Tom Burton: why are we so moronic?

By Tom Burton

Wednesday June 21, 2017

In a world of sharp fiscal challenges, it is remarkable how clueless we are about rethinking public policy problems to find more cost effective ways to achieve better outcomes.

Take three of our most pressing policy challenges: health, infrastructure and energy.

Starting with health, a report last week from La Trobe University’s public health department found as a nation we spend a miserly $2 billion a year, or $89 a person on preventative health. That is 1.34% of a total annual public health budget of around $154 billion per annum. This compares with the global leader in preventative care, Canada, which spends four times more on measures to reduce chronic disease. Chronic disease causes 83% of all premature death and accounts for two-thirds of the burden of disease in Australia — the measure of the impact of disease as measured by financial cost, mortality, morbidity, or other indicators

Healthcare is of course one of the nation’s fiscal time bombs, with federal Treasury’s 2015 Intergenerational report predicting public health spending is likely to more than double, from $2800 to $6600  a person over the next 40 years. The same Treasury report revealed most (circa 90%) of this spending increase is expected to be demand driven — more and wealthier citizens wanting best of breed treatment.

We have already seen the introduction of plain packaging laws and graphic health warnings since late 2012 reducing the number of Australian smokers by nearly 110,000 people.

According to the head of the “Sugar by Half” campaign, La Trobe Sports Medicine Professor Peter Brukner, Australian children consume a “crazy” 25 teaspoons of sugar a day, which is a key driver of the huge increases in obesity and diabetes in Australia. The World Health Organisation recommends seven teaspoons.

“There is no drug, nothing that would have such an impact on the health of Australians,” Brukner told the Herald-Sun. “A sugar tax would be one of a number of measures that would be helpful, it would be great, but the primary one is just education and getting people to understand where the problem is — don’t give your kids Coke, don’t eat processed food and get back to eating fruits, vegetables meat and eggs.”

How much can actually be saved across the health system through similar high impact preventative strategies needs more work, but as last week’s La Trobe report noted, we don’t even have the broad base of measures or institutional capability to begin that analysis. (The UK leads the world in this work)

Switching to another big ticket public domain, a quick eye ball of Infrastructure Australia’s priority list shows that of the 24 high priority projects and initiatives involving actual infrastructure build (as opposed to corridor reservations and planning), 20 are focused on urban transport congestion. That is four out of five projects trying to solve our inability to organise ourselves differently.  Congestion is of course about the peaks, spikes in demand that are almost entirely driven by our inability to rethink how and when we travel about our cities. Like lemmings, we religiously commute to work, school and recreation on mass, clogging transport routes and interchanges as we all head for the same place at the same time.

There are obvious relatively low-cost strategies to shift this behaviour — I don’t know a teenager who would complain if High School began at midday. Combine a real and determined effort to shift work and school start and knock off times with finely tuned congestion tolls using GPS trackers, aggressive high occupancy strategies, car parking restraints and new ways to promote car sharing and fleet ownership, and many of the congestion spots we are throwing billions of public dollars at will disappear.

Indeed there are reputable predictions the number of cars could be reduced by up to 75% by 2050, using a strategy of ubiquitous private car sharing, increased on-demand public transport and strengthened infrastructure for walking and cycling, to drive optimal shared trip efficiency.

Crudely on current projections we will need to spend around $100 billion a year to keep our capital stock in line with projected growth, based on how we live and work today. Even with every government in the land spending big time on infrastructure — causing substantial cost blow outs because of inter alia insufficient skilled labor – Australia is spending at a trend rate of about $75 billion a year on capital infrastructure. Much of this is coming from the three east coast states who are swimming in tax revenues from the housing boom. When normality returns we will be even shorter of the annual $100 billion target required.

Reducing the number of cars by a factor of four will of course also reduce the level of energy and emissions (by 80% by 2050), another area of public policy where despite our claim to policy sophistication, we are essentially stupid.

The recent landmark report on energy market reform by Chief Scientist, Professor Alan Finkel, made the obvious point that we need sensible long run investment in a broad mix of energy creation, storage and distribution technologies to meet prospective energy demand and reduce global poisoning CO2 emissions.

But Finkel’s report was precious short of any substantial recommendations about how to reduce consumer and business demand around the peaks. Managing seasonal and diurnal demand peaks is what makes energy supply complex and expensive. Current technologies means we can’t efficiently store electricity, so the whole system is designed to manage what are essentially lifestyle driven spikes.

These spikes add up to about 40 hours per annum, less than two days a year or 1% of time. The cost of this last one per cent is huge. According to one university estimate around 25% of our electricity bills are for capacity in the system needed for less than one per cent of the year.

For over 30 years there have been numerous reports about doing more to shift power demand away from the peaks, but precious little action. Yet arguably the entire so-called energy crisis we are enduring, could be avoided if consumers and businesses could intelligently change demand behaviours. At a time where we are awash in technologies to smartly generate, distribute and consume power, we insist on throwing large sums of precious capital to solve what is a classic Pareto problem.

 These are but three areas where thinking outside the public policy square makes a huge difference to both the result and long run fiscal cost. The same thinking could be applied to numerous other sectors and public services. We have nascent central agency behavioural units in most governments across Australia that are beginning to nudge into this area of policy design. But for all the discussion about superior outcomes using data, different delivery models and better service design, we seem extraordinarily moronic about alternative approaches to drive better policy results at significantly less cost to the public purse.

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Anthony Ladson
Anthony Ladson
4 years ago

Thank you for your great article.

Another statistic along similar lines to your preventative health numbers. The Australian government spent $180 million on disaster mitigation over the 6 years to 2012 and at least $6.7 billion on disaster recovery (PC, 2012, p21).

PC (2012) Barriers to effective climate change adaptation. Productivity Commission Inquiry Report No. 59, 19 September 2012 (report).

Scott Bourke
Scott Bourke
4 years ago

Tom – concerning the crisis of congestion and the associated lack of appetite our governments have to (partially) address congestion through investment in policy and behaviour change, two points. First, congestion – and it’s adverse impacts on travel time as a principal KPI – is a non-linear problem in that typically a 5-10% reduction in vehicle volume in peak periods can produce a 25-35% reduction in travel time. Second, with complex problems – which are unlikely to be ‘solved’ with one solution, empirically validated experience suggests that it’s typically most beneficial to start with one ‘low-cost/medium impact’ partial solution and build from there. On the broader question you raise, our government shows both no capability or appetite for solving these complex problems because in an era of rampant self interest, they’re unprepared to disrupt the status quo for fear of even marginal voter backlash.

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