The Health Network

Exploiting Health:  Activists and Government v the People
Bob Browning,
Canonbury Press 9th Floor, 118 Queen Street, Melbourne, 3000.

As was the case with The Network, Browning's Exploiting Health is a record of largely publicly-funded lobbies that pursue minority interests and are allowed to have a disproportionate influence on government policy -- in this case health policy.  The material is alarming because these interests, being "minority", are often anti-majority;  and just as alarming is the news that their public funding has been going on under the noses of taxpayers for years.

Browning identifies five groupings:

• Health Activists
• Political Economists
• Legal Activists
• Feminists
• Environmentalists and Gays.

All these groupings (with the arguable exception of Gays) are overtly anti-biomedical.  For them the causes of ill-health are not biological but political, social and economic inequalities.  Consequently, for these groupings, problems of ill-health (usually identified as problems of "groups", not "individuals") are solved by removing these inequalities.

The removal process consists of, for example, promoting various forms of income redistribution (e.g. government grants to favoured groups), and identifying supposedly dangerous products as well as exposing (and sometimes destroying) the companies producing them.  Such activities show these groupings to be anti-private sector and anti-capitalist.

Rectifying capitalism's unhealthy inequalities provides (for many of the more prominent members of these groupings) careers reliant on the public sector and a chance to play out their ideological fancies.  For legal activists, it creates the opportunity for new markets and sources of income.  Browning's material, for example, on Greenpeace (now with very prominent Australian links) leaves the reader with the impression that it is simply an organisation created by people interested in making a good living from members' subscriptions.  Subscribers seem to be recruited and retained through fear created by environmental scare campaigns.  In practice, Greenpeace subscribers, as is the case with many such organisations, have little control over the organisation at all.

Thanks to these "rectifying" activities, much income and power is redistributed, but not necessarily to the unhealthy "victims".  Further, it is possible that, because of the activists' behaviour, much national wealth is foregone.  Browning points out that in the United States 10 per cent of Gross Domestic Product is said to be lost through the intimidating behaviour of legal ("consumer champion") activists.  For an economist somewhere, calculating an Australian figure would be a worthwhile exercise.

The public faces of these groupings are organisations with names found regularly in newspapers and on television:  Consumers Health Forum, Public Health Association, Student Initiatives in Community Health, Australian Community Health Association, Doctors Reform Society, Health Issues Centre, The Australian Institute of Health, Australian Consumers Association, Evatt Foundation, Women's Electoral Lobby, and the list goes on.  Most of these organisations are interconnected;  most are subsidised by taxpayers.  Browning's identification of these groups, of their links and of their taxpayer support has been painstaking and should be explored by readers for themselves.  He might have considered a diagram of their links and other details as an addendum.

USING HEALTH FOR WIDER CHANGES

The disapproval that these groupings and organisations display towards capitalism extends, for some, to major social institutions such as the family.  Browning, in Chapter Four, shows the extent to which various groups (e.g. the Women's Electoral Lobby) promote economic and taxation policies that provide disincentives for the family, and social policies that provide incentives for other types of household organisation.  This interest in promoting new types of household organisation only underlines what must become increasingly obvious to the reader:  that Health is being used by these organisations as a means to instituting other wider social, economic and political changes.

From Browning's material it is arguable that the case of Gays differs somewhat from the other groupings.  With the emergence of AIDS, Gays have become the "victims" as well as the "ideologists".  As victims, there is, consequently, little evidence in Browning's book of their demonstrating an overt anti-biomedical attitude.  Rather, their interest has been in the protection of their lifestyle from heterosexual (majority) backlash.  Their self-protection methods -- as Browning documents -- include silencing critics, creating (publicly-funded) publicity campaigns to "extend" the AIDS threat to the heterosexual community, usurping government funding for AIDS treatment and education, and manipulating language to create a separate gay "culture".  All with much funding and encouragement from government.

Why would the groupings and organisations discussed by Browning want to arrest or destroy so much of a society's wealth-creating activities, particularly when such activities provide the economic base necessary to tackle public health problems effectively?  Drawing on previous literature, Browning identifies a number of psychological and sociological explanations.  His, perhaps, minor explanations are the largely psychological phenomena of cultural discontentment and resentment and the sociological phenomena of romanticism and social engineering.

NEW CLASS CHARACTERISTICS

Browning's major explanation (on pages five to eight) is the emergence of a New (middle) Class as an enabling and participating agent.  This Class is defined (after sociologist Peter Berger) as mainly government-subsidised, university-educated, service or government sector employed, and knowledge-producing and distributing.  It is also ideologically to the left of the Old (middle) Class (and is, perhaps, mainly filled by post-war baby-boomers).  The very object of New Class disapproval and hate -- the affluence of capitalism -seems to have been the major factor enabling its birth and growth.

By the end of the book it is hard not to concur with Browning's conclusion that Australian democracy is eroding, because of the influence of unelected special interest groups.  It is also hard not to conclude that the state -- given Browning's documentation of its behaviour -- is making itself irrelevant to the interests of the majority.  Evidence of this is suggested by Browning's reproduction of relevant parts of a West Australian government pamphlet (1986) for homosexuals, describing the safest approaches to the use of various parts of the male anatomy in sexual activity.  These approaches Browning describes as "government-approved".  It is very difficult not to stop and chuckle at this description.  A second reading, however, reveals Browning's description to be quite unfunny because these "approaches" are exactly as Browning describes them -- "government-approved".

For the taxpayer and voter, Exploiting Health should be fascinating, disturbing, but necessary reading.

Economic Imperatives, Political Constraints

Microeconomic Reform in Australia
Peter Forsyth (ed.),
Allen & Unwin

GIVEN that microeconomic reform is the term on the lips of every politician, economist and self-appointed media commentator, it is odd that Microeconomic Reform in Australia is the first book to provide a thorough and rigorous examination of the area.  Its 15 essays cover the gamut from general areas such as tax reform and the labour market through to specific industries such as telecommunications and agriculture.

All of the contributors are senior academics but through careful editing and a comprehensive exchange of papers, the book avoids the ivory-tower trap.  It is, in fact, what it sets out to be:  authoritative, informative and scrupulously non-partisan.

The contributors are well aware of the realities of the political world.  The opening essay, by the editor, details the problems generated by the prospect of change.  Australia's political system, he notes, almost seems designed to frustrate a reformist government:  a bicameral parliament with the Senate usually controlled by a minor party, a federal system, and an electorate which is highly sensitive (perhaps over-sensitive) to the costs of change.

Yet the economy desperately needs change if Australia is to stay in the race.  How can a government reconcile economic imperatives with political constraints?  Forsyth points to a number of ways:  it can simply buy off the "losers" (with redundancy payments, for example) or look only at reforms which have little organised opposition (such as rail freight co-ordination).  But there are few easy options.  It is in the nature of microeconomic reform that the benefits are diffuse while the costs (or imagined costs) are concentrated.

Forsyth suggests that in many cases a two-step process may be the most feasible method:  an initial burst of reform to address immediate problems in an organisation or sector, with losers being compensated, followed later by structural reforms which are made easier because the process of change is seen to have already begun.  He draws on the British experience of privatisation:  an efficiency drive, followed by deregulation and privatisation.  He makes clear, however, that once-off changes are not in themselves sufficient:  the point of reform is to turn a static situation into a dynamic one, to turn change into a process of adaption and competition.

REFORM SHOULD BE ONGOING

Rolf Gerritson is less sanguine.  He believes that the successes to date arose from extraordinary circumstances, with financial deregulation in particular having widespread support.

Another example, the deregulation of agriculture, was successful precisely for the opposite reason:  the Hawke Government concluded that it could not win the farmers' political support under any circumstances, and that therefore it may as well go ahead on "public interest" grounds.

Gerritson argues that in recent years the deregulatory thrust of the HawkeIKeating Governments has deteriorated from rationalist to incrementalist.  A further move towards large-scale government intervention is possible, even probable, because "the Government defines microeconomic reform as a number of specific outcomes instead of a continuo~lps rocess.  Consequently, it focuses vn policy agenda management rather than permanent policy processes".

This is a theme which echoes through the book.  In his essay on tax reform, Matthew Benge is more explicit in the view that the Government, while having made progress, has by no measure gone far enough.  He cites the introduction of the capital gains tax and full imputation as important steps in removing the distortions of the system, particularly for investment.  The key problem now is the ramshackle structure of wholesale taxes, especially the "cascade" effect that it has on business.  He cites research showing that about half of the current wholesale sales tax base is made up of taxes on business inputs;  the impact on the wider economy is obvious.

He explicitly endorses a New Zealand-style Goods and Services Tax (GST), which would have the major advantage of relieving business inputs from taxation and removing the anomalies of the wholesale tax system (although the essay was written before Dr Hewson announced that food would be exempted from the GST).  If a GST allows for a major cut in income tax rates, so much the better.

He accepts that tax reform is a political minefield but concludes that "it seems hard to reach the conclusion that the Government's reforms have been so successful in rebuilding the income tax base that further reform is unnecessary".

Clearly, the most successful example of reform has been the deregulation of the financial sector, examined by Robert Ackland and Ian Harper.  For the most part, deregulation had the effects predicted by the Campbell Inquiry, although the failure of foreign banks to perform well has been a surprise.  But greater efficiency was not really the reason for deregulation, say Ackland and Harper:  it was done because the regulatory structure was impeding the conduct of monetary policy.  They recognise that there are still problems, with the market dominated by a small number of big players.  The answer to such a situation, however, lies in using existing anti-monopoly powers rather than re-regulating.

Jeff Borland, Bruce Chapman and Malcolm Rimmer look closely at the labour market, noting at the outset that it is an area where desirable microeconomic reform can have adverse macroeconomic consequences as -- by definition -- deregulation means that the Government no longer controls wages.  While there is a broad consensus among the players of the need for greater flexibility in the labour market, there is conflict over whether the focus of bargaining should be at the enterprise level or through large employee associations.  This is an area where there is no compromise solution and where the "losers" cannot be easily compensated.  The authors note that there are more questions than answers in the debate, and the long-run outcome of reform in either direction is unclear.

