ALP Platform Committee Report

In December 2016 the Victorian branch of the Australian Labor Party established a ALP Platform Committee and called for members to make a contribution. The Isocracy Network, although non-party political, has members who are also members of the ALP and thus presented the following submission on the first four topics chosen by the committee. A summary version of our contribution includes: (a) removal of taxes on productive activities and a shift to resource rents, (b) public expenditure and employment on new infrastructure, especially renewable energy and communications, (c) public expenditure on skills and training in such new infrastructure, especially renewable energy, and information and communications technology, and transport, (d) objective harm minimisation policies in substance abuse and decriminalisation of person drug offenses, (e) extending public transport infrastructure and resocialisation of the network.


1. Jobs and Economy

As of March 2017, Victoria's seasonally-adjusted unemployment rate stood at 6.1%, marginally above the national average of 5.9%, and somewhat higher than New South Wales at 5.1% [1]. Whilst this is an modest improvement from the 6.7% value when Labor took office in November 2014 [2], with small increases in the employment rate and participation rate.

Numerous studies [3] have been produced over several decades that show the causal relationship between numerous social and individual problems. Politically it may be a difficult sell, especially considering voluntaristic assumptions, but unemployment is a causal factor in health issues (especially cardiovascular disease), psychological issues (depression, suicide), and social issues (arrests, crime). Thus not only does unemployment represent lost opportunities and welfare costs, but often very hidden costs. The Brenner summary suggests a 1:0.4 causation in crime, for example. Obviously more recent and local examples should be sought, but the point is made.

The other thematic concerns proposed by the Platform Committee provide significant opportunities to reduce unemployment to a preferred type (i.e., voluntary frictional unemployment alone). Which direct public policy action is dependent on Federal government action, there are several public revenue actions which can make significant differences.

The general principle should be to create incentives which result in employment opportunities and production, and to reduce or eliminate those which prevent the same. It is recognised, for example, that despite a relatively low administrative cost, that payroll tax is essentially a tax on employing too many people. Whilst Andrew Labor government announced on the 2017-2018 budget $221 million cut to payroll tax[4], this is very modest compared to the total amount collected ($5,898 million in 2017-2018 to an estimated $6,833 in 2020-2021). We recommend that the Platform Committee establish, as a policy, the gradual abolition of Payroll Tax altogether and its income replacement from economic rents and Pigouvian taxes [5].

A similar principle should be applied for other the transaction taxes on economic goods which the State government derives revenue from. This includes the Land Transfer Duty (currently at $6,164 million), which effectively is a barrier that prevent people from selling property. Such transaction taxes, in addition to raising the price of a transaction have an administrative cost and a deadweight loss due to loss in trades. This is not to suggest that all transaction taxes are negative; some legitimately represent a pooled fee-for-service (e.g., a component of vehicle registration fees), and some legitimately redirect expenditure for the public good (e.g., gambling taxes).

One public finance area that is consistently under-utilised is land tax. Numerous public research over many years indicates the relative efficiency and benefits of public ownership of economic rents. The Australia's Future Tax System Review (Henry Review) in 2008 [6] argued that stamp duties out to be abolished and a Federal land tax established, however there are good reasons to doubt the Federal government's political will in this matter even if it is extremely good public policy. As an overall objective, where there is a property tax on transactions, this should be replaced by a tax on land holdings.

An issue which - with good intention - that is often raised that appreciation in land-values is a deferred income its own right, even if these are not immediately available. Thus it raises concerns for those who are asset rich but income poor. One alternative would be for those on low-incomes to be able to to defer the tax until realisation; either to the point of sale or transfer, or the death of the occupier.

2. Skills and Knowledge

A recent estimation by the OECD [7] notes that, for developed countries, actions for reducing under-performance in basic skill levels would add 130% of current GDP over a 80-year lifetime. This is equivalent to the cost of the school system itself. The core reasons for this is well known as education has significant positive externalities; an evaluation of the costs of education in developed countries, such as EU, are estimated to be between 3% and 8% of GDP [8] in direct costs, with perhaps twice that value when opportunity costs are considered. However these costs need to considered in light on the individual and social returns. Approximately 65% of salaries are a direct result of educational benefits and a comparison between average years of schooling per country and GDP per capita indicates a very high correlation [9]. The improvement of skills and knowledge are at least in part, a responsibility of social intervention as well as individual initiative and responsibility.

