Pulling plug on electricity means NSW people lose out

The parliamentary impasse between the Premier and the opposition over whether the electricity industry sale should be examined reignites an issue that Kristina Keneally thought she had buried.  The real issue is the loss of value to the people of NSW.  This largely results from state and federal carbon emission policies.

Sales of generation trading rights value the assets of the state's coal-based electricity generators at about $3.5 billion.  The cost of replacing those assets is at least $12 billion, which means the state has sacrificed over $8 billion in wealth.

Origin Energy bought the 2800 gigawatt coal powered Eraring Power Station plus a hydro scheme at Shoalhaven with a capacity of 240 gigawatts.  TRUenergy, a subsidiary of China Light and Power, bought 2400 GW from the Delta Energy coal-powered portfolio.  Origin says the price it paid was equivalent to $313 a kilowatt;  TRU may have paid a little less.

The generation trading rights sales leave the government running the power stations and guaranteeing their output to the buyers.  The buyers are also responsible for fuel contracts.  In effect the process is equivalent to a sale of the power stations but without the new owners having the ability to drive down labour costs.  Over-staffing in the NSW system is considered to be less than was the case with the Victorian stations when they were government owned but, nonetheless, applied to all coal-based generators, this maintenance of over-staffing may mean a sacrifice of about $1 billion in sales value.

At about $300 a kilowatt, the price paid for the coal-based generators is very low.  A new coal power station would cost over $2000 a kilowatt.  Though Delta and Eraring are not new, they are sound assets with a lot of remaining life.  If the price of new assets was discounted, the present generators' worth, as unregulated businesses not subject to a special tax risk, would exceed $1000 per kW.

One thousand dollars a kilowatt would put the value for the whole 12,000 gigawatts of the NSW government-owned coal generators (including Macgen, Delta and Eraring) at about $12 billion.  But based on the prices realised, the worth of the assets is one third of this, under $3.5 billion.

Contrary to the statements of those directors of state-owned businesses who resigned, the low prices were not due to an incompetent sales process.  The prices were achieved in a competitive auction.  The value of the assets was discounted, mainly to offset the risk of a carbon tax or similar measures that would sharply reduce the value of coal-based power stations.

It is likely that a much higher price would have been achieved some years ago.  But that was before the calls for a carbon tax or cap-and-trade became increasingly shrill.  The fact that a higher price was previously achievable means that the underlying cost of the risk of a tax would have been incurred by the buyers and not, as is now the case, the sellers.

The loss of income that the sale reveals, $8 billion, amounts to more than $1000 for every person in the state, overwhelmingly as a result of a prospective carbon tax.  The NSW government has been stridently in favour of additional emission control measures so it cannot hang the costs of this on the Commonwealth.  Moreover, the $1000 hole in the wealth of every person in NSW that the sale exposes represents only a downpayment on further losses and costs that will be incurred if present carbon tax and emission reduction policies are maintained.

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Uncertainty the villain, not the power sales process

The parliamentary impasse between New South Wales Premier Kristina Keneally and the opposition over whether the electricity industry sale should be examined reignites an issue the Premier believed she had buried.  Whatever else it may show, the NSW sale once again demonstrates the wisdom of the Kennett government in selling Victoria's electricity assets in the 1990s.

In the NSW sales, Origin Energy has bought the 2800-gigawatt coal-powered Eraring Power Station, plus a hydro scheme at Shoalhaven with a capacity of 240GW.  TRUenergy, a subsidiary of China Light and Power, has bought 2400GW from the Delta Energy coal-powered portfolio.  Origin states the price it paid was equivalent to $313 a kilowatt;  TRU may have paid a little less.

The NSW ''gentrader'' sales leave the government running the power stations and guaranteeing their output to the buyers.  The buyers are responsible for fuel contracts.

In effect, it is equivalent to a sale of the power stations but without the private-sector owners having the ability to drive down labour costs.

In Victoria, the coal-based generators, which had a much smaller electricity supply capacity, sold for $9 billion a dozen years ago.  The Victorian private-sector owners reduced staffing to only a quarter of the levels that prevailed when the power stations were run by their government owners.  Over-staffing in the NSW system is believed to be less than was the case at the Victorian stations but still, applied to all coal-based generators, this maintenance of over-staffing may mean a sacrifice of $1 billion in sales value.

Much attention has been focused on the resignations of board members of the state-owned businesses that have been sold.  Those directors clearly considered the state was getting too little for the assets.

In this respect, the sale of the output of two of the three generator businesses places a total value of $3.5 billion on all the NSW state-owned coal generators, which account for the great bulk of the state's electricity supply.

The cost of replacing the NSW generator assets, which are relatively old but in good condition, is $12 billion.  This means the state has sacrificed more than $8 billion in wealth.

The real issue about the loss of value to the people of NSW is not, however, a defective sales process.  The coal-based electricity generators have been devalued from their underlying $12 billion worth as a result of state and federal carbon emission policies.

Contrary to the statements of those directors of state-owned businesses who resigned, the low prices were not primarily due to an incompetent sales procedure.  Despite the complex nature of the ''gentrader'' contracts, the prices were achieved in a competitive auction.  The value of the assets was discounted mainly to offset the risk of a carbon tax or similar measures that would sharply reduce the value of coal-powered stations.

It is likely that a much higher price would have been achieved some years ago.  But that was before the calls for a carbon tax or cap-and-trade became increasingly shrill.  The fact that a higher price was previously achievable simply means that the underlying cost of the risk of a tax would have been incurred by the buyers and not, as is now the case, by the sellers.

Aside from anything else, the NSW sales outcome shows that investment in power stations has become extremely risky as a result of government policies and threats surrounding carbon taxes.  Power stations in Australia can now only be sold at a steep discount on their underlying value and costs.  And the introduction of a carbon tax would offer no greater certainty on which new investment decisions can be taken.

The $8 billion loss amounts to more than $1000 for every man, woman and child in NSW, overwhelmingly as a result of a prospective carbon tax.  The NSW government has been stridently in favour of additional emission-control measures so it cannot hang the costs of this on the Commonwealth.

Moreover, the $1000 hole in the wealth of every person in NSW that the sale exposes represents only a down payment.  Further losses and costs will be incurred in terms of higher electricity prices if present carbon-tax and emission-reduction policies are maintained.

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Christianity has role in learning

The draft national curriculum for history opened an exciting prospect.

Here was a chance, I thought, to defend the honour of Christianity amid the cut and thrust of educational theory, pitting myself against the intricate arguments of those who would deny, or at least downplay, the greatness of the influence of Christianity in the unravelling of the great events of the ages.

Yet the compilers of the draft curriculum have chosen the simplest strategy of all:  deliberate, pointed, tendentious and outrageous silence.  In its 20 pages, the draft ancient history curriculum mentions religion twice.  There is no reference to Christianity anywhere in the document.

The draft modern history curriculum is 30 pages long.  Christianity is simply never mentioned, at least not explicitly.  The word religion appears twice, the first occurrence in the context of Indian history, the second in the context of Asian and African decolonisation.  However the precise phrase in which it is found discloses the agenda of the compilers:  ''The effect of racism, religion and European cultures.''

This, surely, is an oblique mention of Christianity and a judgment upon it at the same time.

The English philosopher Roger Scruton took the word oikophobia and gave it a new meaning.

Oikophobia literally means fear of one's own home, but Scruton nicely adapted it to mean ''the repudiation of inheritance and home'', the contemptuous rejection of everything that one's parents and grandparents respected, fed by the vanity of a new and supposedly enlightened way of looking at the world.

The name of Christianity is particularly odious to those oikophobes for whom the hope of a multinational and God-free world stands in the place of the dream of a promised land.  For such people Christianity has brought more misery than relief, more gloom than joy, more war than peace, more hatred than love.

And -- let us be honest -- they can produce evidence to support all those opinions.

They can point to the massacres of the Crusades, the use of torture and connivance at capital punishment by the Inquisition, the ruthless eradication of the Albigensians, the Thirty Years War, apparent indifference (in some places) to slavery, the treatment of the Jews throughout European history, the fighting in Northern Ireland, the brutish behaviour of certain clergy towards children.

But against that -- if they are honest -- they will have to acknowledge that all the evil deeds done by men professing themselves Christian have been counterbalanced by all the good things that have been done in the name of Christ.

The systematic care of the poor, the relief of prisoners, the establishment of hospitals, schools and universities, the self-sacrificing saintliness of many clergy, active resistance to the bullying of civil authorities, the amelioration and ultimately the prohibition of slavery, and the improvement of the lot of women (yes, that too) ... all these things have emerged within a society that has been predominantly Christian.

Even today, in the shadow land of the post-Christian era, there are many who insist on calling themselves Christians still who have abandoned the faith but maintain a firm commitment to what they rightly regard as the ''Christian ethic''.

Yet the draft curriculum in history avoids all of this.  It is almost completely silent on the whole matter of Christianity.  It chooses to ignore a worldwide religious movement that has marched with civilisation for 2000 years, infusing it with a morality that has shaped the thinking of the whole of society, including the minds of those who lost the faith but clung to the moral view.

This omission is not just careless, it is staggeringly inept and profoundly dishonest.