OPENING UP COMPETITION

In a careful analysis of Government Business Enterprises (GBEs), Simon Domberger notes that they account for 10 per cent of the economy's total wage bill and 19 per cent of its capital stock.  Reform, however, has been more a matter of talk than action, and most GBEs remain insulated from competition.  Domberger argues that there is little to gain in transferring a statutory monopoly from the public to the private sector;  the key is to corporatise or privatise in such a way that competition is created, such as by breaking up a large enterprise.  He believes that Canberra's enthusiasm for public sector reform has waned in the past few years, mainly because of the danger it might represent to the control of wages under the Accord.

Forsyth looks in detail at transport, an area in which reform could bring major advantages.  While there has been some progress, such as greater efficiency in the rail system, he argues that "there is no evidence of a comprehensive attack on the deficiencies of the sector ... reforms so far are distinctly ad hoc".  The reform of the waterfront, with the Government offering generous redundancy packages to cut manning levels, has been useful but without the introduction of greater competition the gains might soon evaporate.  In most cases of transport reform, says Forsyth, the Government has been a passive player, responding mainly to external pressures (although domestic airline regulation is an important exception).

One of the most interesting essays is Rodney Maddock's piece on telecommunications, tellingly titled "The long march from duopoly to duopoly".  Telecommunications reform has been the slowest process of all, beginning with the Davidson Report commissioned by the Fraser Government.  Nine years later, its deregulatory thrust began to be accepted, although political considerations led to a compromise which seemed to combine the worst of all the options.  "A regulated duopoly," states Maddock, "reduces many of the benefits that might flow from competition, while allowing the Government to impose a specific tax (licence fee) on one company in the industry.  It is quite inconsistent with what we have been promised by microeconomic reform".  He points out, however, that Telecom's performance over the past decade has improved, due to the possibility of competition -- although this ma) be an argument for more change rather than less.

Bob Gregory offers a concluding essay in which he returns to a basic question:  will the demand for microeconomic reform continue?  There are, he says, two scenarios.  The first is that the demand for reform will grow as Australian living standards fall:  a sort of enforced economic Darwinism.  The opposite is equally plausible:  if change becomes associated with job losses rather than economic growth (as has apparently happened in New Zealand), then calls for protection and large-scale government intervention may ultimately prevail.  The contributors to Microeconomic Reform believe that reform must not only continue but accelerate, although they are realistic enough to know that the course Australia will take is not yet clear.

Industrial Relations

CHAPTER 11

In the space of only four or five years, the underlying consensus of the debate about industrial relations in Australia has shifted remarkably.  In particular, there is now surprisingly widespread -- though far from universal -- agreement centred on two crucial issues.

First, the focus of industrial relations processes has largely shifted away from wages pure and simple to the link between wages and productivity.

Second, the workplace is increasingly seen as the appropriate area for the making of decisions;  and, conversely, the rigid and centralised system based on arbitration and conciliation 'courts' is increasingly seen not simply as irrelevant but as incapable of delivering appropriate results.

The initial impetus for these shifts was perhaps concern for the damage done to human rights by the centralised systems;  that has now largely given way to wider though not necessarily more important concerns based on international competitiveness, and the understanding that the Australian wage-fixing system could not remain a sheltered enclave in an increasingly open and internationalised economy.  Human rights aspects are not entirely neglected;  though, curiously, the right of individuals voluntarily to sell their labour on their own terms is still not central to the debate.

What was perhaps the key breakthrough came in 1987 with the decision to establish 'second tier' arrangements for productivity at the national level.  Even though the second tier itself is largely forgotten (having been overtaken by later initiatives such as award restructuring), the rhetoric and some of the reality at the national level has now permanently changed.

It is important to distinguish between rhetoric and reality.  While the language of Federal industrial relations has for the last year or two often been couched in terms of enterprise bargaining, that is misleading:  the key characteristic of current 'enterprise bargains' is that deals are struck between the employer and a larger national union, not the employer and the enterprise workforce.  The Federal Labor government has (to oversimplify a little) moved in two quite contrary directions:  the decentralising direction epitomised even by its flawed version of enterprise bargaining, and the centralising direction shown in its union amalgamation legislation, its recent moves on independent sub-contractors, and its nostalgic attachment to the Accord.  The tension between the two is confusing and unhelpful, and needs to be resolved quickly.

There is no doubt as to the direction in which the confusion will eventually be resolved.  Considerations of international competitiveness will not go away;  and the current recession has, if anything, intensified the pressures.  The steady reduction of tariff protection, still apparently a bipartisan policy, will itself force changes in the labour market.  A new factor is now at hand:  the employment contracts legislation introduced in New Zealand in May 1991 seems, from early and tentative indications, to be working well, and will increasingly provide a model of competitiveness that Australians will be unable to ignore.

Now the Federal Liberal Party is proposing a radical shift in industrial relations policy, which, although not based on the New Zealand model, would deliver outcomes much like it.

We will have a clear choice at the national level, indeed, not simply between two alternative models of industrial relations, but between grasping change and having it forced on us.

The shift in debate at the Federal level has been only unevenly matched at the State level.  New South Wales was the first State to seek comprehensively to modernise its industrial relations legislation, but the legislation was regrettably compromised both in its inception and in its passage through the State Parliament.  In Queensland, which, under its previous government, forced the pace of change with the South East Queensland Electricity Board and Power Brewing deals, the situation has now probably gone backwards to some degree.  Very recently, the new Victorian government has brought down a new, decentralising policy;  and a considerably less radical scheme has been set up by the new Tasmanian government.  Here in Western Australia, reasoned policy debate on this subject at the political level has been almost invisible.

The Victorian experience was a stormy one, perhaps in some respects needlessly so.  Whatever the local reaction, however, in a State which is still the heartland of unyielding union conservatism, there is no doubt that the essential content of the legislation was correct.  Some of the incidental detail is subject to legitimate disagreement.  As the controversy recedes, however, the most interesting consequence is likely to be that other States will be forced to compete as Victoria uses labour productivity as the crowning bid for new investment.

That will only apply, however, to the extent that the Federal government's own new legislation, rushed through the Parliament shortly before Christmas, will not effectively undercut or prevail over the Victorian Act.  The intent of the new Commonwealth Acts, put simply, is to enable workers who operate under State awards, and who wish to remain within a centralised system, to leapfrog into Federal jurisdiction.  Further legislation is promised which would purport to invoke the external affairs power of the Constitution in order to allow the Commonwealth to legislate for the preservation of certain minimum working conditions.  The legislation will certainly be subject to challenge in the High Court;  early informed opinion has been reasonably clear that such a challenge is unlikely to succeed, given that the Federal government has already indicated that it is prepared to use the 'external affairs' power as its constitutional justification.

All the implications of this latest move are far from clear, but it seems fair to say that it is utterly misconceived.

It will cause very considerable damage to the already fragile federal balance of powers.  And it will lock the Federal Labor Party, should it win government for another term, into a policy completely contrary to the national interest, a policy which we should assume will for some time at least be reinforced rather than quietly weakened.  (The most instructive parallel to be drawn here is the way the Labor rhetoric on privatisation in 1985-86, espoused for similar reasons of short-term political expediency, crippled that government when privatisation became a necessity a few years later.)

Even putting aside the additional uncertainty generated by the likelihood of High Court challenges, the Keating-Cook legislation must leave policy-makers at the State level in a state of some perplexity.  The great handicap imposed by the legislation is that it seems likely to hinder quite seriously the working of State schemes designed to persuade or push employers and employees from the centralised into decentralised systems.

Much will, of course, depend on the outcome of the Federal election.  Oversimplifying somewhat, we can propose four broad scenarios at the State level;  two depending on a Labor Federal government, and two depending on a Liberal Federal government.

Should the Labor Party be returned to government, and should it continue to take its own rhetoric seriously, two options seem possible,

The first option (scenario I) is the most dramatic.  It would see the State government renounce virtually all responsibility for industrial relations at the State level.  The means would lie essentially in repealing the State Industrial Relations Act and related legislation;  thus dismantling at one stroke the entire State industrial relations apparatus -- including the State Commission, and the Department, along with State-registered unions and employer organisations.  Those who wished to stay in a centralised system could then transfer formally to Federal jurisdiction.  In place of the current Act, the new government could enact some brief legislation which addressed compulsory unionism and the matter of its relations with its own public service.

This approach would have a number of advantages.  It would save the State's taxpayers quite a lot of money -- perhaps $30 million.  By shifting the focus of much of the local 'IR Club' activities elsewhere, it might lessen the likelihood of some of the sillier deals arrived at, particularly in the PTEs;  and, perhaps more importantly, it would weaken the main stronghold of resistance to eventual change for the better at the State level.  It would almost certainly add to administrative and political pressures in the Federal system, hastening, even if only marginally, its eventual demise.  It has the political virtue of extreme simplicity, and, handled with only a moderate degree of skill, would leave the new government with unspent political capital that might be well used in other, contentious areas of reform.

The second option in this situation (scenario II) would see the State government acknowledge the Federal government's force majeure, but try, nevertheless, within the bounds (or crevices) of the new legislation, to draw up and implement its own more sensible State-based reform.  The limits of action are effectively to be deduced from the reaction to the Victorian example.  The legislation would concentrate on establishing a 'second stream' of mutually-agreed industrial arrangements.

The advantages of this option are clear enough.  It would provide an avenue of reform which would in turn, by example, induce further pressure on the older-style, centralised arrangements.  The beneficiaries of the reform are perhaps likely in the first instance to be employers and employees in smaller businesses, already effectively on the fringes of the centralised system.

The first option in the second circumstance (scenario III) can be thought of as being the mirror reverse of scenario I.  In the event of a new Federal Liberal government's being returned at the election, a new State administration, which was satisfied with the direction of the new Federal industrial relations legislation, might find it politically advantageous to opt out of the area altogether.  Broadly speaking, the advantages identified for scenario I would apply.