Australia's education and skill training system is a amalgamation of state regulation with significant federal funding and intervention [10]. Recent initiatives which target under-performance in schools, and infrastructure upgrades are certainly necessary and will provide a very high return on investment. Future infrastructure expenditure must certainly ensure that the allocated $75 million for new relocatable classrooms to alleviate overcrowding does not become a permanent feature. The launch of the Victorian School Building Authority, with its plans for 42 new start-of-the-art schools, will of course be the appropriate authority to address this.

A concentration on reducing under-performance in schools will be increasingly relevant as the economy transitions increasingly towards lifelong learning models [11], where developing international motivation and conceptual understanding will is matched with technical expertise. Whilst this is largely a matter of curriculum development, and emphasis is made on the absolute necessity of fibre-to-the-premises in all education institutions as the transformation of education by information and communication technologies is only at its most nascent stage; and the provision of such connectively is future-proof.

A particular identification is made for strategic emphasis on construction and technical trade apprenticeships, which can correlate with new infrastructure investments (c.f., Section 4, World Class Transport Systems), and future needs (e.g., renewable energy developments). Victoria's apprenticeship paths already have a strong industry focus, especially in construction and the electrical trades (39 pre-apprenticeship courses out of a total of 58 [12]). New apprenticeships that specialise in telecommunications, information and communications technology infrastructure, and renewable energy in particular are recommended.

3. Health and Wellbeing

As with other thematic considerations provided, the topic of health and wellbeing is also a matter where there are individual and social benefits as positive externalties. Thus there is also mixed responsibility where social investments provide not only redistributive justice that ensures that all have access to health care, but also for the provision of a more productive society. It is not, of course, just life, but a good life [13], that is worth living. Public policy therefore needs to be orientated towards improving life and the quality of life.

Improving health and well-being requires integration with the transitions in the economic order and lifelong learning. In the second thematic consideration (Skills and Knowledge) there is emphasis on the strategic investments of the new economic infrastructure, especially in renewable energy technologies and information and communications technology infrastructure. Again State governments are limited in their capacity and much responsibility and policy comes from Federal government decisions. Indeed, the complexity of State-Federal provisioning for health services is itself a health issue, especially for those with chronic conditions[14], and the Victorian government has the opportunity to take leadership in simplifying these arrangements.

The last State budget [15] engaged in a number of initiative that are worth noting. Firstly, is "record-breaking" investments in health-care facilities, across several centres (Northern Hospital, Austin, Royal Melbourne, Footscray, Monash, Gippsland etc) to ensure delivery close to home. The $95.4 million the family violence workforce is certainly one the most significant investments in that area in the history of Victoria. The emphasis on that investment with new workers in mental health and alcohol and drug services is the correct targetting and dovetails with other expenditure in metal health and drug rehabilitation services, especially in Gippsland, Hume, Barwon, and Ballarat.

The issue of substance use and abuse is a matter of heightened public concern which significant health and law-enforcement concerns. In particular, the recent reports of Australia21 [16]- which has has the backing of former police commissioners and assistant commissioners, two former heads of Corrective Services, a former Supreme Court Judge and a former Director of Public Prosecutions, and was launched by Jeff Kennet and Bob Carr - argues for the decriminalisation of personal use, medically supervised centres, and harm minimisation strategies, is endorsed. Those opposed to such policies must engaged in an evidence-based assessment rather than prejudiced opinions. Significant political courage is required of course, and it is notable that many politicians after their career express a wish that they could have made the bold and necessary decisions. At some point a politician needs to make the decision whilst they have the power to do so.

Overall, a health and well-being policy must focus on providing suitable and integrative care for those who suffer chronic health problems whilst, as much as possible, providing emergency care when necessary and preventative care as a preference, of which this year's budget allocation of $69.2 million is a positive initiative. Certainly if the coordinated health care model delivered South Eastern Primary Health Care Network trial proves successful it should be extended to other regions. Whilst the health system is much improved in terms of reducing elective surgery waiting lists, the same must be attained in emergency waiting times and on outpatients.

4. World Class Transport Systems

Once again, the thematic considerations have properly identified the role of State governments in providing the infrastructure and support services that enhance positive externalities and mitigate negative externalities. Again, the capacity to provide is limited by Federal-State relations in terms of financing and responsibility. Multiple reports and plans over the past decade have been undertaken, including the Eddington Transport Report (2008) [17], Victorian Transport Plan (2008) [18], proposals from the Victorian Public Transport Development Authority (2009) and Linking Melbourne Authority (2010), Labor's Project 10000 (2013) [19] along the assessments and evaluations from Infrastructure Australia. To the extent that these are empirically-grounded and the business cases transparent, is the extent that they should be utilised.