What would an honest and inclusive curriculum look like?

It would recognise the enormous influence of religion in the world since late antiquity.

Moreover, being an Australian curriculum, intended for students in Australian schools, it would not pretend to the possibly laudable but utterly impossible task of giving all the world's cultures and religions equal coverage, but will acknowledge that, like it or loathe it, Christianity has been the dominant faith and moral mentor for our nation since white settlement began, that many indigenous people have embraced it too, and that the more recent waves of settlers -- including Muslims and Hindus -- have scarcely been unaffected by it.  It would be good to see our society honestly facing up to the implications of its own heritage, and mature enough to recognise the good alongside the bad, and wise enough to see that amid the imperfections of any human organisation there is much to take pride in.

For believers, though, the reality is that the incarnation of Christ was and is the greatest event in human history, and that this greatness is not simply a matter of degree, but it is a kind of an absolute and ultimate truth by which alone the significance of all other events must be judged.

Many unbelievers cannot but be angered by such assurance, and we should not be surprised or disappointed by a savage response to such claims.

Many of those most bitterly opposed to Christianity have perhaps sensed that we are on the ropes, utterly nonplussed by this apathy, and are determined to continue to wage that kind of war of attrition in the hope that we shall simply and finally melt away.  My suspicion is that some of the framers of the curriculum are driven by such a plan, perhaps consciously, perhaps by instinct.

Many other people of goodwill, non or anti-Christian in their orientation, are willing enough to face us on the field of debate and controversy.  Such people may indeed admire and respect aspects of Christianity, while rejecting all or most of its metaphysical tenets.

In many such men and women I think I can see -- excuse the presumption -- the characteristics of the unconverted St Augustine:  all too often they bark against a faith they have not troubled (or have not been able, through the scandal of our failings and our own poor example) to understand.

Clearly it is the best interest of the Christian religion boldly and confidently to face the challenge of those who would with equal confidence contest the veracity and integrity of our claims.

To take the battle vigorously to the critic's gates, to emerge thus from the slough of indifference that now threatens to swallow us, is our best hope.

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Gillard's government balancing act

As 2011 opens, Labor is going to face that Julia Gillard's biggest problem is a crisis of legitimacy.

Not the sort of legitimacy Tony Abbott was talking about in the weeks after the election:  a government formed in a hung parliament is a valid government, and Gillard is as much a Prime Minister as any other prime minister.

But Julia Gillard commands neither influence over her colleagues, control over the processes of government, nor direction of the media cycle.  In the months since taking the leadership, she has utterly failed to stamp the Government with her brand or even made clear her philosophy of government.

Everybody has noticed that the Gillard Government has no vision, but increasingly you have to wonder whether it has any purpose at all.

Kevin Rudd had an awful 2010, but his control over all these things in the first 18 months of his government shouldn't be forgotten.

It was just the way Rudd achieved that control -- the endless parade of announcements and policy revolutions that spectacularly blew up this year -- that eventually did him in.

By contrast, Gillard's leadership was precarious from its first moment.  The leadership spill did more than install a new Prime Minister;  it appears to have undermined the internal coherence of federal Labor's parliamentary party.

The Greens have received the credit for the recent debate over gay marriage, but it wouldn't have been possible if not for the erosion of Labor's internal discipline in the wake of the spill.  Gillard's strong claim that she doesn't support gay marriage did nothing to halt dissent from within her own government.  She may have even stoked it.

It's no longer fashionable to do so, but I still blame Rudd for Gillard's problems.

Much was made of Gillard's claim in an interview from Brussels that foreign policy was not her passion -- education was.  Yet education has been stubbornly out of the Prime Minister's orbit since.

Rudd left so many balls in the air that Gillard's first few months has been entirely focused on tackling them one by one.

Take the politics of asylum seekers.  Rudd's dithering between toughness and compassion throughout 2009 and his last months in 2010 left the Government with no coherent message to counter Abbott's simple mantra.

Rudd then threw a bomb at Gillard in his penultimate press conference, incoherently and confusingly claiming that the leadership question was whether the Government should ''lurch to the right'' on asylum seekers.

Once she got the job, Gillard grasped a badly underdeveloped East Timor solution which didn't seem to have left the whiteboard stage.  (It's only last week that East Timor received a document outlining the plan -- five months after it was announced.)

And she struggled to demonstrate that her East Timor plan was at all different from the Pacific Solution her party had spent a decade condemning.

It's not much better across the policy portfolios.  The lavish Henry Tax Review has ended with the resignation of its author and a mining tax going into its third iteration.  Gillard tried once to wrestle the mining tax down once before, but the drama looks to intrude well into the New Year.

Or a price on carbon.  Gillard is committed to ambitious climate reform, we're told.  She's just not entirely sure what that reform is yet.  Perhaps it depends on Rob Oakeshott and Tony Windsor.

Gillard has struggled to balance these huge policy battles (you could also include health and water reform) with her avowed belief that Labor lost its way in July.  She doesn't want to abandon the appearance of reform zeal which Rudd cultivated, but knows those attempts at reform were the sources of the Government's problems.

It leaves her government hesitant, cautious, and ever so slightly intimidated by its own policies.

The Government is deeply uncomfortable in its own skin, led by a Prime Minister whose principal qualification for leadership was being agreeable to union bosses and ALP heavies who felt neglected under Rudd.

That's not to say Julia Gillard couldn't have been a good Prime Minister -- or even a great one -- or that she couldn't be one in the future.  Right now there's no reason to suspect this government won't be able to survive a full term.  She has time to grip the wheel of leadership.

But one thing is clear right now.  Kevin Rudd's problem was never just communication, although it must be comforting in Labor circles to imagine it was.  Gillard's struggle over the last few months surely has shown how much a fallacy that belief is:  changing the messenger hasn't helped at all.

It's only become worse for the ALP.  Tony Abbott is if anything much more electable than he was while Kevin Rudd was leader.

Hence Gillard's legitimacy crisis.  One by one, the justifications for July's leadership spill have collapsed:  the Government is less popular than it once was, it is no better managed, its suite of policies are no more coherent, accepted, or closer to implementation.

In 2010, Gillard was given the role of Prime Minister.  In 2011, her goal must be to own it.

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Taxpayers are the true victims of the global financial crisis

About two years on from the financial crisis the world looks very different to the way it seemed in the middle of the economic collapse.

The broad ideological realignment predicted by many never came.  But, back in late 2008, it was hard to get away from the hyperbole.  Neo-liberalism was dead.  Consumerism was dead.

Even deader was the orthodox approach to economics.  The entire academic economics profession was looking pretty unwell.

A cover of Newsweek claimed ''We are all socialists now''.  French President Nicolas Sarkozy was photographed reading Karl Marx's Das Kapital.

A clearly overstimulated Kevin Rudd wrote in The Monthly:  ''from time to time in human history there occur events of a truly seismic significance, events that mark a turning point between one epoch and the next''.

For Rudd, it was time for governments to grab back the power his prime ministerial predecessors had relinquished.

As the global economy imploded, the ideas of John Maynard Keynes, the economist who suggested government could step in to save it, were always going to be popular.

In retrospect, Australia survived splendidly.  We never quite fell into recession.  We should be proud.  Or perhaps just relieved.  Overseas, the outlook is terrible.

The formula that the government claims worked in Australia -- pumping money into the economy with reckless haste -- has failed elsewhere.

The United States embarked on an unprecedented fiscal stimulus, bailing out car companies and investment banks.  But its economy is still moribund, unemployment projected to hover at about 9 per cent for years.  Last month it began another round of printing money.

At least the US government is limping along.  Across the Atlantic, the wash-up from the crisis has been even worse.  Greece is broke.  Ireland is broke.  Spain looks like it's about to go broke.

The crisis that was supposed to destroy neo-liberalism seems instead to have hurt big-spending governments.

Economic slumps are stress-testers.  Not all businesses fail in a recession.  Those that do are either so marginally profitable they were on the edge of failure anyway -- think car companies -- or had made such poor decisions that they caused the crisis in the first place -- including banks that relied on sub-prime mortgages.  So too with governments.

The financial crisis was an industrial-scale test of economic wellbeing.  Countries that had bad policies before the crisis failed.

Ireland suffered because, having adopted the euro, its interest rates were set by a European central bank more attuned to French needs than Irish ones.  Ireland's economy -- its tax cuts and public service bloat -- came to rely on a housing boom caused by those theatrically low rates.  The boom collapsed.

Greece's corrupt public sector has engulfed and suffocated its economy over decades -- the government was only just able to pay all its employees during the good times, let alone during a crisis.  The US economy was weak after a decade of massive overspending under George W. Bush and the trillion-dollar price of military adventurism.  Barack Obama's spending decadence tipped it over the edge.  The American economy is paying for years of government irresponsibility.

Yet countries that were robust and healthy -- such as Australia with our flexible labour market, good balance sheet and risk-averse Reserve Bank -- thrived.

Academic economists are still studying the causes of the financial crisis.  One early finding:  it wasn't ''greed''.  How important were the American interventions in the housing market, the US Federal Reserve's artificially low interest rates, Wall Street's too-clever-by-half mathematicians, or the global capital regulations that inexplicably favoured mortgage-backed securities?