The second option in this circumstance (scenario IV) would see the State government, unhindered by any threat of Federal intervention, pursue its own comprehensive scheme of reform -- assisted, perhaps, by the repeal of any Federal legislation, such as the recent Cook enactments, which stood in the way of its doing so.

The choices facing a new State government are not usually presented in this way;  but they do need to be clearly put and assessed, in view of the very high level of political uncertainty now prevailing.  The four scenarios are, of course, a little over-simplified, and would tend in reality to grade into each other, but they should form a useful statement of the extreme positions.  The choice will ultimately be a political one, depending both on how the Federal-State confrontation develops, and on a State government's notion of its own political potential and its ability to handle reform issues in a decided order of priority.

Our view is that, in an ideal world, the fourth scenario is the best.

The appropriate question at this point is, Does it matter?  Is there, in view of all the initial political downside exemplified by the Victorian experience, any real point in a State government's striking out on its own?  After all, the change which we believe is inevitable at the Federal level will, also inevitably, filter down, one way or another, into the State jurisdictions, impelled more strongly by the Victorian experience, to the extent that that will be successful.  Furthermore, there is a real possibility that if the change comes from the election of a new Federal Liberal government it will cut across State jurisdictions in a fairly dramatic way.  There are already public indications that such a government would seek to use the 'corporations power' (s.51 [xx]) of the Constitution to extend its powers to much of the private sector (and perhaps even some of the corporatised public sector) of the economy.

We believe that it does matter, and for some fairly good reasons.

There are particularly good reasons in a federation for competing jurisdictions, even in an area such as industrial relations (where, in the past, the coexistence of Federal and State jurisdictions has perhaps in some respects been unhelpful).  A State may well adopt a better model than any Federal one, and may well then compete successfully for resources.  Further, the new Federal model may itself involve some centralisation of residual bureaucratic functions remote from State concerns.  As well, a single Federal system is itself open to change for the worse should there be a shift in government policy.  Finally, it seems unlikely that any conceivable reformed Federal model would directly tackle the awkward and important question of industrial relations in the States' public sectors.  For while a new Federal government may well adopt policies for dealing with that question in its own bureaucracy, it is difficult to see that as implying any binding consequences on State public sectors.

Clearly, then, there is more than a little virtue in a new State government going its own way in industrial relations.

It may be useful at this point to have some idea of the extent of the area we are tackling, and we can best do that by looking at unionisation in the workforce.  Three important characteristics are revealed in the relevant statistics.

• Union membership is declining.  At the national level, while 45.6 per cent of the total workforce belonged to a union in 1986, only 40.5 per cent belonged in 1990.  A similar decline prevails in Western Australia:  from 41.l per cent in 1986 to 35.4 per cent in 1990.
• Union membership is unevenly concentrated.  The most obvious discrepancy is between the private and public sectors.  At the national level, 66.8 per cent of public sector employees belonged to a union in 1990;  30.8 per cent of private.  There are similar discrepancies (1990 figures) between male and female membership (45.0 per cent as against 34.6 per cent), and between full-time and part-time employees (45.7 per cent as against 18.8 per cent).
• Union membership tends to be unevenly spread over areas of the economy:  some sectors are very high -- 79.4 per cent in electricity, gas and water;  76.0 per cent in communications;  62.9 per cent in mining -- while others are much lower.

Of course, such figures underestimate the influence of the official, centralised arbitration system, in that awards negotiated before the Federal and State Commissions are the main influence in determining pay and conditions in much of the rest of the private sector.  In Western Australia, for example, 20.8 per cent of the workforce is covered in some way or another by a Federal award and 57.3 per cent by a State award.

Industrial conflict in Western Australia runs at fairly high levels:  since 1986 this State's record, measured in working days lost per 1000 employees, has on average been the second worst in Australia.

To look at union coverage and industrial disputes is, however, by no means to imply that Australia's or Western Australia's industrial relations and productivity problems are simply a result of the existence of unions.  Far from it.  Unions are only half, perhaps less than half, the problem;  most reasonable commentators agree that there are very serious problems with the quality of management in Australian business and industry (not to mention Australia's public sector).  More to the point, the problem is really that we have for too long tolerated a system of industrial relations which has institutionalised conflict, which has emphasised power over reason, which has bred a self-perpetuating bureaucracy, and which has relieved too many managers of the tasks of real management.  Examining the extent of unionisation enables us to assign some notional extent to those areas of the economy where rigidity and consequent poor productivity are likely to be major problems.

The alternative to the centralised system is clear enough;  the ideal minimum requirements can be listed simply enough.

• The workplace, or enterprise, has to be the place of negotiation;  and negotiation should be as direct as possible between employer and employee.
• Bargaining units formed to represent employees should be appropriate to the circumstances of the enterprise.  While in many cases this will mean one unit to each enterprise, that is not a binding condition.
• Such units should be formed as freely as possible, without restriction of size, and without the necessity of belonging to some other larger organisation.
• No person should be obliged by anyone, union or employer, to join any association;  closed shops should not be tolerated.
• Each deal between employer and employee should be struck free of external influences;  there should be no flow-ons, binding precedents, superimposed awards, common rules, and so on.  At the same time, both employee and employer must be able freely to choose their advocates or agents for the bargaining process.
• Deals struck should take the form of contracts in common law, rather than the present awards or determinations, and be appropriately enforceable in the real courts of the land, like any other contracts.
• Contracts may specify any number or variety of agreed conditions, but particularly the term of the agreement, behaviour during the agreement (particularly in respect of industrial action), procedures for settling individual or collective grievances, and the means of renegotiation.
• Strikes as commonly defined in Australia should not be countenanced unless permitted under conditions defined by contractual arrangement.
• Only parties to the contract may have legal standing in subsequent disputes;  the normal provisos relating to legal disability (in respect of age, for example) would apply.

The implementation of those principles would mean a very radical change in industrial relations in this State.  It may well be thought to be politically impossible;  although the boundaries of political possibility are being continually stretched.  It would, in time, effectively result in the demise of the State Commission;  and it would eliminate the need for a Minister for Labour Relations and much of the relevant Department.  It would put unprecedented pressure on managers to assume full responsibility for their own industrial relations;  and it is already clear from the debate on the Federal Opposition's policy that many managers simply do not want that.  Employer organisations themselves would have to find new roles.  It would utterly change the shape and role of unions, which would have to adapt themselves to being providers of services for groups of employees;  they would have to compete for business;  they would lose most of their political influence.

So despite the growing consensus for change, there is still reason to believe that optimal change would be quite strongly resisted.  (This is not to say that sensible change will necessarily bring forth riots and martyrs and blood on the streets.  Sensible and moderately courageous ministers must be heartened by the relatively peaceful nature of the transition in New Zealand, and by the degree to which all parties have so far adapted to the changes there.  Despite the fuss in Victoria, much the same seems to be happening there.)

To improve the chances for the success of appropriate reform, we recommend the adoption of a 'dual-stream' industrial relations system.  One stream can be thought of as being contractual, the other as the registration stream.  This is effectively a political compromise, but can be achieved in such a way as not to compromise the achieving of longer-term reform of the right kind.

The contractual stream is one based on the nine principles outlined above.  Wages and conditions, obligations and rights, penalties and benefits, are specified in contracts enforceable at law, negotiated between employer and employee.  Completion of the contract would require no official endorsement or registration.  To the fullest extent possible, third parties (not least the government and the Commission) are excluded at every stage.  Various parties -- Commission, unions, employer groups -- may offer (on a commercial basis) assistance with the drafting of contracts and with negotiation, but not to the exclusion of other agencies (lawyers and other commercial arbitrators) which might spring up.

The government has, of course, the statutory power to specify some of the contents of contracts.  Some would advocate, for instance, that contracts contain some minimum level of wages and annual leave.  That would be a political compromise which would probably be regrettable and unnecessary.  It would, in particular, tend to disadvantage further those sections of the labour market (the young and the late-middle-aged unemployed) already suffering from such rigidities.  Adult individuals, who manage quite well to look after themselves when contracting for homes or cars, can be trusted to know and to look after their own best interests.  (Legal minors, of course, will need some protection as they do in other respects.)

The second stream represents a formalised version of the first, a centralised form of decentralised bargaining, with registered agreements taking the place of contracts.  Various versions of this have been promoted over the last year or so.  They vary essentially in how much of the present system survives into a new one.  There is enough common ground, however, for us not to have to describe such a system in any detail;  the reader can refer to the proposals of the Confederation of Australian Industry (or its member organisations) as a representative sample, while remembering that such proposals are at best intermediate compromises.  The fine detail of such systems is not as important as the overall direction;  however it works, the system adopted must not be such as to stand in the way of the adoption of a better long-term system.  Nor should there be any rigid lines drawn between the two streams.  Not only should it be made as easy as possible to opt from the registered to the contractual stream;  but some pressure should be built into the system to make the choice between the two streams both deliberate and repeated.

One very important subject not usually much canvassed in this area needs to be mentioned here:  industrial relations within the public sector.  Whatever a new State government may decide in terms of the four scenarios outlined above in respect of the private sector, it must resolutely tackle the problems of industrial relations within its own domain.  Here the matter of productivity is most acute, especially in the PTE sector.  As in the private sector industrial relations debate, some mixed progress has been made;  even the Commonwealth government released, last August, a set of proposals on 'workplace bargaining in the Australian Public Service', although, as usual, the reality there falls short of the rhetoric.

Two important principles need to be implemented.  First, industrial relations management within the public sector needs to be decentralised and deregulated.  Decentralising means giving the essential management of wages and conditions to public sector managers, within such discrete workplace units as are practicable;  deregulating means the effective removal of standardised terms of employment across the whole public sector.  The second principle is to ensure that public sector employees have the same option of enterprise-based agreements based on mutual consent as we have advocated for the private sector.