Major transport infrastructure initiatives have been undertaken by the current State government aimed at reducing congestion and improving safety. The Metro and West Gate Tunnel initiatives, the North-East Link, the upgrade to the M80 Ring Road, the Mordiallic Bypass etc, and removal of the most dangerous level crossings is particularly notable as part of the overall investment of $12.8 billion in transport infrastructure announced in the 2015-2016 budget. The purchase of more trains, trams, and the announcement of 24-hour trains, trams and buses running on weekends in Melbourne, with night coaches will service select regional locations is certainly a step towards the transport expectations of a modern city.

Proposals to increase public transport infrastructure can be viewed within the same model of reducing congestion. The slogan "free, safe, and public", draws particular attention to the failures of privitisation of transport infrastructure [20], whose subsidies are 169% of congestion costs by way of comparison. This is in stark contrast to the predictions made when the system of was privitised in 1999 with claims that subsidies would fall. Economic logic dictates that regional private monopolies are less efficient that general public monopolies (a logic which applies to electricity and other utilities supplies), and the costs indicate the effects. The recent calls from the Rail, Tram, and Bus Union [21] for return transport to public hands should be seen in this light.

References

[1] Unemployment Rates (15+) by State and Territory, March 2017 (%)
http://lmip.gov.au/default.aspx?LMIP/LFR_SAFOUR/LFR_UnemploymentRate

[2] Victoria Unemployment Rate (15+), March 1992 - March 2017 (%)
http://lmip.gov.au/default.aspx?LMIP/LFR_SAFOUR/VIC_LFR_LM_UnemploymentR...

[3] For example:
Prolonged unemployment and depression in older workers: a longitudinal study of intervening variables.
https://www.ncbi.nlm.nih.gov/pubmed/3660007

Associations between unemployment and major depressive disorder: Evidence from an international, prospective study (the predict cohort)
http://www.sciencedirect.com/science/article/pii/S0277953611006010

Richard Ashley "Fact sheet on the impact of unemployment" (PDF). Virginia Tech, Department of Economics.
https://web-beta.archive.org/web/20090401000000*/http://ashleymac.econ.v...

[4] Victorian Government Budget papers
https://www.budget.vic.gov.au/budget-papers

[5] As ammended by Carlton and Loury. Carlton, Dennis W.; Loury, Glenn C. (1980). "The Limitations of Pigouvian Taxes as a Long-Run Remedy for Externalities". Quarterly Journal of Economics. 95 (3): 559–566. doi:10.2307/1885093. JSTOR 1885093.

[6] Australia's Future Tax System Review, 2008
http://taxreview.treasury.gov.au/Content/Content.aspx?doc=html/home.htm

[7] Universal Basic Skills, 2015
http://www.oecd.org/edu/universal-basic-skills-9789264234833-en.htm

8] Fernando Reis, 5% of EU GDP is spent by governments on education, Statistics in Focus 117/2008, European Communities, 2008

9] David N. Weil, Economic Growth (third edition), Pearson Addison-Wesley, 2009. See also the historical study by Burton Allen Weisbrod, External Benefits of Public Education : An Economic Analysis, Princeton University, 1962

10] Australian Education Act 2013

11] John Field, Lifelong Learning and the New Educational Order by John Field, 2006

12] Pre-apprenticeships Course Finder - Courses by State and Territory
http://www.aapathways.com.au/Search/Preapprenticeships/Courses-by-State-...

13] An issue that was first raised by Socrates in Plato's Crito 48b.

14] OECD Health Policy Overview : Health Policy in Australia, 2015

15] Victorian Government Budget papers, op cit
https://www.budget.vic.gov.au/budget-papers

16] "Can Australia Respond to Drugs More Effectively and Safely?", Australia21, 2017
http://australia21.org.au/product/can-australia-respond-drugs-effectivel...

17] Eddington Transport Report, Victoria, 2008
http://www.transport.vic.gov.au/research/research-and-policy-development...

18] The Victorian Transport Plan, released by Brumby Government, December 2008.
http://www.transport.vic.gov.au/projects/transport-strategies-and-plans/...

19] Project 10000, Australian Labor Party, 2013
http://www.danielandrews.com.au/wp-content/uploads/2013/11/Victorian-Lab...

20] Transport companies suck $2.6 billion, July 2013
http://www.theage.com.au/victoria/transport-companies-suck-26-billion-20...

21] Unions urge Daniel Andrews to return trains, trams to public hands, Feb 2017
http://www.theage.com.au/victoria/unions-call-on-daniel-andrews-to-retur...

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