But we know what's happened since.  The moment for Keynes has ended.  Now it's time for free-market economists such as Ludwig von Mises and Friedrich Hayek.  The two Austrians said markets should be free to self-correct -- better for governments, and better, in the long run, for economies.  Governments should have restrained themselves.

Keynes once famously claimed that when the facts changed, he changed his mind.  Having ended its flirtation with collectivism, Newsweek now publishes articles about ''The Triumphant Return of Hayek''.  Bitter experience will do that.

The real casualties of the financial crisis haven't been banks or businesses.  They have been the rash governments that tried to save them and the taxpayers who provided the cash.

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Time for a rethink on migrants -- it's no crime to seek a better life

The decisions of the Refugee Review Tribunal make disheartening reading.

It hears appeals from individuals who have had their application for a protection visa refused.

For instance:  the Fijian man who applied for protection because ''my educational outlook and possible employment opportunities may not allow me to reach my fullest potential''.  Not really persecution, so he was refused a protection visa and refused entry into Australia to find work.

Or the Lebanese resident who claimed to be pursued by the terrorist group Fatah al-Islam, but applied for a protection visa because he lost his job and needed work.  He was refused, too.  Or the Indonesian woman seeking protection ''due to economic hardship as it was impossible to make a living and support her young child''.  Also refused.

The tribunal's decisions are no doubt correct in law.  Applicants often have inconsistent stories, leading the tribunal to question their truthfulness.  Others simply do not fit the legal criteria for humanitarian entry.  They do not have a ''well-founded fear of being persecuted''.

But is Australia really better off having refused these individuals a visa?

Certainly the applicants are not.  They would not have qualified for one of our numerous skilled migration programs.  For many trying to get into Australia, claims of political or religious persecution are just pretexts:  the real reason they want humanitarian visas is to seek employment and to participate in Australia's high standard of living.

Advocates of strong border protection have dismissed these types of visa-seekers as ''economic'' refugees.  And with asylum numbers booming, refugees fleeing poverty rather than persecution are clogging up the processing of humanitarian entrants.

Here is one way to fix that.  The government could introduce a visa category for economic refugees.

After all, fleeing unemployment and destitution is just as justifiable as fleeing political persecution.  Whatever moral obligation we have to accept political refugees applies just as easily to economic ones.

Few of the usual arguments against migration apply to economic refugees.  For example, they need not be a drain on taxpayers.

Sure, humanitarian entrants immediately qualify for a wide range of government programs.  They get caseworkers, language lessons and subsidised counselling.  They receive settlement grants, crisis payments and Centrelink benefits and advances.

Yet a program for economic refugees needn't be so generous.  If migrants flee to Australia to seek employment, it is reasonable to insist they find employment.  Or, at the very least, refuse to support them if they do not.  Migrants who come to Australia looking for work seek to contribute more than they take.

Those three people rejected by the Refugee Review Tribunal were eager find employment.  And, presumably, they were eager to spend.  They could have contributed to our economy, society and culture.

There is an enormous need in agricultural industries for workers -- an unskilled demand not being supplied by Australians -- and significant demand in Australia's north-west, where a lack of unskilled labour has inflated wages to an exaggerated degree.  Low-skilled labour (with its low wages) could fill a substantial gap in the urban labour market for nannies, live-in carers and house cleaners.

Bosses such as Rio Tinto's Sam Walsh and Leighton Holdings' Wal King have made it clear heavy red tape for sponsored employment visas are restraining their ability to bring in migrant workers.

The Australian National University's Professor Peter McDonald argued last week foreign contract employees are needed to build vital infrastructure.  Economic refugees would be ideal candidates.

If that demand doesn't exist, then economic refugees will not be interested in coming here in the first place.

Of course, migrant labour should not be used as an excuse to ignore policy problems in our higher education and training sectors.  But we have a strong economy and businesses looking for labour.

We also must remember that migrants tend to be more entrepreneurial than everybody else -- economic refugees make their own opportunities for work.  So to be rejecting possible participants in our economy at the same time we are crying out for them is inexplicable.

And it should not need to be said, but allowing people to seek work and opportunity in Australia is a moral and humane imperative.  The tragedy on Christmas Island should remind us of how desperate some are to find a better life here.

Allowing economic migrants into Australia also helps the developing world.  The money migrants send back to their home countries is the unsung engine of globalisation.

According to one survey, 96 per cent of migrants from the Horn of Africa remitted part of their earnings back to family and friends at home.  In 2006 (the last good estimate we have), migrants in Australia remitted $2.8 billion to the developing world.

It is more than we spent on foreign aid that year:  $2.1 billion.  Globally, the amount transferred in remittances is larger than that spent on aid.  This money goes straight to families, rather than being filtered through aid agencies or corrupt governments.

So when three people are refused residency in Australia because they don't have a well-founded fear of persecution, most people's gut reaction might be that the legal system is working as it should.

But every economic refugee -- every potential worker and consumer -- we exclude makes Australia ever so slightly poorer.

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Business regulation holding back growth

The China boom has continued to lift Australian income levels via mining demand and this has been supplemented by general increases in primary product prices.  But our success has been due to the investment environment of the past two decades and earlier.

The ''micro-economic reforms'', started in the early 1980s by the Hawke government, dismantled many of the government-imposed restraints that added costs to enterprise, and injected greater competition into a range of products and services.  The Howard government built on these with labour market reforms, while privatisations amplified the benefits.

In all too many ways, the Rudd/Gillard Government's policies have reversed these painstakingly assembled pre-conditions for prosperity enhancement.  Key decisions have undermined the ability of the private sector to invest with confidence in productivity improvements.  Some recent policy stances are even challenging the long-standing expectations that governments would respect property rights and would maintain a stable, non-discriminatory taxation regime.

These developments are particularly evident in the four key industry policy areas -- telecommunications, a carbon tax, the mining tax and Murray Darling water.

With regards to telecommunications, it is almost a cliché to acknowledge the importance of a first-rate system, given the sector's ubiquity to productivity throughout the economy.  Investment in the sector requires predicting needs and the costs of meeting these as well as the usual concerns about competition, concerns that heighten risks as a result of the startling developments in technology and usage patterns.

The national broadband network, comprising an infra-marginal government-owned network, is created as a monopoly and likely to incorporate competition-restraining features.  Its subsidised nature is paralysing new investment by the private sector in developing services that might compete with it, while forcing the industry to adopt a government rather than customer-oriented focus.

The threat of a carbon tax is the second major policy negative.  It means that major new electricity generation facilities cannot be contemplated.  As seen with the NSW ''gentrader'' sales, it has also brought a steep discount to existing facilities -- perhaps reducing their worth by two thirds.

No coal-fired power stations can pass an investment test while the threat of a tax on their emissions is an ever-present risk to their future profitability.  Nor can gas-fired power stations obtain financial approval, because even if a tax that placed a greater penalty on coal were introduced its durability cannot be guaranteed.  And the Government continues to subsidise intrinsically high-cost wind which suppresses wholesale market prices.

The third detrimental policy threat is the mining tax.  New mining investment is proceeding but Australian exploration expenditure has not reached previous peaks and has fallen relative to that in other countries.  The risk of a new mining tax makes Australia less attractive.  This is a slow fuse undermining new ventures, one that will bring productivity shortfalls in years, even decades to come.

Finally there is the policy of the on-going threat to buy water from irrigators in the Murray Darling aimed at reducing irrigation rights by at least one third.  This places a deterrent to new investment in the interior townships in Queensland, New South Wales, Victoria and South Australia.  It means ageing processing equipment, riskier real estate developments in the towns themselves and on-farm developments geared to short-term measures.

Investment-sapping policies in these four areas are setting up Australia to reap a penalty of slow growth, if not stagnation in the years to come.  And this is being compounded by backsliding in a range of earlier micro-economic reforms.

We are seeing union monopolies being bolstered with restraints on employer-employee bargaining and the ''tough cop'' on the beat that Gillard promised having his powers undermined.  In addition protectionism is creeping back in for example coastal shipping services.

Compounding these are the increased hidden charges from the requirements for wind-based electricity and from building standards that require new houses to incorporate costs like grey water systems and solar panels.

At the same time the energies of regulatory agencies like the ACCC have been directed at measures that thwart productivity growth.  These include attacking banks and requiring firms to share their facilities with their competitors (guaranteeing that fewer such facilities will be built).

A new impetus to reform could be initiated if the regulatory agencies were redirected from restraining business activity to unchaining the manacles on enterprise by:

• Bringing about competition and lower costs in public transport
• Undoing planning laws that force up the price of new housing, restrain competition in shopping centres and add costs to commercial developments
• Reviewing laws on environment and heritage to ensure they are not extending beyond their necessary levels and thereby preventing development
• Removing the restraints on the adoption of new technology like GM in agricultural production.

Australia has the highest levels of natural wealth per capita in the world.  This can be translated into achieving the world's highest living standards.  We were progressing towards this until the process was halted by government intervention and impositions on business that were introduced or foreshadowed over the past three years.  We can restore the process by recommitting to a reform program that involves taking measures to enhance rather than retard productivity growth.