Detailed design of public sector industrial relations will depend on a wide range of other factors -- such as the future of permanency in the public service, the structure of the bureaucracy, the nature of the budget process, and so on -- which will need decisions.  It will therefore be simpler, but politically more difficult, to start the process in the PTEs.  This is, however, one political decision which cannot be deferred.  It is, again, worth pointing out that there are examples of successful reform at hand.  Examples such as the South East Queensland Electricity Board stand out;  but, closer to home, the productivity gains in Westrail (achieved under a Labor government) show that, well-managed, the task is far from impossible.

Two concluding observations are worth making.

First, the one essential perspective missing in the heat of the current debate is that most Australian employees already operate quite happily outside the centralised systems of wage-fixing and dispute-settling.  Many (increasingly, most) employees have never belonged to a union;  many have never had more than the most informal employment contracts.  The notion that radical change will bring a dramatic shift to the worst excesses of the Industrial Revolution is a self-serving fiction which does not stand up to common-sense observation.  The debate could indeed do with a substantial transfusion of common sense.

Second, there is no alternative, and in two senses.  Industrial relations will be a very important component of the competitive edge that this State must seek to regain if it is to be a successful bidder against other States for resources, human and physical.  Far overriding that is the national need for the competitive edge in succeeding in the world economy.  If the State can contribute to that in even a fairly small way, it will be more than worth a degree of transient political pain.

Local Government

CHAPTER 10

The brief of this book is essentially to examine the role and functions of the State government.  That would, however, be incomplete without at least a summary examination of Local government, and for a number of reasons.  Local government is, in some important ways, a proxy for the State government in the performance of some functions.  If we are looking at the public sector as a whole, we cannot omit what is, after all, quite a large chunk of public sector employment and finance.  And Local government has the potential to influence economic activity and efficiency, for good or bad, in more than marginal ways.

Local government is large:  nationally, Local government outlays account for 2.3 per cent of GDP; ⁽¹⁵²⁾  at the State level it accounts for 1.6 per cent of GSP (1990-91 data).  In 1991 in Western Australia its current and capital outlays accounted for about $581 million;  it raised $455.9 million from its own various sources, and received $169.8 million in grants from Federal and State governments.  Ten years ago (1980-81), outlays were $191.8 million, own-source revenue $141.8 million, and grants $69.7 million.  That represents a real growth per annum of 4.5 per cent in outlays and 4.4 per cent in revenue (or real growth per capita of 1 per cent and 0.9 per cent respectively).

Aside from the level of revenues, there are problems with the nature of the Local government revenue base.  Local government has a legitimate claim to some grants from State and Federal government:  it performs roles delegated from above, and its very local nature requires a reasonable measure of fiscal equalisation.  Nevertheless, such grants (as with Federal to State grants) always involve considerations of responsibility and accountability, never satisfactorily examined.

Local government's tax base is essentially a wealth tax, levied on the rental value of property.  This has the advantages of simplicity and a fairly high degree of transparency.  It also has disadvantages.  There is not much of a correspondence between the level of a household's tax and its consumption of locally-provided services.  There is often a similar mismatch between the level of tax and ability to pay;  something which particularly affects retired people.  The tax base tends to increase in times of asset appreciation, but does not noticeably decrease after the booms have collapsed:  there is a marked "ratchet" effect, reinforced by the ability to manipulate both base and rate.  This shows up to a certain extent in the data on Local government borrowings:  in the ten years looked at above, net borrowings actually decreased in real terms per capita, by 1.9 per cent, and that despite a real decrease per capita in grants from other sources of 1.04 per cent.  While the principle of Local government borrowing is very much open to question, the level of borrowings overall is not a pressing concern, although it may well be so within individual authorities.

There are other problems.

Perhaps the principal raison d'être of Local government is the provision of services to households.  Yet it is virtually certain -- if we can transpose to Western Australia the results of studies undertaken elsewhere -- that these services are provided much less efficiently than they could be.  Recent studies ⁽¹⁵³⁾ suggest savings of around 17 per cent in rubbish collection, 17 per cent in road maintenance, 35 per cent in general maintenance works and 24 per cent in capital works -- considerable savings, indeed, and mostly attributable to labour productivity gains.  (To some degree, similar savings would be achieved under the industrial relations policies advocated elsewhere in this book)

Most of those who serve in Local government are honest people with a proper concern for serving their community;  nevertheless, Local government is afflicted with an indeterminable degree of low-grade corruption.  This only rarely emerges into the public arena, and is usually a function of the discretion allowed to Local government in planning matters.  A number of councils have been subject to ministerial intervention or investigation in recent years.  More generally, many councils seem often to be locked in perpetual battle with ratepayers, especially over planning and spending.

More seriously, not least because the elected representatives are part-time and completely deprived of the necessary resources of information and analysis, much of the agenda of Local government tends to be driven by its bureaucracy.  The democratic credentials of Local government are indeed a problem.  Voter turn-out is usually low -- often between 5 and 25 per cent, and recently averaging about 11 per cent, with many elections uncontested.  This might be taken to represent unusually high voter satisfaction with outcomes;  it might equally be taken for total apathy, or a perceived inability to change anything much by the exercise of a vote.  It is, however, more likely that the problem is one of rational ignorance.  Information costs -- in time or other resources -- are very high.  Whereas the cost to the individual of basic information about Federal government is very low (as little as the price of a good daily newspaper and the time taken to read it), and the cost of similar information about State government only a little higher, the getting of information about the activities of one's local municipality comes fairly dear:  although local newspapers now provide a degree of coverage once almost entirely absent, they tend to cover obvious controversies rather than routine financial matters, and the cost of attending council and committee meetings, even of obtaining minutes, agendas and budget papers, is very high indeed.

Underlying this is a usually unspoken and unexamined uncertainty about the precise status of Local government.

It is in fact very difficult to define Local government in such a way as to make it more than a mere provider of services.  We rely on it to collect our rubbish, to maintain footpaths and parks and playing fields and some roads -- the sorts of things we might think of as essential or "core" services.  We recognise that it undertakes other (largely delegated or jointly-funded) functions in health, pollution, libraries, planning and building.  Many now build and maintain things like community centres, reflecting a decline in provision by other more traditional social providers such as churches.  Some of the larger authorities have moved into explicit welfare functions, though without much community consensus or consideration of overlap with other levels of government.

There is probably nothing in all of this that could not be provided in some acceptable alternative way.  There is almost certainly no task which could be described as a "sovereign task":  that is, a task which in the end requires the authority which can be delegated only to government. ⁽¹⁵⁴⁾  There is a further difficulty in that Local government (for obvious reasons) does not have an adequate apparatus for coping with the demands we usually place on democratic institutions:  no organised oppositions, no upper houses, no proper question time, no basic means of ensuring checks and balances and proper attention to the rule of law,

This difficulty in assigning a distinctive role to local government is common among recent studies.  The Curran Commission in Tasmania, for instance, remarked that it was "... essentially a derivative of the State Government", and this is a fairly typical judgement. ⁽¹⁵⁵⁾

All this is a pity.  Those with a strong attachment to authentic forms of democracy should have high hopes of Local government.  It is very close to those it represents;  it should provide a model for effective representative action, accountability and responsiveness to be copied by other levels of government.  Perhaps in some areas -- country areas in particular -- it does;  on the whole, in suburban and urban Western Australia, it seems not to.

A measure of this is the interest shown by various governments in recent years in reforming Local Government legislation.  The most recent review, in 1989-1990, produced a new draft Bill which has not been made public, although the discussion papers published in 1990 make the content of the draft fairly clear.  We suggest that a new government continue to develop a new Local Government Act more satisfactory than the present one, while not necessarily following the lines of the last review.  (One of the implicit aims of that review was to permit a degree of "entrepreneurial" ability to councils;  after WA Inc, that now seems less than desirable.)

Within the limits of this brief overview we can suggest only the broad considerations which should determine the legislative design.

Unlike the old Act, the new one should concentrate more on outcomes than processes,

As the last review suggested, there should be an explicit charter of services for Local government.  The charter should distinguish between essential or core services, and non-essential services.  That, however, is inadequate unless the Act also specifies that services should be provided in the most efficient manner possible.  Efficiency should also be one of the two principal criteria in determining the allocations to local authorities through the State Grants Commission (the other, of course, being an explicit equalisation component).  In time, the Commission should develop a standardised cost measure for each core service (weighted as appropriate for circumstances such as area, distance and other special disadvantage).  Standardised cost criteria should apply not only to general purpose giants but to specific purpose grants (most notably roads) as well.  Routine grants, whether specific or general, should cover only specified core services;  grants for other purposes should be made by explicit appropriation in the State Budget.  Grants Commission assessments will therefore themselves provide a discipline;  that can be reinforced by the scrutiny of the Auditor-General.

Transparency and competitive neutrality require that services specifically delegated by the State government to Local government should be identified and subsidised; ⁽¹⁵⁶⁾  all State government instrumentalities (including, for instance, Homeswest) should pay all ordinary council rates and charges.

The new Act should also be more specific about the revenues of local authorities.  Borrowing should be permitted only for items capable of producing a commercial rate of return;  and only after a (compulsory) loan referendum among ratepayers (with only one proposal per question).  To assist transparency (and lower information costs) authorities must be obliged to clarify in their rates notices the costs respectively of core and non-core services, including administrative overheads.  The Act should also make clear that local authorities may charge any user, ratepayer or not, for any service, core or not.  Although the property tax does have its problems, there is probably now no satisfactory alternative overall revenue base left to Local government, apart from a poll tax, which has its own problems.  (A combination of the two is possible, with, effectively, a minimum tax per property, topped up with the wealth tax.  That, in turn, has its own disadvantages, not least the divorcing of tax from cost of service.)  Authorities seeking to increase the rate per dollar by more than the CPI should again, however, be obliged to put the increase to their ratepayers.  Referendums in both cases should require a clear mandate:  a majority of voters must vote, and at least half of those voting should approve.

This programme of basic reform will induce two major changes in the way Local government operates.

