingly high, at around 8%. It’s clear we need a stronger commitment to address this significant social issue.

The census data, released this week by the Australian Bureau of Statistics (ABS), continues to shatter the stereotype of homelessness: the middle-aged alcoholic or drug-addicted man sleeping in a park.

Rather, 60% of people experiencing homelessness were under 35 years old, and an incredible 17% were aged under ten. The ABS acknowledges that census methodology is likely to underestimate youth homelessness, so the number is probably higher than the estimated 44,083 Australians under 25 currently recognised as homelessness.

As subsequent research from the Australian Institute of Health and Welfare shows, these young people will be more likely to be involved in child protection and juvenile justice services, further entrenching their disadvantage.

Almost half (44%) of homeless Australians were women; with women and children the fastest growing group seeking assistance from specialist homelessness services. This number, however, does not include women and children remaining in unsafe housing and continuing violent relationships. The ABS recognises that data sources other than the census must be used to better understand the incidence of family violence and the consequences on housing security and homelessness.

In welcome news, the number of people “sleeping rough” (in improvised dwellings, tents or sleeping out) decreased from 7,247 in 2006 to 6,813 in 2011. But more people are sheltered in such substandard overcrowded housing as to warrant being classed as being homeless; this group increased from 31,531 in 2006 to 41,390 in 2011.

The homelessness rate grew by more than 20% in New South Wales, Victoria and Tasmania, with a gob-smacking 70% rise in the ACT. Meanwhile, the largest fall was in the Northern Territory, which still has (by far) the highest proportion of people experiencing homelessness (731 people per 100,000 population, compared with a national average of 48.9).

The ABS has acknowledged it has further work to do to understand and measure homelessness experienced by Aboriginal and Torres Strait Islander people, which goes a long way to explaining the NT’s massive homelessness rates.

The ABS report has been the subject of significant media coverage, much of it couched in terms of the failure of governments to reduce homelessness. But given the social and economic changes since 2006, it’s surprising that the growth wasn’t higher.

Rather than whacking governments, the ABS data shows a need for governments to continue their efforts to address homelessness.

 

 Committing to end homelessness

The Commonwealth’s 2008 white paper on homelessness, The Road Home, boldly aims to halve homelessness by 2020 and offer accommodation to all rough sleepers. Similarly, states and territories have introduced bold and targeted action plans to address homelessness.

These commitments have been underpinned by important agreements between the Commonwealth and the states and territories. The National Affordable Housing Agreement (NAHA) focuses on early intervention and prevention strategies, better assistance for people with multiple support needs, and providing ongoing assistance to ensure stability for clients post-crisis. The National Partnership Agreement on Homelessness (NPAH) outlines funding arrangements for specific projects and commits partners to addressing agreed outcomes through program delivery.

But these agreements end in June 2013, making the next few months a vital time for the agreements to be renegotiated. At his address to the National Press Club this week, Housing Minister Brendan O’Connor committed to providing half the funds required for another year while the NPAH is renegotiated.

The states are yet to meet this commitment and are seeking additional resources from the Commonwealth. Details will be discussed at today’s meeting of housing ministers in Brisbane.

In addition to resourcing, more work needs to be done to ensure homelessness services are sufficiently funded and effectively delivered. To achieve this, we need to establish a monitoring system with nationally consistent, evidence-based measures to assess the effectiveness of homelessness services. This will allow us to focus on the outcomes of people experiencing or at risk of homelessness, rather than just on the number of people being provided with services.

As the ABS figures show, homelessness continues to be a social crisis in Australia today. Governments, and the broader community, must redouble their commitments to address, and ultimately end, this significant social policy challenge.

James Farrell is currently a Director of the Council to Homeless Persons, Treasurer of the Federation of Community Legal Centres and the National Association of Community Legal Centres and a member of the StreetSmart Australia grants committee.

This article was first published at www.theconversation.edu.au

 

Spotlight back on PPPs as BrisConnections falters

by Flavio Menezes

News that BrisConnections, which operate Brisbane’s Airport Link M7, has suspended trade on the ASX as it continues to talk with its debtors is likely to again lead to a debate about the role of Public-Private-Partnerships – or PPPs – in providing government infrastructure.

PPPs have been criticised in the wake of several high profile failures including Sydney’s cross-city tunnel, Brisbane’s Clem 7 tunnel and the consortium building the Ararat prison in Victoria, as well as the high cost to the public of PPPs undertaken in the 1980s and 1990s.

Supporters will argue that the PPP model works because ratepayers will be protected if the company that built and operated the tunnel fails.

Both sides are mistaken. Economic research suggests that PPPs can deliver better outcomes than traditional procurement but often governments choose PPPs for the wrong reasons and fail to take key steps to ensure their success.

Under public procurement, the government finances the construction phase of the infrastructure, tendering the construction to private parties. The operation and maintenance of the infrastructure also may be contracted to private parties.

Under a PPP, a government tenders a “bundle” consisting of financing, construction and operation to private parties. The contract is usually for a fixed period at the end of which the asset reverts back to the government.

An important advantage of PPPs is the potential efficiency gains from bundling the construction and operations/maintenance.

When bundling occurs, the winning firm minimises the total of construction and maintenance/operating costs. So design and construction are undertaken in a way to minimise the total cost of the project over its lifetime.

Another potential advantage from the involvement of private financing under a PPP is in avoiding the construction of politically motivated white elephants. Private parties will find it difficult to obtain financing for a project that is not commercially sound. Arguably, the PPP failures reported above could be related to the particular structure of those PPPs rather than the underlying economics of the projects.

There are also, however, wrong reasons for selecting PPPs over traditional procurement. For example, governments may favour PPPs over public tendering to alleviate its budget constraints. This argument is clearly wrong when PPPs involve direct government transfers, such as minimum income guarantees or other types of payments. It is also wrong to the extent that the PPP project is financed by user fees — a revenue stream which the government gives for the duration of the PPP contract.

Governments can be also attracted to PPPs because they perceive this model shifts the demand risk from the government to the private parties. This argument for choosing PPPs is erroneous for several reasons. Firstly, the private parties bearing demand risk do so in exchange for a risk premium. To the extent that they cannot influence demand, the government may be the best party to hold the risk. Secondly, the upshot of the financial difficulties with projects such as the M7 Airportlink is that it will be very difficult to find investors willing to finance similar ventures in the future.

Third, in a number of cases in Australia and overseas, governments have bailed out failed projects, for example, by renegotiating payments or taking equity stakes. In such cases governments ended up bearing at least some of the demand risk.

There are ways in which PPP tenders can be modified to allocate risk appropriately. For example, research developed over the past decade suggests a tender process that allocates risks appropriately. The key idea is to run a least-present value of revenue tender. The winner of the tender is the firm that has submitted the lowest required revenue (expressed in present value terms). The innovation of this process is that the duration of the concession is variable.

The contract only expires when the winner of the tender recovers the amount of revenue bid. This type of tender allocates the demand risk to the government, reducing financing costs and ensuring that the benefits of PPPs over public tender are realised. This approach has been successfully tested in Chile.

In the past decade, we have learned a lot about what works and what does not in PPPs. To avoid previous mistakes with PPPs, governments need to ensure that there is a robust process for evaluating PPPs. Moreover, closer attention needs to be paid in the design of PPP tenders and contracts, as suggested by both economic theory and international practice.

Flavio Menezes is a Professor of Economics and currently the Head of the School of Economics at the University of Queensland.

A longer version of this article is at Australian Policy Online.


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