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Give unto others as you would have them give unto you

It's a key part of the human condition:  Christmas and the end of the year always inspires a bit of soul-searching.  And in the 21st century, that soul-searching is as political as it is personal.

So this year, as sure as Christmas pudding, the anti-consumerist Australia Institute has released a survey suggesting most Christmas presents are a waste of money, resources and time:  ''millions of unused foot spas require enormous amounts of resources''.

Better to reject what the Australia Institute's executive director, Richard Denniss, calls the ''growing culture of obligatory giving''.

This Christmas, scepticism does have a strand of scholarship on side.  Economists have claimed that, at the very least, gift giving appears to be highly inefficient -- rarely does a recipient value their gift as much as the giver paid.

Obviously, we know what we want better than others do.  So we never manage to buy each other quite the right present.

In a famous paper, now nearly two decades old but trotted out every holiday season, the economist Joel Waldfogel argued Christmas constituted a major ''deadweight loss'' -- we were all poorer for having indulged in the Christmas spirit.  It's now a book:  Scroogenomics.

One could respond to Scrooge and the Australia Institute that gift vouchers or cash might be a solution to this apparent dilemma.

It's hardly romantic, but if holiday makers were serious about cutting down the deadweight loss of Christmas, then bank transfers would probably be best.  No need for environmentally unfriendly cards either, with an email notifying the recipient of an incoming money transfer.

But we don't just email each other receipts at Christmas.  The idea that Christmas is really just an enormous waste of money and resources would make sense if it was simply a transfer designed to increase aggregate financial wealth.

But gifts are in the giving.  Tallying up the relative value of items exchanged misses the whole point of gifts.  Gifts are a mechanism we use to convey private information about the closeness of our relationship with each other.  The better the gift, the better the relationship.

Waldfogel found the closer the giver is to the recipient, the more efficient their gift buying.  (He also confirmed that aunts and uncles are bad at giving high-value gifts.)

So maybe giving a loved one a foot spa, despite the cost, waste and how rarely it gets used, actually fulfils a real function -- to signal you want that loved one to relax and look after themselves.

It may seem like those millions of foot spas are wasted -- it's not clear where the Australia Institute got the ''millions'' figure from -- but the promotion of our interpersonal relationships may be well worth the money.

The Australia Institute recommended that instead of giving unwanted gifts, we could instead donate to charity on each other's behalf.  Oxfam offers gift cards that purport to donate goats or sheep or buffalo or seeds to someone in the developing world.

Read the fine print.  Oxfam are careful to say that just because the card has a photo of a goat, no goats may be exchanged -- ''your donation might also be covering the cost of buying a goat or the cost of something else ... tracking each individual item and the community it goes to would be expensive.''

In other words, the money may be used for something goat-related, or just for general development.  Probably better that than a surfeit of unneeded goats dumped in sub-Saharan Africa.

But it's Christmas.  Think of what you're signalling.  Gifts should be about what the recipient wants, not about the giver's compassion for development.

So if the recipient finds donations endearing, then great, and we can only hope your money is deployed effectively.  But if not, then donate to charity in your own name later.  Christmas gifts are not an ideal medium for broadcasting your conspicuous compassion for the third world.

Christmas gifts should be a statement about the strength of our relationships, not a statement about our personal politics.

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Words must turn into action on free trade

Craig Emerson's excellent speech leading the directionless Gillard Government toward a new free trade revolution are welcome words, but only if he can get his colleagues to act.

Emerson wants to put free trade at the centre of driving economic growth through unilateral trade liberalisation, concluding the Doha round of multilateral negotiations, only accepting comprehensive free trade agreements.

But even before the openly protectionist Bob Katter and the Greens Party's joined the Parliament's circle of power Emerson's position is out-of-step with his own colleagues who've squibbed at living up to the Hawke/Keating trade liberalisation legacy.

For starters under Emerson's term as competition and consumer affairs minister the Rudd government kept import restrictions on copyrighted books.

Reportedly Emerson fought hard for the reforms backed up with recommendations from the Productivity Commission showing the prices of books would drop and wouldn't diminish Labor's luvvie arts constituency's copyright royalties.

But he was rolled by his colleagues who were more interested in promoting the interests of multinational book publishing houses than the interests of millions of Australian readers who could have had book prices slashed by up to a third.

At least Emerson tried.

He's going to have to pick up his game to drive further reform.

He should start with Labor's election policy to introduce new trade regulations on imports to help stop illegally logged timber entering the country.

Based on the Government's commissioned independent advice the policy would cost more than it is worth because ''Australia's imports account for about 0.034 per cent of global timber production, and 0.34 per cent of products incorporating illegally logged timber.''

Strongly pushed by industry vested interests the policy isn't going away and last week the department advised industry stakeholders that legislation to impose the new regulatory costs on the timber industry would be introduced ''as soon as possible''.

Then Emerson would have to take care of Industry Minister, Kim Carr, who spent most of the Rudd government introducing subsidies to offset tariff cuts for the automotive and textile, clothing and footwear industries.

Since the election his news release webpage reads of taxpayer research and subsidy handout to just about every industry who's bothered to send delegations to his office door.

Even health has become the basis for protectionism.  COAG's food labelling review is looking at whether imported palm oil should be separately labelled from vegetable oils by bi-national food labelling regulator Food Standards Australia New Zealand.

Such a regulation would invoke a dispute with Indonesia and Malaysia in the World Trade Organisation for breaching the labelling standards of Codex Alimentarius.

Similarly a WTO dispute will almost certainly result from the planned stripping of trademarks from tobacco products.

Emerson then needs to address the ignorance of free trade's benefits that pervade inside the government.

Last month reports from confirmed the Department of Finance wants lost tariff revenue to be factored into considerations of negotiating free trade agreements.

But the whole point of free trade agreements is to remove trade barriers such as tariffs to make the market more competitive.

The benefits of free trade are dynamic and result from the decisions of millions of individuals in the marketplace, not the rise or fall of government tariff revenue.

By factoring lost government revenue negotiations will deliver the ''empty vessels engraved with the words free trade agreement'' on it that Emerson has advocated he wants to avoid.

At least Emerson is aware of the problem he faces admitting that his colleagues advised that being a self-described ''economic rationalist ... amounted to an overly long political suicide note,'' especially amongst the unions who have given birth to many of Labor's protectionist urges.

Last month former head of the Australian Manufacturing Workers Union and NSW Labor Senator, Doug Cameron, voiced loudly he's a ''cynic'' on the deliverables from FTAs.

And there's some justification for his cynicism.

The Productivity Commission's review into Australia's FTAs raises concerns about burdensome rules and some undesirable obligations.

But unlike Cameron, the Commission's report criticises the government-to-government agreements, not free trade itself.

And the Howard and Rudd governments never used the implementation of FTAs to their full potential treating them as an end unto themselves.

Instead they should act as a foundation, and Emerson could play a constructive role in using them to deepen trade relationships.

Emerson started his speech hoping ''for Australia and the World, 2011 can be the Year of Trade''.  And with his bold free trade leadership it could be.

But considering the shaky ground that Australia's free trade consensus now rests advocates should wish Emerson the best of luck with his colleagues.  He's going to need it.

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Victoria looking ahead: Policy priorities for the Victorian government

1.0 EXECUTIVE SUMMARY

• The election of the new government in Victoria in November 2010 provides an opportunity to embark on a reform agenda to improve living standards and quality of life for Victorian people.
• It is proposed that the following reforms and policy priorities be established in the following portfolio areas:

1.1 ECONOMY AND BUDGET

• Pursue unilateral economic reform, outside of COAG processes, to boost economic growth and productivity.
• The government should refocus its expenditure priorities towards core public goods;  for example, to help achieve this the government should withdraw support for Victoria's major events strategy, refuse to bail out the Formula One Grand Prix, and refrain from investing in new sports facilities and facility upgrades.
• Explore additional opportunities to separate the government's role as purchaser and provider of services.
• Short to medium term tax reform should prioritise the reduction of stamp duties.
• Victoria's fiscal institutions should be renovated by introducing fiscal rules that cap revenue and spending growth.

1.2 HEALTH

• The government should assume a 'beds not bureaucrats' policy to redress the shortage of public hospital beds in the face of a growing state population.
• Initiatives should be introduced to facilitate the continuing growth of the private hospitals sector, as a way to alleviate pressure from public hospitals throughout the state.
• Measures to enhance the transparency of public hospital performance should be enacted.
• It is unnecessary for Victoria to remain a signatory to the COAG national health reform agreement that is a recipe for more bureaucracy and blame-shifting between levels of government.

1.3 SCHOOL EDUCATION

• A competitively-neutral recurrent funding scheme for all students should be strongly considered as an educational policy priority.
• School self-management for Victoria's public schools should be reinvigorated, for example in the areas of greater curriculum and human resources management autonomy for individual schools.
• Individual government schools should be encouraged to specialise in certain subject areas, particularly for the senior years of schooling.
• The government should pursue as a top priority teacher quality in Victoria's schooling system.