First, the tendency toward contracting-out for services, already well-established, will increase.  Inevitably, private service contractors will perform much of the work presently done by council staffs.  It is not inevitable that they will perform all of the work:  the example of Mosman Municipal Council in New South Wales, where staff teams offer fully-costed tenders for council work, is one which offers a number of advantages. ⁽¹⁵⁷⁾  Contracting out can extend beyond unskilled and semi-skilled labour to include professional services such as building inspection, engineering, and data management, to name just a few.  We would also expect councils to develop further the already existing trend toward sharing resources.  Considerable savings will accrue to councils, which may pass them on to ratepayers or use them to provide other services.

Secondly, there will be a better balance between autonomy and accountability than now exists.  No effective constraint will have been placed on any council which cannot be loosened by democratic reference to the ratepayers or voters.  Voters, on the other hand, will have better information by which they will be able to judge the true cost of local government, and the cost of any additional service.

The provision of what we have called "core services", and similar services, is only, as was pointed out earlier, a part of the activities of Local government.  A sizeable portion of senior staff resources is consumed in what is most usefully thought of as being regulatory activity:  town planning functions, building approvals, health and pollution monitoring, and so on.

In most cases, the ultimate authority rests with the State Government.  And in most cases the area is one ripe for reform.  Regrettably, they tend to be difficult areas and outside the scope of this book.  Broadly speaking, public health, pollution and planning are major disaster areas.

Planning is particularly important because of the tendency to corruption (broadly defined) inherent in the ability of councils (and ministers) arbitrarily to exercise discretion.  Any reform must severely limit, or perhaps eliminate, that discretion.  That means having more rigid regulation;  it also means having considerably fewer regulations.  Any reformed system must also concentrate on a better balance of the property rights of the various parties concerned.  In many cases, explicitly tradeable rights will eliminate the need for other forms of regulation.

There are other issues which would have to be taken into account in a full new Local Government Act;  one is worth mentioning here.

The competitive provision of efficient services will be enhanced if the Act made provision for greater fluidity of council boundaries.  Ratepayers, quite simply, should have greater choice in the matter of which council they wish to serve them.  If council X provides services better or more cheaply or of a different mix relative to the adjoining council Y, then it should be open to council Y to expand to take in willing ratepayers who wish to leave council X.  At the moment, "exit", the ability to leave a jurisdiction (to "vote with one's feet") is theoretically available to any ratepayers dissatisfied with their local authority;  the practical difficulties (not least the transaction costs) render it a sterile option for virtually all dissatisfied ratepayers.  What we are proposing is a form of assisted exit.

(The same fluidity should apply to other situations:  as, for instance, in settling whether ratepayers in suburban wards of urban councils should be allowed to split off;  or in general in arriving at more rational boundaries for any municipality.)

---

ENDNOTES

152.  By way of comparison, the Commonwealth government spends about 2 to 2 1 per cent of GDP on defence.

153.  Summarised conveniently in "Competitive Tendering", Business Council Bulletin, February 1989, pages 10-14, and G. Webb, "The economics of contracting out", National Bank of Australia, Quarterly Summary, 1992, pages 21-22

154.  See James Q. Wilson, Bureaucracy, Basic Books, New York, 1989, pages 348 and 359.

155.  See Charles Curran (chairman), Independent Commission to Review Tasmania's Public Sector Finances, Tasmania in the Nineties, Hobart, April 1992, page 49.

156.  Better still, in a more ideal world, to delegate the taxing power with the function.

157.  See Mosman Municipal Council (NSW), Report on Competitive Tendering, 1991,

Homeswest

CHAPTER 9

INTRODUCTION

Public housing authorities such as Homeswest now serve two main purposes:  they manage very large assets, with a view to obtaining commercial returns for the taxpayers who own those assets;  and they provide welfare assistance to those deemed unable to provide for their own housing needs.  Although in principle the two objectives are distinguishable, the relation between them is inherently confused.  In the case of Homeswest, evaluation of how well these objectives are being achieved is made all the more difficult by the recent growth of elaborate forms of cross-subsidisation, particularly from Homeswest land development am to its welfare renters.  The position is further confused by Homeswest's semi-autonomous status, which has permitted it to operate with very little public accountability.  In this discussion it will be impossible to make sense of the whole of this labyrinth.  The main points of the argument will be to demonstrate that it is a labyrinth, to show that such complexity is contrary to the public's interest in accountability, efficiency and fairness, and to suggest ways in which State housing policy can be simplified and streamlined.

Homeswest is a large operation.  It is, as one of its recent publications says, Western Australia's largest land developer, builder and property manager.  Its house and land assets are estimated to be around $3 billion. ⁽¹²⁹⁾  It operates about 35,000 rental properties, or roughly five per cent of Western Australia's housing stock.  Its annual expenditure from all sources exceeds $600 million a year.  As mentioned in Chapter 3, Homeswest's debt, now standing at $892 million, is a significant constraint over the government's ability to manage its fiscal policies with appropriate flexibility.  Although its rental stock has grown only moderately (up from 27,000 in 1980), in recent times its land and loan activities have grown rapidly.  In 1980, Homeswest developed only about 200 residential lots for sale or rental;  in 1989 it developed an exceptionally high 4,000. ⁽¹³⁰⁾  In 1989-90, government agencies, of which Homeswest was the largest, developed half of all serviced residential lots in the Perth metropolitan area.  In 1991, it had 10,000 subsidised home loans on its books, making it a significant player in the home finance market. ⁽¹³¹⁾

The size and importance of Homeswest is obvious enough;  its success or failure is another matter.  To judge this, we need both good information about its operation and some agreement about its objectives.  Much has been done by its executive in the past five years to improve the management and administration of the organisation.  But at a fundamental level its goals and strategy remain unclear.

According to its 1991 Annual Report, "Homeswest operates a series of housing services for people who would otherwise have difficulty gaining access to or remaining in suitable housing.  These include lower-income home buyers, disadvantaged groups, people in the private rental market and borrowers who experience financial difficulties". ⁽¹³²⁾  We can accept (at least for the sake of the argument) that the government has a role in helping people to satisfy their housing needs.  The obvious question which follows is:  why should the state own and manage a large housing stock in order to achieve this goal?  Why not use more direct means to assist people financially, whether to purchase their own housing, or to rent in the private sector?

It would be easier to evaluate Homeswest's performance if we could put aside these basic questions.  Why should a government agency determine the housing choices for the poorer members of society?  Why should a government agency have control of such a massive asset, to use however its executive -- or its minister -- chooses?  Public enterprises, with unlimited government backing, tend towards inefficiency and are open to political influence, and, sometimes, to corruption.  Private choice tends to maximise efficiency, liberty and even fairness.  Those who today disagree with those tenets are likely to emphasise the necessity for government action to ensure fairness;  but that claim only shows the need for government assistance, not government ownership.

The question of fairness in housing -- particularly the eligibility conditions for housing assistance -- is a matter which is properly to be answered by open and informed political decision.  Nevertheless, in practice, eligibility criteria for housing assistance have been vague and loose, and Homeswest has had remarkable discretionary power in the application of these criteria.  This too is a reason for questioning its usefulness.  But the issue does not stop there.

After 1945, the then State Housing Commission embarked on a large programme of housing expansion, designed to provide cheap but adequate housing for young families.  Today, Homeswest housing is more than ever before "welfare" housing.  The transition from "public" housing for young families to welfare housing for those deemed to be poor began slowly in the late 1960s and accelerated in the 1980s, until today 83 per cent of public renters are welfare recipients.  This process has had two direct effects:  it has reduced returns to the State, as an increasing proportion of tenants has become eligible for rental rebates;  and it has heightened the role of Homeswest as a welfare agency, a branch office of the welfare state.  (Much is now being done by Homeswest management -- quite justifiably -- to try to reduce the "stigma" which, they say, is associated with this welfare role.  But this is only cosmetic;  Homeswest rental housing remains mainly welfare housing, however stylish it may be.)

HOMESWEST AS DEVELOPER

The squeeze on rental returns caused by the gradual shift to the welfare function has had profound secondary effects on the shape and purpose of Homeswest.  Reduced rental income has induced a search for new income sources.  Through the 1980s, Federal funding under the Commonwealth-State Housing Agreements remained more or less static.  A large input of State government funding in the mid-1980s has now dried up to nothing, as the excesses of WA Inc have compelled tighter budgeting.  Today, however, Homeswest claims that at least 80 per cent of its expenditure is "self-funded". ⁽¹³³⁾  How can a State agency which is not a trading enterprise be self-funding?  Homeswest's income is (roughly) one-fifth from rents, one fifth from Commonwealth grants, one-fifth from land and property sales, one-fifth from home loan repayments, and one-fifth from Key-start loan repayments. ⁽¹³⁴⁾

Both rentals and loans are taxpayer-subsidised programmes.  The loan subsidy ($7 million in 1990-91, $3 million in 1991-92) is much smaller than that to rentals ($56 million in 1990-91, $63 million in 1991-92).  In reality, as will be shown later, the subsidy to rentals is much larger than this suggests -- perhaps twice as large.  In practice, then, the loans subsidy is relatively insignificant;  it is rentals which matter.  Since Commonwealth grants have been insufficient to cover the rising cost of the rental programme, the shortfall has been met by expansion in the land and property sales department -- which, as we saw above, has grown dramatically since 1980.  In 1990, land purchase and land development made up 12 per cent of Homeswest's capital works expenditure;  land and property sales produced 19 per cent of Homeswest's income.  Since 1986, sales of land and houses have brought in an average of $32 million per year, most of it from land sales.  This money is being used to make up the rental shortfall

The rationale for this cross-subsidisation is weak at best.  To the extent that Homeswest sells its assets at prices higher than would otherwise be the case, the profit is generated at the expense of new home buyers;  to the extent that the land is purchased by Homeswest at less than market prices, the profit is at the expense of the taxpayer.  It is not obvious that this cross-subsidisation in any way serves the public interest.  If it has any purpose, it can only be to disguise the size of the subsidies to welfare rentals.  Open and accountable government requires that such transfers be made explicit.  Off-budget welfare transfers conducted by semi-autonomous agencies are undemocratic and unfair, procedurally if not substantively.  In a democracy, the final say on public spending rests with all citizens, who must be able to know how and for what purposes public moneys are being used.

