Where are the big reforms for state government?

By David Donaldson

Monday October 29, 2018

With elections just around the corner, fast-growing Victoria and NSW must resist temptations to promise untested infrastructure projects and restrict housing development, says the Grattan Institute. These are just some of the ideas for state reforms contained in its new report.

Governments are frequently tempted to give in to bad ideas, and this urge is never stronger than during election season.

So with the Victorian election weeks away and New South Wales facing its own in a few months, the Grattan Institute has released its State Orange Book 2018, drawing on 10 years of reports to give voters and policymakers its well-considered thoughts on what state governments around the country should be doing.

Property tax, congestion pricing, electricity market reform, teacher effectiveness, hospital costs, improved budget processes — it’s all in there.

The thinktank has also picked out some of the best ideas implemented in different jurisdictions so others can learn from their experience, assisted by a scorecard to show how outcomes vary between states across a broad range of areas.

Coping with urban growth

As Sydney and Melbourne grow, state governments need to resist the temptation to come up with infrastructure projects off the cuff, the think tank says.

“All states should stop announcing transport projects before they have been analysed rigorously, and they should evaluate completed projects properly”, they argue.

Sydney trains: still plenty to do to improve public transport. Photo: Pixabay

There’s clearly plenty to do, however, with a recent Infrastructure Australia report estimating there are 1.4 million people in Melbourne without access to public transport, and 1 million in Sydney. Nonetheless, our city transport systems are more resilient than we often realise, Grattan argues.

Governments need to defy growing calls to implement stricter building height and heritage rules, and instead “should relax planning restrictions”, says Grattan. Planning reforms have already helped to increase housing supply, and governments should go further to ensure enough housing is built, particularly along transport corridors.

More housing is especially needed in inner and middle-ring suburbs — those which tend to complain loudest about new developments. Reducing red tape around subdividing and building small and medium-height buildings in these areas would mean more people are able to live where they prefer. States should set housing targets and make sure local councils meet the targets, under the threat of removing their ability to assess development applications, says the institute.

The stock of social housing should be expanded, but targeted much more tightly at applicants at greatest risk of becoming homeless. Tenancy laws should be strengthened to make renting more secure and enable tenants to make their rental property feel more like their home.

Abolishing first home buyers’ grants is a good idea, says the institute, as “in the end, housing affordability is actually worse because additional demand drives up prices”.

And governments shouldn’t fob off difficult cities reforms with talk of decentralisation.

“State governments should not defer changes to city planning by relying on wishful thinking that a significant portion of city population growth can be diverted to regions by either big transport projects or subsidies,” Grattan argues.

Congestion in Sydney and Melbourne can be tackled with tools like congestion pricing, which has been shown to work in Singapore and London. As a starting point, governments should commission work to enable the introduction of time-of-day road and public transport pricing, says the report.

In addition, many states say they want to increase “active” transport — walking and cycling — but are failing to meet their own targets. Publishing data on active transport progress more regularly could help meet these aspirations.

Lots of challenges

“Home ownership is falling fast among the young and the poor, and homelessness is rising. Our schools are not keeping up with the best in the world.”

There are plenty of big problems for state governments to tackle, says Grattan CEO John Daley.

“Per capita income has been flat for five years as the mining boom subsided. State and territory governments continue to announce large infrastructure projects without doing enough homework beforehand,” he explains.

“Home ownership is falling fast among the young and the poor, and homelessness is rising. Our schools are not keeping up with the best in the world. In most states, people are waiting longer for medical treatments. Wholesale electricity prices have increased significantly over the past few years.”

Learning from each other

But it’s not all about lecturing wayward politicians.

There are plenty of areas where governments can learn from one another.

The report argues, for example, that Victoria has relatively good health outcomes — and has improved more — on a range of measures such as mortality, cost and waiting times, whereas South Australia and the Northern Territory lag well behind.

“Many worthwhile reforms have been implemented over the past decade,” Daley says.

“Victoria’s hospitals cost less per patient and contribute to better health outcomes than elsewhere. Queensland’s school students learn more in Years 3-5, and this has improved significantly in the past few years.

“The ACT has started to replace inefficient stamp duties with a much more efficient broad-based property tax. NSW has used the good times to improve its budget position. Victoria, South Australia and the ACT have all increased the transparency of political decision-making and tightened controls over money in politics.”

“Other states and territories could learn from how Victoria has managed its health system to reduce the overall cost, and the variation in cost, between public hospitals.”

Every state and territory could learn from the others and do better.

Property tax — a favourite of economists but an idea most politicians are yet to embrace — gets a mention: all states should follow the ACT and replace stamp duties with broad-based property taxes, Grattan argues, adding that state governments should broaden land taxes to include owner-occupied housing, which would raise $7 billion nationally and help fund the abolition of more economically costly taxes.

States should also reform electricity markets to encourage reliability and reduce emissions — whether or not the Commonwealth government cooperates.

And the states can deliver services better. Other states and territories could learn from how Victoria has managed its health system to reduce the overall cost, and the variation in cost, between public hospitals. They should develop more prevention programs, which would help to reduce the disparity between regional and urban health outcomes.

Education needs a stronger evidence base for policy decisions, says Grattan. Plenty is already known, however, and states could improve outcomes by learning from each other more. Plus governments can lift progress for all students by focusing on teaching effectiveness, not just benchmarking.

Institutional reforms are needed as well. All states should follow the lead of Victoria and NSW and establish a parliamentary budget office to provide parliamentarians with independent policy costings.

And while institutional accountability is improving in many states, Western Australia, Tasmania and the Northern Territory need to limit election spending, and make donations and lobbying more transparent, says Grattan.

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