1.4 ENERGY

• The government should invite bids for a new coal power station in Victoria with the winning bid (subject to assurances that it is 'state-of-the-art') being assured by the state that it will be reimbursed for any future carbon tax.
• Until policy is better defined, the government should suspend approvals for renewable facilities that have not been financially committed.

1.5 TRANSPORT

• The government should re-franchise V-Line Passenger services for Victoria's regional commuters.
• The $100 million maintenance backlog for regional roads should be addressed as a priority.
• Metropolitan rail timetables should be radically simplified to improve service reliability.
• An audit of the metropolitan rail system should be undertaken to identify and address existing infrastructure inadequacies.
• The government should reconsider potential alternatives to the announced policy of two protective officers on every train station.
• The structure and timing of the independent Transport Authority should be detailed.
• A thorough audit of the Myki project should be instigated.
• There is an urgent need to investigate the scope for projects such as the Mill Park extension and Regional Rail to be delivered at a cheaper cost than currently predicted.
• In the medium term renewed bus contracts should be awarded on the basis of competitive tendering and allow competition in the sector.
• The government should consider if pricing policy can better match demand to available supply of capacity both on board public transport vehicles and on roads.
• The current taxi licensing system should be reformed, to be replaced by a system of as-of-right licensing subject to suitability checks.
• It is essential that the metropolitan road network be upgraded to cope with increased demand.

1.6 HOUSING

• Abolish the Urban Growth Boundary and set time limits on state and local government agencies to require development to proceed.
• Place strictly defined limits on the nature of environmental and heritage matters that can prevent or delay development
• Prevent regulatory authorities from specifying the nature of the development.
• Measures that increase the on-costs of housing, such as '5 Star' energy requirements on new houses and expensive additions to new homes, should be removed.
• Minimum subdivision rules in rural areas should be removed.
• Departmental directives to councils to use minimum projected sea level rises as a basis for planning should be removed.

1.7 REGULATION

• The government needs to recognise that the complexity of legislation and regulation, and the frequency with which it is enacted, poses a restraint on economic and social development.
• Regulatory Impact Statements (RIS) and Business Impact Assessments (BIA) should be set to identical standards.
• BIAs should be released for public consumption as legislation is presented to Parliament.
• Exemptions granted to the RIS and BIA process should only be granted by the Premier, accompanied by published documentation for these reasons.
• The processes by which RIS and BIA are produced needs to be independent.

1.8 GAMING

• The government should resist any push to reduce the cap on poker machine numbers in Victoria and, longer term, raise the cap at least in line with population growth.
• The government should defend the rights of clubs and businesses to operate poker machines, and consumers to use them, without local communities having a power of veto.
• The government should oppose any moves by the commonwealth government to impose mandatory pre-commitment for poker machine use.
• Stated opposition to the Mildura casino proposal should be revisited and, indeed, the government should look favourably on other similar proposals to end the current casino monopoly.
• The former government's decision to merge the VCGR with Liquor Licensing Victoria should be reversed.

1.9 LOCAL GOVERNMENT AND PLANNING

• Local governments should have their roles and responsibilities clearly prescribed by state government, with any codification based on the principle of legislative and regulatory neutrality.
• The government should reform the inappropriate capacity of local governments to act both as regulator and adjudicator of areas within its power.
• The state Constitution should be amended recognising the responsibility of state and local governments to compensate for undermining property rights through direction or regulatory acquisition.

1.10 AGRICULTURE

• Abolish the Fire Services Levy immediately prior to the current fire season.
• Abolish Labor's proposed $180 charge on trucks entering the Port of Melbourne.
• Enact rate relief by tying the amount of council rates on farms to the proportion of farmers in a local government area.
• Ensure new investment in rail freight transportation.
• Existing land use regulations, including in the areas of native vegetation, land use restrictions and planning schemes, should be reformed.
• The proposal to strip 37 per cent of water entitlements from Murray-Darling Basin farmers must be strenuously resisted by the state government.

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2.0 INTRODUCTION

The 2010 Victorian election result, which ushered in a return of a Liberal-National Coalition government after eleven years, was critical from two interrelated perspectives.

Taking into account the depreciating political asset that is longevity in office, the election represented a significant rebuff of a Labor government that did not meet reasonable expectations in the numerous areas of state government service delivery.

Whether it be (published or secret) hospital waiting lists, lagging school education outcomes, road traffic congestion, or a lack of reliable public transport services, the election result was a sharp reminder to state policymakers of both political persuasions that Victorian voters expect a strong focus on the first-order issues of providing efficient and effective services.

The election victory for the Coalition was also significant from a national perspective, not least because of the shift in political sentiment within Australia's second largest state (in terms of size of economy and population).

Consistent with the statements of Premier Ted Baillieu that the new government intends to pursue a 'competitive federalism' approach, the new government has signalled an intention to unilaterally solve Victoria's policy problems without necessary recourse to the financial purse or policy directive of the commonwealth.

This promises to change the dynamic of federal-state relations for the better, with the promise that states will compete against each other for capital and labour by streamlining the size and scope of government intervention.

These two messages from the election are not inconsistent with each other since, after all, governments should not attempt, and realistically cannot succeed in any case, to be all things to all people.

With real limits to fiscal resources available to a state government, the Victorian government should seek an innovative balance between marshalling taxpayers' funds to redress problem areas left behind by the previous government and leveraging a much greater role for the private and non-governmental sectors in service provision.

Such an approach would ensure that services that Victorians expect are delivered without breaking a limited state budget, while also providing policy leadership in what promises to be a more competitive federal environment.

The following provides a collection of short essays in a range of critical state government portfolio areas.  With many refreshing reform ideas expressed in the following pages, it is hoped that this paper will inspire policy reforms by the new Victorian government in the interest of all Victorians.

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3.0 AGRICULTURE

There are 31,000 farms in Victoria.  Nearly ninety percent of Victoria's farms are dairy, beef, sheep or cropping farms.  Most farms remain in family ownership.  The average size continues to expand and this trend must not be hampered by ill-considered policy if agriculture is to capture the economies of scale necessary for economic viability.

At over $5.3 billion, farm exports constitute a major component of total Victorian exports.  As an export sector operating in highly corrupted and subsidised markets, the ability of Victorian famers to compete successfully is dependent on them achieving very low cost structures and high productivity.  Over the past 30 years, dairy and cropping have demonstrated very strong productivity gains with cropping outstripping that of the general economy.  Victorian agriculture pays its way but is being hampered by a succession of anti-business and anti-farm policies.

The most important reforms for the sector improve farm profitability through lower taxes, better transport infrastructure and lighter land regulation.

The Victorian government has an opportunity to undertake immediate reforms to encourage agricultural activities throughout the state.  These include:

• Abolish the Fire Services Levy.  While this is Coalition policy, it needs to be implemented immediately prior to the current fire season.
• Abolish Labor's proposed $180 charge on trucks entering the Port of Melbourne.  The agricultural sector is the largest exporter using transport services at the Port of Melbourne, and hence the charge represents an insidious tax on Victorian agriculture.

Other policy strategies to be pursued in the short to medium term include the following:

Rate relief -- tie the amount of council rates on farms to the proportion of farmers in the local government area.  At present, some councils raise nearly 50 percent of rates from as little as 10 percent of farm ratepayers.  This is iniquitous as most council services are now population-based rather than property-based.

Reinvest in rail freight -- the current neglect of freight rail, particularly the grain network, has the effect of transferring infrastructure costs from the state government to local government via increased road maintenance bills.  In addition, because of the current rail, port and silo configurations the downgrading of rail for export grain weakens export capacity.  A possible model would be similar to one used in South Australia where state and federal governments, the rail companies and the grain growers all contributed to new investment in the rail system.

Reform land and water use regulation -- excessively prescriptive native vegetation, land use restrictions and planning schemes are destroying the value of agricultural land and denying farmers who want to retire maximum exit values.  The entire native vegetation framework, and particularly the net gain provisions, needs to be reformed.  Similarly, the 40Ha minimum farm subdivision merely creates hobby farms;  it fails to achieve its stated purpose of protecting productive agricultural land.  Moreover, in yet another example, the current DSE directive to use a minimum projected sea level rise leaves much of Victoria's coastal land unable to be developed for housing despite the clear demand of ever-increasing numbers of Victorians to live beside the sea.

Lastly, the proposal to strip 37 per cent of water entitlements from Murray-Darling Basin farmers must be strenuously resisted by the Victorian government.

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4.0 ECONOMY AND BUDGET

Despite rhetoric by the previous government extolling its economic management virtues, Victoria has been one of the worst economic performers in the commonwealth over the past few years.

From 1999-2000 to 2009-10 the Victorian economy has grown at an average annual compound growth rate of 2.8 per cent, less than the national average of 3.1 per cent over the same period.  Victoria's share of national GDP fell from 23.4 per cent to 22.8 per cent, as has its share of business investment and exports.

In terms of the level of output per person, Victoria shared the lowest average annual growth rate with NSW (1.2 per cent).  In addition, over the past two years real GSP per capita in Victoria had fallen by 1.5 per cent -- in other words, on a per head basis the state economy has shrunk in recent times.