HOMESWEST AS ASSET MANAGER

The 1991 Annual Report presents a chart which purports to show that Homeswest's return on its rental properties is around 14 per cent before subsidies, and around 8 per cent after subsidies.  These figures are an accurate deduction from the data presented in the Annual Report ($142 million from 35,000 properties valued at $850 million).  This is, however, an obvious undervaluation of Homeswest's rental assets, for it implies that the average value of the properties is $24,000. ⁽¹³⁵⁾  A more plausible figure is perhaps $60-70,000. ⁽¹³⁶⁾  On that basis, Homeswest's before-subsidy return on rental assets worth about $2,275 million is 6.2 per cent;  after subsidies, this is reduced to 3.8 per cent.

These figures are gross returns.  After costs are taken into consideration, the position looks much worse.  Administration costs alone amount to $40 million, at least two-thirds of which will be spent on the rental programme.  Maintenance is around $20 million and rates are around $25 million.  These expenditures reduce the gross return of $142 million to a mere $70 million, or a return of 3.1 per cent.  Other expenses, such as depreciation and interest on loans from the Commonwealth government, are too complex to be factored in here, but they can be assumed to be significant, eating up much of that $70 million.  The true net return is likely to be very small.  After the $56 million subsidy to rentals is counted in, the net figure is substantially in the negative.

In effect, then, Homeswest's considerable rental assets are virtually non-productive in an economic sense.  This does not, of course, assign a value to the welfare role they perform.  It does, however, show that the rationale that some of the rental properties are productive is specious -- all of the properties and their tenants are being subsidised by the taxpayer, in the sense that the assets are earning less than their market value would permit.  This must cast doubt on Homeswest's financial accountability -- or perhaps rather the ability of its managers to manage free from political influence.  It suggests that we need ways of separating the commercial and the welfare functions, so that both can be made to perform more efficiently, and ways of ensuring that the appropriate commercial and welfare policies operate in a context where political influence is clarified.

THE SIZE OF THE SUBSIDIES

The median rent for a three-bedroom house in the private rental market in 1990-91 was $130 per week. ⁽¹³⁷⁾  For two-bedroom flats it might have been around $85 per week.  For a mixture of housing stock such as Homeswest's, the median might have been $115 per week.  Homeswest's stock is probably somewhat below average market value -- its median market rent might be $105.  Before subsidies, Homeswest receives $142 million, or $80 per week per property.  This suggests that all tenants are receiving a "hidden" subsidy of $25 per week.  Rental rebates are officially stated as $56 million in 1990-91, amounting to an additional subsidy to 27,000 rebated tenants of $40 per tenant per week

If we go further and ask what return might be earned on an asset worth (at a very rough guess) $2,275 million, then a larger figure is suggested.  At present that asset appears to be earning little or nothing.  In effect, then, all of the asset's earnings potential is being sacrificed to serve a welfare function.  On that way of reckoning the matter, many Homeswest renters will be receiving a subsidy worth perhaps $100 per week.

HOUSING SUPPORT AS WELFARE

Homeswest's programmes are designed, as we have seen, "for people who would otherwise have difficulty gaining access to or remaining in suitable housing".  Who are these people?  The question opens up some well-known difficulties.  One answer might be, most families with young children -- very broad cross-section of the population.  Another answer might be, only those who are chronically destitute -- a very small percentage of the population.  Between these two extremes a variety of positions is possible.  At present, almost all of Homeswest's tenants are welfare beneficiaries or pensioners.  In effect, then, present policy is to tie housing eligibility to welfare recipiency.  What is the rationale for this policy?

Homeswest does not report its finances with much clarity.  It is even less open about its tenant population.  The 1991 Annual Report shows that of the 7,705 new rentals allocated, 74 per cent went to "families", 16 per cent to "seniors", and 10 per cent to "singles".  No information is given about the composition of the overall current population.  No such information has been made public since the 1987 Annual Report.  That report showed that of the then 21,342 rebated tenants, 37 per cent were sole parents and widows, 30 per cent were age pensioners, 14 per cent sickness and invalid beneficiaries, and 14 per cent unemployed.  At that time, 66 per cent of all tenancies were rebated;  since then that figure has risen to 83 per cent.  Between 1975 and 1986, the proportion of elderly tenants doubled and the proportion of sole parents and widows almost tripled. ⁽¹³⁸⁾  Much of the remainder is likely then to have been young couples with children.  Today, however, very little Homeswest rental housing goes to two-parent families with children (unless -- improbably -- much of the 17 per cent non-rebated population falls into this category).

What one thinks about this trend depends upon some complex calculations, The conventional view, which has dominated both welfare discussion and policy since the mid-1970s, is that the elderly and sole parents are particularly disadvantaged sections of our society.  This consensus is quite mistaken.  In general, there is no difference between the economic status of sole-parent families and two-parent families, despite the radical difference in their incomes and their dependency upon welfare.  In general, also, the elderly are very much better off than families with children (whether sole-parent or two-parent), despite the much higher incomes of families.  The full proof of these claims is complex and will have to be presented elsewhere, but it is possible here to refute a conventional defence of present policy criteria.

The current National Housing Strategy, in a paper entitled The Affordability of Australian Housing, has laid down a "benchmark" for public housing assistance. ⁽¹³⁹⁾  It has termed this eligibility criterion "financial housing stress", and defined it as covering all income units in the lowest 40 per cent of the income distribution range which are spending more than 30 per cent of their income on housing.  (It also regards long-term, low-income renters who spend more than 25 per cent of income on housing as likely to be suffering "housing stress";  but the 30 per cent criterion is the primary definition.)

This criterion is faulty in at least four ways:

1. "Income" here is gross or pre-tax income.  But obviously a household's real standard of living is a function not of income it never receives, but of its disposable income.  Most households will have a disposable income about 25 per cent less than gross income.
2. Similarly, real living standards are a function not just of income but also of household size.  A household of one adult and one child will have a very different capacity to meet its housing costs than will a household of two adults and four children.  We need to use not a simple monetary measure, but an "equivalent income" measure, which takes into account the number of people in the household and the economies of scale made possible by shared living.  In what follows, we will use the widely-accepted OECD equivalence scales, which count the first adult in a household as 1.0, the second as 0.7, and each child as 0.5. ⁽¹⁴⁰⁾
3. Non-monetary income also needs to be counted, including the fringe benefits that go with pensions and benefits.  Non-monetary government support can be quite substantial, sometimes amounting to about $3,000 a year.
4. More controversially, leisure should be counted as a form of non-monetary "income".  In the case of the involuntarily unemployed, spare time is not to be counted as leisure because it is not chosen;  in the case of sole parents who could work more than they do, it may be a factor to be counted.

Even if we put aside (4) as too contentious, counting in (1) and (2) makes a radical difference to the incidence and prevalence of what the National Housing Strategy calls "housing stress".

The NHS paper goes on to present a set of income statistics designed to determine which sections of Australian society are most in need of housing assistance.  Comparisons are presented between the housing expenditures of various standard types of low-income household unit.  These are taken to show that couples with dependent children and sole parents have a far higher proportion of income unit types facing "housing stress" than any other type of income unit.

The NHS figures suggest that there is little overall difference between the stress levels of these two groups -- sole parents come out as slightly more "stressed" than couples with dependants.  But the comparison makes no sense, because the criterion is absurd.  Sole parents, on average, pay very little income tax, whereas the couples will, on average, pay at least twenty per cent of gross income.  And the sole-parent income unit will be on average one adult and half a child smaller than the couple family.

When the effect of taxation is included in the equivalence calculations implied by the OECD scale, it will be seen that the gross income needs of the two-parent unit will be very substantially higher than those of the sole-parent unit.  The net effect of these two considerations will be that the "housing stress" of the sole-parent group will fall away to less than half the proportion represented in the NHS paper, while that of the couples with dependants might rise by fifty per cent.  If we now include the third point (above), the value of the fringe benefits which go with pensions and benefits, the comparison is even further tipped in favour of sole parents and against couples with children.  Without access to all the relevant data, no exact measurement of these changes is possible here, but it is obvious that the NHS figures bear only a very rough relation to real housing needs.

Similar points need to be made about the other conclusions drawn from income unit data by the NHS.  The paper claims that private renters, recipients of social security payments and – surprisingly -- single-person income units contain the highest proportion of all units facing housing stress (relative to their proportion of the overall population).

For instance, we are told that "... single income units comprise one-third of all income units, but 53 per cent of those in housing stress" (defined by the 30 per cent benchmark). ⁽¹⁴¹⁾  These single income units turn out to be mainly older women, and women aged between 35 and 64 renting privately.  But, again, such older women have lesser needs than other income unit types.  Most over-60s pay no tax, and they have no dependants to support;  taking those considerations into account would give us a very different picture.  Only by the very artificial criterion of the NHS could this group be counted as "stressed".  The younger (under-60) single women are equally unlikely to be stressed.

Pre-tax income figures are therefore very unreliable guides to housing "needs".  Yet it is just such income figures which Homeswest uses to allocate its housing assistance.  In 1992, income eligibility limits (for metropolitan and rural applicants) were as follows:

Size of household	Single income	Double income
One person	$335	-
Two persons	$441	$507
Three persons	$528	$607
Four persons	$571	$657

(Additional persons:  Add $43 per child)

These figures heavily favour small households and disadvantage large households.  They thus favour singles, most sole parents and the elderly, and disadvantage couples with two or more children.  Because they are based on pre-tax income and do not count non-monetary welfare benefits, they are even further biased against working families (whether couples or sole-parent families) and favour pensioners and beneficiaries.  Specifically,

1. A sole parent with one child is eligible on an income of less than $441 per week, whereas a single-income "standard family" of two adults with two children is eligible up to $571 per week.  The OECD equivalence scales would count the sole-parent family as 1.5 (1.0 for the parent and 0.5 for one child) and the two-parent family as 2.7 (1.0 for the first adult, 0.7 for the second adult, and 1.0 for two children).  This gives a ratio of 1 to 1.8 for this comparison.  The Homeswest eligibility ratio is 1 to 1.3 (441:571) which favours the first family over the second,
2. Elderly pensioner couples are given similarly favourable treatment in comparison with the "standard family" (1 to 1.3);  though the OECD scale rates them as 1.7 as against 2.7, or a ratio of 1 to 1.6.
3. The OECD ratio for young singles and single age-pensioners to a family of four should be 1 to 2.7.  The Homeswest eligibility criterion is $335 compared with $571, or a ratio of 1 to 1.7, which heavily favours single people.

These disparities are magnified considerably when we take taxation into account.  A family of four with a disposable (or post-tax) income of $528 per week would have an earned (or pre-tax) income of about $33,000 per annum.  This would make many working families with children eligible for Homeswest rentals.  Their present ineligibility is a form of unjustified discrimination against these working families, and in favour of pensioners and welfare recipients.

If the eligibility limits are a guide to its allocation practices, then Homeswest is quite inequitable in the allocation of its rental resources.  The published evidence supports this suspicion.  In the period 1988 to 1991, singles were allocated 310 rentals, seniors 1,668, and families 2,099. ⁽¹⁴²⁾  Sixteen per cent of the waiting list for seniors have obtained Homeswest accommodation, as against only seven per cent of families and less than four per cent of singles.  It is quite likely that much of the "families" category would be sole parent families, though no figures are published on this subject.

Two-parent families with children are likely to be getting very little Homeswest assistance, even though their needs are as great as, or greater than, the needs of those who are supported.  If sole parents occupy one quarter of Homeswest's housing (a reasonable guess based on the 1986 proportions), then about one quarter of all sole-parent families are Homeswest tenants.  If two-parent families with children occupy, say, 40 per cent (and the true figure may be lower), then only 7 or 8 per cent of all two-parent families are Homeswest tenants.

The rental subsidy is, as we have seen, substantial -- not less than $25 per week for non-rebated tenants and probably much higher even for them;  possibly more than $100 per week for some tenants.  This makes public housing a very "lumpy" welfare good.  Those who get public housing do much better than those who do not.  The main alternative funded by Homeswest is rental support in the private market, which in 1990-91 it provided to over 11,000 customers at an average value of $15 per week.  Homeswest is also helping with the financing of 10,000 home loans, at a value of around $400 million, but the level of assistance to each home buyer seems to be low -- a subsidy of $7 million in total in 1990-91, worth $13 per buyer per week.  It is easy to see from this comparison why there is a long waiting list for public housing.

Homeswest has 35,000 rental properties.  At present Western Australia has about 90,000 unemployed, about 50,000 sole parents, about 46,000 invalid pensioners, and about 118,000 age pensioners.  But there are also many low-income employed two-parent families who are at least as deserving and needy as any of the above groups.  What possible yardstick could be used to distribute public housing to some of these people but not to others?  Homeswest does have a role in helping to house those who are chronically destitute and unemployable, but they are only a small fraction of its present rental population.  Its remaining renters are indistinguishable from numerous others who get little or no housing assistance.  (The waiting lists are one indicator of the size of this population:  18,000 for rental housing, 17,000 for home loans, with 9,000 registered for both loans and rentals, making a total of 26,000 applicants.)

Until demonstrably fair criteria are devised there can be no satisfactory welfare housing policy.  Fairness involves overcoming the "lumpiness" of the housing assets.  But to do this would be to transform Homeswest, downgrading its role as a provider of housing and re-designing its role as a welfare agency.  It is no reply to this argument to say that governments cannot afford to support the housing requirements of so many families.  The argument being presented here does not require increased housing support.  What is required is a restructuring of the present eligibility and allocations criteria.  And to do that it is probably necessary to eliminate the "lumpiness" problem by shifting to a system of housing vouchers or allowances.

The lumpiness' problem is exacerbated by the current upgrading of Homeswest's rental properties.  Homeswest talks of being a "market leader" and prides itself on constructing "an appealing variety of homes matching and often exceeding the standards of private developers". ⁽¹⁴³⁾  Figures given in the 1991 Annual Report suggest that at present the construction costs for completed rental units are averaging $77,000 per unit ⁽¹⁴⁴⁾ -- counting in the cost of land would often double the value of these properties.  When it is taken into consideration that some of these are flats and many are small units or small houses, this seems to be a very high figure.  Casual observation shows that these new properties are generally of a high standard and sometimes (as is the case of the Bennett Street apartments) almost in the luxury class.

The value of subsidies to tenants calculated above is, of course, an average, which may conceal wide variations.  There will be a massive difference between the real value to the tenant of an old Homeswest house in Hall's Creek and a new Homeswest townhouse on Buckland Hill.  The Buckland Hill project cost $4.2 million for construction alone of 40 units for seniors and 33 townhouses for families, or $57,500 per dwelling.  The townhouses are likely to have cost about $70,000 each.  The block value of the land could well be about the same.  Whatever the figure, the value of the subsidy to such tenants is very considerable.  Homeswest notes that, despite its very long waiting lists, it still has some vacant housing "... mostly in remote country areas or on the outskirts of Perth where demand is minimal". ⁽¹⁴⁵⁾  Demand for townhouses on Buckland Hill is not likely to be a problem,

All of this shows that Homeswest has little concern to spread the benefits of housing assistance to the maximum number of tenants.  A commitment to that principle would involve greatly reduced construction activities, more spot purchasing of existing houses, and more leasing of properties from the private market.  As Walsh points out, "If, say, $60,000 might be spent on purchasing or constructing a single dwelling, that amount might be invested instead at, say, 10 per cent per annum.  The resulting annual income of $6,000 would then provide subsidies of almost $60 a week to two households, instead of to only one". ⁽¹⁴⁶⁾  Extending the logic of this argument leads away from public housing authorities altogether, towards a voucher scheme.

There is a third kind of awkward and inequitable "lumpiness" in public housing, that to do with security and duration of tenure.  New tenants get much more than a substantial housing subsidy;  they get semi-permanent possession of at least part of that subsidy.  Yet within a few years many, perhaps almost all, tenants will grow out of the need for those subsidies.  Homeswest can adjust to such changing circumstances by requiring increased rental payments in line with increasing incomes.  Yet this is only a partial adjustment, for the maximum rent chargeable (the so-called "cost" rent) is still well below market rents.  Homeswest does not publish figures on the median duration of tenancies.  The turnover rate in 1990-91 was 24 per cent, but some of these movements were transfers from one rental dwelling to another.  On this basis, median durations must be more than five years and might well be ten or higher.  Ten-year tenants will be getting very favourable treatment, compared with private renters or home buyers.

It is common to argue that assistance to public housing is justified because home buyers and owners are themselves heavily subsidised by the taxpayer, and public rental assistance only counterbalances these subsidies.  In their well-known 1987 analysis of this subject, Flood and Yates concluded that public renters received subsidies worth $1,795 per annum, home owner/ buyers $1,450, and private renters only $295 (in 1984 dollars). ⁽¹⁴⁷⁾  Since that time, assistance to private renters has been increased, but the general picture is probably little changed.  As we have seen, subsidies to public renters in Western Australia seem to average around $50-$80 per week, or $2,500-$4,000 per annum.  Flood and Yates' derivation of the subsidy to home buyers is debatable, resting as it does on the assumptions that imputed rental income should be subject to income tax, and that capital gains from home ownership should be subject to capital gains tax.  In reply to these claims, it can be argued that council rates and water rates are in varying degrees taxes levied on home ownership;  and that home ownership is in part a form of savings, which should not be double taxed.  Be this as it may, there are two further considerations which are not usually brought out in discussions of "tenure neutrality".

Suppose that we were to abolish the "inequitable" tax expenditures which favour home ownership.  Let justice be done, though the (political) heavens fall.  Government revenues would rise considerably, and since our intention was not to increase government expenditure but simply to achieve tenure neutrality, taxation would need to be lowered.  If personal income tax were lowered, most of the reductions would benefit higher tax payers, almost all of whom are home-owners or -buyers.  Very little would go to the welfare-poor, who pay little or no income tax.  Even if all taxes, and not simply personal income taxes, were lowered, the share of benefits going to the poor would be not very considerable, since the net effect of all taxation is progressive.  "Subsidies" and tax expenditures apparently favouring home ownership are in reality often a "transfer" from A to A, and therefore not an equity matter.

Indeed, if the argument were carried right through, public renters would be much worse off, for removing the "inequitable" tax expenditures which favour home ownership removes the "equity" argument for public housing.  Only private renters would gain.  The net effect of redistributing equally all housing assistance would be to improve considerably the position of private renters;  to lower the position of most public renters;  and to lower very slightly the position of home owners.

The tenure neutrality case for increasing support for private renters is a reasonable one but it too is weak at a point which is often overlooked.  Most private renting is renting by young people before they move on to marriage, mortgages and children.  Seventy per cent of 15-24 year olds are private renters;  after that stage of life private renting falls away rapidly, to 32 per cent for 25-34 year olds, 18 per cent for 35-44 year olds and 10 per cent for 45-54 year olds. ⁽¹⁴⁸⁾  (Most private renting is of flats, not of houses.)  The question of fairness to private renters is largely a matter of life-cycle fairness.  Before we can pass any useful judgements on this question, we need something like the life-cycle analysis pioneered in New Zealand by David Thomson, ⁽¹⁴⁹⁾ which documents a multiplying of housing costs for younger families at a time when an older generation of long-term home-owners has done relatively well.  This has, however, little to do with State government housing policy, and is thus for the most part outside the scope of this discussion.