Recent analysis also suggests that Victoria's labour productivity performance in 2008-09 was below the national average, with productivity growth generally slowing over the course of the past decade.  The maintenance of this trend would suggest a long term reduction in living standards for average Victorians.

The maintenance of a budget surplus (albeit in trend decline, and supported by significant growth in commonwealth grants) overshadowed a record of fiscal profligacy by the previous government.  Since 2000-01 (the first full year of the GST reforms) both the increase in general government sector revenue and expenses exceeded real per capita growth.  For example, if revenue growth were restrained to population growth plus CPI then Victorians would have saved a cumulative $55.3 billion over the last decade (Figure 4.1).

Similar implied savings could have been accrued if Victorian general government sector expenses growth were capped on a real per capita basis.

My annual Business Bearing the Burden state tax benchmarking reports have shown that Victoria consistently imposes the highest stamp duties on a medium-sized business in Australia.  Stamp duties are a pernicious form of tax imposed on various transactions, which impede investment and business growth throughout the state.

Victorian government expenses have grown at an average annual rate of 7.4 per cent since 2000-01, with strong increases in housing and community amenities (11.3 per cent), public order and safety (10 per cent), health (8.5 per cent) and social security (8.1 per cent).  This spending rate is in excess of population growth and inflation combined.

Notably the bulk of government expenditure is in the area of 'merit goods,' which can be suitably provided by the private sector often at cheaper cost, rather than in the areas of core public goods (defined for the purpose of this paper as the functional spending areas of general public services, public order and safety and 'other' (including public debt transactions)).

Figure 4.1 | Actual revenue versus revenue adjusted for population growth and inflation

Data for general government sector.

Source:  Victorian Budget Papers;  My calculations.

It is estimated that, in 2009-10, the Victorian government spent approximately $8 billion on core public goods and $35 billion on an assortment of merit goods.  By comparison, the level of state-own revenue was $22 billion.  This suggests that the revenue take was more than sufficient to pay for the core functions of government, without having to rely on commonwealth grants for the additional merit good expenses that conceivably crowd out the private sector.

The growth in state bureaucracy and employee expenses represents a significant strain on the $43 billion state budget.

According to data provided by the state government, the number of Victorian public sector workers have increased by over 70,000 people to 258,500 people in 2009.  Wage and salary expenses for general government sector workers grew strongly, at an average annual compound rate of 7.3 per cent from 2000-01 to 2009-10.

The capacity of the government to contain the costs of public sector employment will be challenged in the short term with police and teachers unions already seeking above-inflation salary increases for their members.  A range of measures have been commended to state and territory governments by restrain the growth in state bureaucracy and its associated costs. ⁽¹⁾

The tendency of the former government to expend significant amounts of money on major events and sporting facilities is a case in point.

Despite the proliferation of consultancy studies and political documents suggesting that major events have an economic return, the academic literature suggests unambiguously that this is not the case.  The literature suggests that the evidence for economic gain is either weak or clearly negative. ⁽²⁾  This finding extends to other sport subsidies like stadium development and upgrades.  As a consequence:

• The new government should withdraw its support for Victoria's major events strategy.  This includes reducing the cap on major events expenditure, with the aim of its eventual elimination.
• The government should refuse to bail out the Formula One Grand Prix.
• The new government should refrain from investing in new sporting facilities and facility upgrades.  The new government's refusal to honour Labor's commitment to expend $30 million on Ballarat facilities is a step in the right direction.

In general terms, there is an urgent need to arrest Victoria's economic underperformance and fiscal excesses.  This is acknowledged by the Coalition's election commitments including a comprehensive audit of state finances, state taxation review, and an in-depth assessment of Victorian competitiveness.  The Coalition also announced prior to the election a new framework for the usage of proceeds of public sector borrowings.

Consistent with these initiatives, the Victorian government should implement the following policy strategies:

• Pursue unilateral economic reform, outside of Council of Australian Governments (COAG) processes, to boost the state's economic growth and productivity performance.  These include reforms in the areas of regulation reduction, encouraging greater private sector involvement in service delivery, and reduction of anti-business taxes, fees and charges.
• Explore additional opportunities for the separation of the government's role as purchaser and provider of services, with government divesting from the direct provision of merit goods and allotting funding vouchers to consumers where applicable.
• Short to medium term tax reform should prioritise the reduction of stamp duties to support business investment and growth in the state.
• Building on the Coalition's commitment of a $100 million budget surplus target, Victoria's fiscal institutions should be renovated by introducing a fiscal rule regime that caps revenue and expenditure growth to that of population plus inflation.

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5.0 ENERGY

Victoria must forestall electricity shortages and prevent price increases

The last major power station built in the state -- the 1000 MW Loy Yang B- was completed in 1996, though smaller gas turbine facilities (with a total capacity of around 900 MW) have been commissioned since.

WIND AND RENEWABLES -- A COSTLY APPROACH

Most new Victorian capacity in recent years has been wind, with 430 MW installed and a similar amount planned.  Wind turbines only provide on average approximately a quarter of their maximum capacity and are worth less than 10 per cent of the great coal fired stations in terms of their ability to provide firm capacity whenever it is needed.

Wind power is also strongly opposed by many environmentalists.

New gas fired stations also require a ''carbon price'' to boost the costs and reduce the competitiveness of coal fired power stations, (gas fired generation only emits half the carbon of coal per unit of energy).

Existing de-facto carbon tax effects for Australia and across major countries will be identified by the Productivity Commission in a report to be published in May of next year.

In the meantime, we can estimate tax effects of the Commonwealth's ''20 per cent by 2020'' renewable program.  This means replacing 20 per cent of our supply with unreliable energy that is over three times the cost of coal based power.  The direct price increase to household electricity bills is at least 10 per cent.  In addition, there are costs of dearer products and subsidies.  A carbon tax would build on these existing imposts, and if levied at $30 per tonne it would impose a direct cost of another 15 per cent.

Victorian coal is non-exportable, virtually inexhaustible and cheap to mine.  Hence Victorian electricity prices could be lower than anywhere else in the world.

PROSPECTIVE CAPACITY SHORTAGES

According to the Australian Energy Market Operator (AEMO), Victoria will face electricity supply capacity shortages in the next few years.  AEMO puts this at 249 MW in 2014/15, though with stronger growth the shortage might be earlier.

This looming shortage of electricity in the state is a result of private sector sources of finance being unable to risk lending to coal based power stations because of the possibility of a carbon tax or cap-and-trade.  Wind offers little capacity certainty while gas developments are also risky unless guaranteed by the government.

POLICY APPROACH

The failure to forge a global agreement at Cancun and the abandonment of a carbon tax by the US now makes it impossible to envisage a global agreement on reducing carbon emissions.  Without such an agreement Australia can have no effect.

Given the global policy vacuum on carbon emissions, Victoria's government should invite a proposal for bids for a new power station in Victoria with the winning bid, subject to assurances that it is ''state-of-the-art'', being assured by the state government that it will be reimbursed for any future carbon tax.  Until policy is better defined, the Victorian government should also suspend approvals of new intrusive renewable facilities that have not been financially committed.

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6.0 GAMING

The new government needs to respect the rights of the citizens of Victoria to gamble.

POKER MACHINES

In recent years, the most controversial mode of gaming has been poker machines.

Despite having operated without any strong opposition in New South Wales for forty years, the introduction of the machines in Victoria (a state more strongly influenced by temperance and other ''wowser'' values) in the early 1990s has generated ongoing criticism.

There have been constant demands by the anti-gaming lobby to reduce overall machine numbers despite, by having a cap of 27,500, Victoria only having a quarter of the number of machines as NSW.  However, when figures were released earlier this year on spending on pokies per venue, Chairman of Inter-Church Gambling Taskforce Mark Zirnsak was forced to acknowledge that ''venues only increased their take per machine if the government reduced their number of machines.''

• The new government should resist any push to reduce the cap on poker machine numbers in Victoria and, in the longer term, raise the cap at least in line with population growth.

Another worrying aspect of the attack on the rights of pokies users is attempts by local government and community groups to use planning laws to bar pokies from their municipalities.  In a liberal society, sections of the community should not have the right to deny others, even if they are a minority, the right to pursue their own interests.

• The Victorian government should vigorously defend the right of clubs and businesses to operate poker machines, and consumers to use them, without local communities having a power of veto.

As well as attacks on overall numbers of machines, there has been a concerted push to implement a range of restrictions on machines through lower bet limits, slower spin rates and pre-commitment.  These have been given further impetus by the election of Independent Andrew Wilkie to the Federal Parliament with pokies restrictions one of his two major aims.

As part of its agreement to gain Wilkie's support, the Commonwealth government has given the states until May next year to introduce mandatory pre-commitment limits on poker machines, or face the prospect of the commonwealth using taxation powers to impose its will on the states.  The state government should vigorously resist this Commonwealth interference in an area of clear state responsibility.

WAGERING, LOTTERIES AND CASINOS

The internet allows people to gamble far more freely and thus artificial restrictions on what types of gaming are allowed and monopoly providers are becoming more and more anachronistic.  Additionally, a number of Asian countries, such as Singapore, are rapidly expanding their gaming markets and will provide real competition for the gaming dollar in this region.