INCENTIVE EFFECTS

Homeswest is, as this chapter has argued, essentially a welfare agency.  (In terms of sheer size, it rates about equal with the other State welfare agency, the Department of Community Development.)  Its welfare functions are, however, being "managed" by little more than guesswork.  No publicly-argued criteria or standards are being applied, no evaluations conducted, no research commissioned.  This failure ought to be obvious to anyone in the organisation, but it is not;  mainly, it would seem, because Homeswest's attention is fully occupied by its quasi-commercial component, and by its desire to improve its "image" and its internal staff relations.  The failure is also political.

One kind of welfare failure has already been documented -- the inequities in the rental eligibility criteria and allocation practices.  Homeswest's failure to maximise the spread of its assistance is partly a function of the inherent "lumpiness" of its merchandise, but it has been exacerbated by management decisions.  A less obvious problem, but perhaps a more serious one, concerns the incentive effects generated by welfare benefits.  There is very good reason to question the social effects of government cash benefits, leaving aside housing provisions.  Many low-skilled workers will be little or not at all worse off on benefits than they would be after working a full week.  Many sole parents will be no worse off on benefits than they would be if married to a low-skilled worker. ⁽¹⁵⁰⁾

To add housing assistance selectively to one side of this set of scales is to unbalance radically a very delicately balanced situation.  As we have seen, public rental assistance can be worth between around $60 and $100 per week or more.  Over the past fifteen years, Homeswest has given preference to welfare recipients and age pensioners ahead of the claims of working -- two-parent and sole-parent -- families.  The effect must have been to make many public renters better off on benefits than they would have been in the workforce.  To suppose that such incentives have little effect on actual behaviour is to make a leap of faith, for no research supports such a conclusion, and much suggests the opposite.  The tendency must have been to encourage voluntary welfare subsistence and family breakdown, and to discourage workforce participation and family stability.

These propositions could be debated more fully if Homeswest had conducted and published research into the characteristics of its clientele, or, more broadly, "performance indicators" of its own social impact.  Because it has not done so, we can only discuss the issue in the abstract.  We do know, however, that welfare dependency has expanded and deepened considerably in the past two decades;  and we do know that in the same period Homeswest rental housing has become almost entirely housing for welfare recipients and pensioners.  And it is at least as plausible to call Homeswest the cause, and welfare dependency the consequence, as it is to describe it the other way round.

Homeswest management could hardly fail to be aware of issues of this sort.  (Its maintenance costs alone -- $550 per property annually -- would seem to testify to the social difficulties associated with long-term welfare dependency.)  It has also had to cope with a legacy from the 1960s of unsuitable, now run-down, flats in areas noted for a variety of social problems.  Some of these flats are being redeveloped or sold, and Homeswest's current construction programme is intended to avoid similar future difficulties.  It claims that "Public housing estates that dominated entire suburbs have gone, to be replaced today by small, discreet pockets of housing scattered in suburbs throughout the metropolitan area". ⁽¹⁵¹⁾  This is only half true:  the "discreet pockets" are still pockets, the product of Homeswest's desire to play the part of developer and market leader.  The more important question is about the effects.  No doubt Homeswest hopes that upgraded housing will ameliorate (albeit very slowly) the associated social problems.  But to hope this is to make debatable assumptions about the origins of those social problems.  If the real origins are welfare dependency and family breakdown, then we can expect that much of this housing will end up as shabby and as trouble-ridden as some of the older stock.  (The infamous Pruitt-Igoe housing project in St Louis lasted only seventeen years before it had to be demolished;  in its youth it won an award for its architectural excellence.)

CONCLUSIONS

A number of points stand out from this discussion.  Homeswest is unaccountable in any real sense;  and its workings are difficult to understand.  It offends against a basic principle in that its welfare function is not openly funded.  The help it does give does not necessarily go to the most needy or the most deserving;  and the form that help takes is far from ideal.  It does not make the best use of its available resources.  Reform is, however, unlikely to be swift.  Homeswest has an extensive client base who are wedded to its existence, some of whom may, indeed, have reasonably fair claims to their entitlements (entitlements in some cases closely resembling property rights).

We will, therefore, suggest here some of the basic steps toward reform, rather than an instant and comprehensive reform package;  recognising that reform may well take at least one term and perhaps two terms of government.

The first step, important regardless of whether other steps are taken, is to recognise that Homeswest, having in essence only a welfare role, is not structured appropriately as a PTE, any more so, say, than Community Development would be.  It should be operated as a Ministry for Housing;  so that its Minister, its policies and its finances are completely open and accountable to people and Parliament.  Next, its functions need to be disentangled.  Welfare must be distinct from property management, and both from loans and property development,

The loans function is probably not run efficiently.  The Commonwealth government discovered this to be the case some years ago with its extensive Veterans' Affairs loans portfolio, which was sold to a commercial bank and openly subsidised.  This is likely to be the best policy in the present case, and will improve simplicity and transparency while still providing low-income borrowers with a degree of support and security;  it should not be too politically contentious.

The property development function is one which is hard to defend.  In general, government should not be a player in activities where it is also the umpire:  the temptation to fiddle the rules is usually too great.  And once again, there are considerations of efficiency:  other arms of government perform the same function, and it is unlikely that any of them performs the service as efficiently as the private sector.  On the other hand, the cross-subsidy to the welfare function is almost certainly too great to be absorbed in the general government budget all at once, at least without a considerable reduction in the welfare expenditure.  We recommend, therefore, that the government consolidate its property development activities under one head;  that the cross-subsidy continue, in suitably transparent form;  that the land development activities be progressively scaled down to zero over the next six years;  and that the general government sector gradually pick up the corresponding shortfall over the same period.

The property management division of the new ministry will need a very clear charter.  It should, in the first place, have a primarily management role.  That is, it should undertake as little actual work as possible, and contract out as much as possible.  It should, second, have a very clear mandate to provide as much assistance as possible within its given allocation.  That will mean a rather different kind of asset management from that currently practised.  In particular, the best use of scarce resources will require that as old housing stock comes up for renewal, its unimproved land value be impartially assessed and a clear decision made as to whether sale is not better than redevelopment.  The ministry should also cease competing in the aesthetics stakes:  while architectural services should be contracted out, it is not necessary to use some of Australia's most eminent architects as designers.  (There may be some public good, however, in cooperating with those architects interested in high-quality, low-cost housing initiatives.)

The welfare function may be the most difficult to sort out.  It cannot be undertaken without a review having access to a statistical base -- precisely the sort of data not now available to the public.  That review will be more easily undertaken if the ministry announces in advance that any changes to its tenant base will exclude certain classes or individuals:  there is no point in causing needless anxiety to eighty-year-old pensioners, for example.  The review should concentrate on developing new eligibility criteria for assistance which take into account the subtle but real problems of income definition outlined earlier in this chapter.  It should also take into account the life-cycle variations in individual and family wealth which, if properly codified, should produce eligibility criteria which would make public housing assistance a transitional phase for most tenants.  The ministry should then look closely at the question of appropriateness, and in the context of the best use of scarce resources.  The logic of the arguments presented above leads us to believe that the public ownership of a large stock of housing is an inappropriate and inefficient way of delivering housing assistance, and that a cash housing allowance would be superior.  (It would have the additional advantage, not canvassed above, of providing competition in the welfare rental sector.)  Ideally, such an allowance should be introduced early on as a substitute for expansion of the existing stock.  In time, beyond the scope of this study, it would enable the State to dispose of large parts of its housing, and enable it to achieve, far more than it now does, far greater equity, fairness and efficiency in this important welfare function

---

ENDNOTES

129.  Homeswest, Homeswest Housing in the 1990s, Perth, n.d., page 1.

130.  Ibid., page 2.

131.  Homeswest, Annual Report 1991, Perth, page 10.

132.  Ibid., page 1.

133.  Homeswest, Homeswest Housing in the 1990s, page 1.

134.  Ibid., page 3.

135.  That this is an undervaluation seems to be admitted at page 42 of the Report, where it is noted that "The State Housing Commission in conjunction with the Department of Land Administration is to be involved in an ongoing process to verify its rental asset base".  A reliable valuation would involve input from private-sector valuers.

136.  This is conservative.  In 1992, Homeswest sold 474 houses to tenants at an average price of $55,000.  These are likely to have been the older homes of long-term tenants, and so well below the median value of all Homeswest housing -- except to the extent that some older housing stock will be in inner suburban areas where unimproved land values will be relatively high.

137.  Homeswest, Annual Report 1991, page 13.

138.  Homeswest, Annual Report 1987, Perth, page 17.

139.  The National Housing Strategy, The Affordability of Australian Housing, Issues Paper 2, AGPS, 1991, Chapter 3.

140.  Organisation for Economic Co-operation and Development, The OECD List of Social Indicators, Paris, 1982, page 37.

141.  NHS, op. cit., page 28.

142.  Homeswest, Annual Report 1991, page 22.

143.  Homeswest, Homeswest Housing in the 1990s, page 4.

144.  Homeswest, Annual Report 1991, page 7.

145.  Ibid., page 12.

146.  Cliff Walsh, "Housing", in Richard Blandy and Cliff Walsh (eds), Budgetary Stress:  The South Australian Experience, Allen & Unwin, Sydney, pages 240-265, page 262.

147.  J. Flood and J. Yates, Housing Subsidies Study, Australian Housing Research Council Project No. 160, Canberra, 1987.

148.  National Housing Strategy, Australian Housing:  The Demographic, Economic and Social Environment, Issues Paper 1, AGPS, Canberra, 1991, Figure 2.2, page 9.

149.  See D. Thomson, Selfish Generations?  The Ageing of New Zealand's Welfare State, Bridget Williams Books, Wellington, 1991, pages 135-147.

150.  The detailed evidence for these claims is easily obtained.  See, for example, Alan Tapper, The Family in the Welfare State, Allen and Unwin, Sydney, 1990, pages 63 ff.

151.  Homeswest, Homeswest Housing in the 1990s, page 4.