The tendering process for the wagering license post-2012 is already well-advanced so there will be limited scope for the incoming government to alter policy in this regard.  However, whenever opportunities to re-tender wagering or lotteries licenses the government should move towards allowing greater diversity and competition in the Victorian gaming marketplace.

One issue that arose during the election campaign was the possibility of establishing a second casino in Victoria, specifically in Mildura.

• The Coalition should revisit its stated opposition to the specific Mildura proposal and indeed should make it clear that it would look favourably on other similar proposals to end the current casino monopoly.

GAMING REGULATION

The regulation of gaming in Victoria has generally been well handled by the Victorian Commission for Gambling Regulation (VCGR) which has recognised that overly proscriptive regulatory regimes, such as apply in some US states, do not work.

Yet, the former Brumby Labor government announced earlier this year that the VCGR should be merged with Liquor Licensing Victoria, in a move seemingly designed to address the problems in liquor licensing.  A combined body will undoubtedly focus strongly on liquor and thus potentially weaken its gambling expertise.

• The Victorian government should reverse this decision and keep VCGR and Liquor Licensing as separate bodies.

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7.0 HEALTH

The performance of the public hospital system was a touchstone issue during the 2010 Victorian election campaign.  That many Victorians routinely identify health care as a key issue is of little surprise, given the 1.4 million public acute hospital separations that occurred in 2008-09 and the expenditure by the state on public hospitals to the tune of $3.6 billion (2007-08).

Victoria has often been lauded in health policy circles as possessing one of the more efficient public hospital systems of the states and territories.

The ''relative stay index'' reveals whether an average patient's length of stay is higher or lower than would be expected, given the casemix of public hospitals.  The latest available figures suggest that Victoria's public hospitals are the most efficient of all jurisdictions (with the exception of the ACT) at managing length of stay for the casemix than would normally be expected.

There is also evidence to suggest that the share of same-day public hospital separations to all separations in Victoria is substantially higher than the Australian average.

These relatively efficient outcomes are complemented by relatively low average costs of providing care for each admitted patient separation.  In 2008-09 the recurrent cost per casemix-adjusted separation (excluding depreciation) in Victorian public hospitals was $4,380, compared to the national average cost of $4,471.  Only South Australia was able to provide hospital services at lower cost.

A Productivity Commission study published in December 2009 had shown that selective measures of bed and labour productivity in public hospitals across Victoria had improved from 2002-03 to 2007-08.

A host of important policy reforms enacted since the 1990s have contributed to the maintenance of relative efficiency in Victoria's public hospital system.  These include:

• the introduction of casemix funding, an implicit voucher funding model whereby hospitals are funded in accordance with the complexity of treatments provided to patients;  and
• the maintenance of local hospital boards which decentralise decision-making to the individual public hospital (notably, NSW and Queensland abolished hospital boards during this period, with both now possessing arguably the worst hospital systems in the country).

Despite this, there is also worrying indications that aspects of Victorian hospital operations and performance had been slipping under the previous Labor government.

Targets set by Labor for timely emergency department access were routinely missed, with more than 2,500 patients last year waiting on trolleys for a day or longer to be treated.  Meanwhile, median waiting times for elective surgery in public hospitals had blown out over the past decade.

The tendency of state governments to ration public hospital service provision is, in part, a long term consequence of the taxpayer-financed Medicare health insurance system, which allows patients, regardless of income levels, to access public hospital services free at the point of entry.  Even so, accessibility problems were so acute that the former Labor administration scandalously manipulated waiting list and time figures to give a public impression of an improved health system that in fact did not exist.

While information on safety and quality of hospital care are not comprehensive, the available data suggests that hospital acquired methicillin-resistant Staphylococcus aureus (MRSA) and vancomycin-resistant enterococci (VRE) infections are significantly higher in public hospitals compared to private hospitals.

Arguably, one of the more damning indictments on the health policy performance of the previous government is the persistently low number of public hospital beds per 1,000 population.  In 2008-09 there were 2.3 beds per 1,000 people in Victoria compared to the national average of 2.5 beds per 1,000 population, a problem that has afflicted the state's hospital system for a number of years.

Data provided by the latest Productivity Commission Report on Government Services also suggests a period of increasingly lax cost controls within public hospitals, with the recurrent cost per patient encounter rising by 36 per cent since 2001-02.

These problems were highlighted to powerful political effect by the state Coalition while in opposition, and had proven themselves to be pivotal to the change of government in November 2010.

The key policy priority for the Victorian government should be to maintain, and improve, upon the state's existing strengths in health care, as well as focus energies on tackling specific problems that were left largely unchecked by the previous government.

Consistent with maintaining a tolerable level of public expenditure as well as efficiency of hospital services provision, the new government should assume a ''beds not bureaucrats'' policy stance to help redress the shortage of hospital beds in the face of a growing state population.

Encouragingly, the Coalition government announced during the election campaign a plan to deliver an additional 1,600 beds over an eight year period to help reduce waiting lists and improve patient care.

That said, it should be acknowledged that access to taxpayers' finances are not unlimited therefore it is not feasible to provide unlimited access to free health care in the public hospital system.

Initiatives should be introduced that facilitate the continuing growth of the private hospitals sector, to provide additional, cost-effective clinical care for patients without adding additional fiscal pressure on the state budget.  Victorian private hospitals have enjoyed considerable growth in services provided over the past decade, and increasingly provide a significant array of complex treatments for patients.

Measures to increase the numbers of elective public patients being treated in private hospitals across Victoria, perhaps including through a competitive tendering process between hospitals to determine the best value for procedures to be performed, will be a necessary element of the policy task that lies ahead.  In addition, a review of state regulations that restrict the development of new, and expansion of existing, private hospitals should be instigated.

There is an urgent need to dramatically enhance the transparency of public hospital performance for the information of patients and the general public alike.

Scandals such as the revelation of secret hospital waiting lists maintained by the former government have raised concerns about the accuracy of data published.  It is suggested that Victorians should be able to access honest, real-time online information on the performance of their local public hospitals, including emergency department waiting times.

Opportunities should also be explored to make public the performance of individual surgeons and other prominent medical staff, where applicable.

The Gillard federal government is attempting to oblige the states to implement a national hospitals agreement that will give the Commonwealth majority funding responsibility, to be achieved by confiscating about 30 per cent of state untied GST revenue.  This plan is a recipe for more blame-shifting between levels of government at the expense of additional services of Victorians who need them.

The previous government made Victoria a signatory to the health agreement immediately prior to entering caretaker mode, but with the agreement not legally binding on the state the new government has already announced that it will review the agreement to ensure that it is in Victoria's long term interests.

The new Victorian government is best placed to improve our public hospitals, and not a distant Canberra bureaucracy with no service delivery experience and a lack of understanding of the priorities of local communities in Victoria.

With the state readily possessing the skills, capability and experience to tackle specific problems in Victorian public hospitals, together with a new state government equipped with an electoral mandate to implement change, it is unnecessary for Victoria to remain a signatory to a national health reform agreement that will further blur accountability of performance to state taxpayers and diminish the state's policy autonomy in this critical policy area.

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8.0 HOUSING

HOUSING LAND COST DEVELOPMENTS

Traditionally families were able to buy the average priced home on three times median family incomes.  Today in Melbourne it takes eight times the median family income (six times in Geelong) and relative to income levels Melbourne's house prices are among the dearest in the world.

And this is not because of quality differences.  Houses are larger today but the house itself, in spite of regulatory requirements covering the building, is relatively cheaper.  It is restrictions on development of land that houses stand on that has created the cost increase.

Policy in Victoria means new houses on the city edge cost at least $70,000 more than they should.  Many of these same policies operate directly to boost the prices of houses in area that are already developed and the price boost on the edge of a city in any event has a ''knock-on'' effect throughout its urban region.

The key cost imposed is regulation in the form of ''land rationing''.  This starts with the creation of an Urban Growth Boundary, which limits the land that is available for development, and the shortage thereby created is exacerbated by additional planning and environmental controls.  There is no shortage of land in Victoria.  The urban footprint of the state is only 0.3 per cent, compared with 8 per cent in England.

POLICY PROPOSALS ON LAND DEVELOPMENT

• Abolish the Urban Growth Boundary and set time limits on state and local government agencies to require development to proceed
• Place strictly defined limits on the nature of environmental and heritage matters that can prevent or delay development
• Prevent regulatory authorities from specifying the nature of the development (''low income'', ''semi-rural'' and so on);  with an open policy on development, these matters can be left to the market to best provide.

HOUSING CONSTRUCTION COST DEVELOPMENTS

The land starvation policies of government are compounded by other measures that force up prices.  Among these is the ''5 Star'' energy requirements on new houses, measures which the VCEC estimated had increased the costs of a new house by about $6,000.  Further cost-enhancing measures are in the pipeline, including requirements for ramps and other additions to new homes.  All such measures should be removed.

RURAL LAND POLICIES

Rural policies increase costs of housing in two important ways.  One is the Minimum 8/40Ha subdivision rules that are instrumental in the UGB restraint.  These should be removed since they stop land owners from using their property as they see fit and bring a distortion in providing an incentive to use the land as hobby farms rather than commercial farming.

Secondly, the departmental directive to councils to use minimum projected sea level rise of 80cm should be removed, leaving the decision to the developer (and the associated insurance).  This involves amending the Coastal Management Act 1995 to stop the Victorian Coastal Strategy (VCS) from setting projected sea level rises.  The current policy has clear and negative effects on the ability of property owners to maximise the value of their asset.

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9.0 LOCAL GOVERNMENT AND PLANNING

As the closest tier of government to those their decisions affect, local government is seeking recognition through its inclusion into the Commonwealth Constitution.  But in terms of local government reform constitutional recognition should be a long way down the Victorian government's list of priorities.

Local government has enormous benefits because of its proximity to the citizens it serves.  But local government suffers from structural flaws, poorly codified responsibilities and obligations and encroaching power that undermines its purpose.

LEGISLATIVE AND REGULATORY NEUTRALITY

As part of a new policy agenda local governments should have their roles and responsibilities clearly prescribed by state government.

The state government gave birth to local governments as administrative sub-units.  In many policy cases, such as planning, the state government has handed over immediate regulatory and enforcement powers while reserving broader powers and oversight.

But power-hungry local councillors and bureaucrats have sought to expand their authority in an attempt to legitimise local government solutions to local problems that are otherwise the responsibility of state or commonwealth governments.

Rather than having the current ambiguous relationship of what is, and what is not, the responsibility of local government, the state government should establish a clear codification of the powers and responsibilities of local government.  Any codification should be based on the principle of legislative and regulatory neutrality.

Through legislative and regulatory neutrality the state government would codify powers to local governments at the expense of their use of their own powers.  So, if state governments gave permission to local governments to decide street designs it would come at the expense of the state government's powers to do so.  And if the state government had not codified responsibility to local government the power would remain with the state government.

By having legislative and regulatory neutrality there would not be unnecessary duplication in regulations and local government would be curtailed from indulging in frivolous gesture politics at the expense of ratepayers.

This delineation of roles and responsibilities of local government should also be implemented so as to not pave a way for excessive rate hikes, including in rural shires.

ENDING LOCAL GOVERNMENT AS A REGULATOR AND ADJUDICATOR

In the context of reforming local government, the Victorian government should also reform the inappropriate capacity of local government to act as both the regulator and adjudicator of areas within its power, for example, planning.

Currently local planning laws are set by local government authorities and then interpreted and adjudicated by the same local government.  In the event that a party does not achieve a ruling that they feel is desirable they are able to appeal to the Victorian Civil and Administrative Tribunal.  Powers also reside with the Minister.

But having a regulator and adjudicator as the same body goes against the spirit and design of Australian democracy.  State and Commonwealth parliaments set laws, but it is the job of state and federal courts to interpret and enforce them;  whereas local governments set laws and then interpret and enforce them.

PLANNING REFORM

A core area of local government responsibility is planning, and rightly so.  Considering conflicts over planning relate to developments perceived to be in conflict with the character of the community it is appropriate that regulations are designed closest to those that they affect.

Currently broad planning regulations are established by the state government with limited powers afforded to local governments to narrow them based on what is within the character of their area.

However, increasingly burdensome planning regulations undermine property rights and limit property owners from using their property as they see fit.  In fact these essentially transfer a property owner to merely an occupier, which is also their only real tradable property right as well.

Planning needs to be reformed to provide an alternative pathway for property owners to protect their property rights and it can be achieved through local government.

The state Parliament should amend the Victorian Constitution to include in it a provision equivalent to provisions in the Commonwealth Constitution that recognises the responsibility of the state government to compensate for undermining property rights through direction or regulatory acquisition.  Similarly, such compensation should apply to local government decisions.

Local governments should also be afforded the power to establish contracts for property owners to establish local planning regulations that cannot be overridden by local council or the state government.

Unlike state or local government planning regulations such contracts would be entered into voluntarily and give property owners choice about what minimum standards they would have imposed on their property.

For example, a block of property could sign a planning contract for their block establishing that no property within that block can be developed over two storeys high.  Such a contract would then override state government planning laws as an agreement between the owners.

By having such a contract those property owners would be protecting the character of their area based on their own standards, as well setting a tighter planning standard than that required by government.  The trade-off for those property owners would be that they would first need to establish a standard that all property owners could agree on, and the value of their land may decrease as it becomes less attractive for property development.

And if a contract cannot be secured by agreement of all parties those owners would then default to a potentially looser government standard.

By establishing such a regime property owners would be given much greater ownership and control over their property and provide them with a pathway to voluntary remove themselves from government-set planning regulations.

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10.0 REGULATION

Regulation imposes costs on individuals and businesses.  While regulation is sometimes necessary, rigorous attention needs to be paid to the unintended consequences of regulation.  Particularly considering the increasing number of pages of legislation passed by the Victorian parliament every year, ensuring new legislation and regulation is as minimally burdensome as possible is essential.

Figure 10.1 | Pages of legislation passed per year, 1959-2009

For a discussion of the usefulness and limitations of this measure, see Richard J. Wood, Australia's Regulatory States:  Ideology, Accountability, and the Mega-regulators, 2008.

The new government needs to recognise that the complexity of legislation and regulation, and frequency it is enacted is, itself, a restraint on economic and social development.

As the new government develops its legislative agenda, it must be aware of the costly consequences of regulatory and legislative change.  This awareness need not restrain worthwhile reform, but the government must approach reform with a view to minimizing the negative consequences of rapid and substantial change.

Victoria has Australia's most comprehensive regulatory review process of the Australian states.  Central to this is the Victorian Competition and Efficiency Commission.  The new government must recognise the critical importance of the VCEC as a regulatory watchdog and ensure it is adequately funded and its recommendations are supported.

• Regulatory Impact Statements and Business Impact Assessments are materially equivalent.  Both should be set to identical standards.
• BIAs should be released for public consumption as legislation is presented to parliament.
• Exemptions can currently be granted to the RIS and BIA process.  While justifications for exemptions are in rare cases conceivably justified, these should be extremely uncommon.  In the case of pressing state interest for RIS or BIA exemptions, they should be only granted by the Premier, and accompanied by published documentation for those reasons.
• The criteria for a BIA or RIS needs to be more prescriptive.  Currently the criteria for a BIA -- that legislation have potential ''significant effects'' on business or competition -- excludes substantial pieces of legislation.  One case has been the Climate Change Bill 2010, which, although it would have major consequences for business, was exempted from the process because those effects, while significant, would be indirect.  Considering the importance and scope of legislation of this magnitude, such an exemption breaches the principles of good regulatory governance.
  • In circumstances where legislation or regulation is not accompanied by an RIS or BIA, the VCEC should have oversight to confirm that it is a legitimate and lawful exemption.
• While the VCEC provides an independent assessment of RIS and BIA compliance, this is insufficient.  The process by which RISs and BIAs are produced needs to be independent.  There are a range of institutional mechanisms by which this could be achieved.
  • A separate, independent agency could be charged to develop impact statements in consultation with departments
  • o Independent auditors determined or approved by VCEC could be seconded to departments as part of the impact statement processes.

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11.0 SCHOOL EDUCATION

Despite the significant amounts of funding directed to publicly owned and managed government schools, it is estimated that 36 per cent of Victorian students are enrolled full-time in non-government schools.  This figure is even higher for senior secondary schooling.

Despite the substantial sacrifices of many Victorian parents to enrol their students in Catholic and independent schools, the state government funding system is substantially weighted in favour of public schooling ($10,395 for each public school student;  $1,329 for each non-government school student).  Indeed, Victoria provides the lowest recurrent per capita funding entitlement to non-government schools in the country (Table 11.1).

Table 11.1 | State and territory recurrent funding per non-government school student, $, 2007-08

NSW	Vic	Qld	WA	SA	Tas	ACT	NT	Australia
2,081	1,329	2,061	2,190	1,478	1,828	1,665	2,972	1,840

Data for full-time equivalent students.

Source:  Productivity Commission, Report on Government Services 2010.

This longstanding funding discrimination by school sector enrolment hampers parental choices for schooling.  This lack of a level-playing field on funding is particularly acute for students with disabilities (SWDs).  For example, the average dollar amount received by SWDs in Victoria's independent schools is less than the minimum level of funding received by similar students in public schools.

The current government made an election commitment to increase non-government school funding to 25 per cent of the recurrent cost of educating a student in a government school, investing an additional $240 million over the next four years.  This policy will go some way to redressing funding disparities between school sectors.

In addition, the Coalition has undertaken to review the existing non-government schools funding model.  While this review will be important to help identify and iron out problems in the funding model for that sector, it appears that the funding bias towards government schools would be left untouched under the existing policy commitment.

To eliminate existing funding anomalies, a competitively-neutral recurrent funding scheme for all students should be strongly considered as an education policy priority by the new state government.  One approach would be for all students to receive an equal per capita state funding entitlement, regardless of school sectoral enrolment, with students with special needs (e.g., students with disabilities) receiving top-up funding from the government to enrol in a school of their choice. ⁽³⁾  The public education lobby have long decried the revealed preferences of parents increasingly enrolling their children in Catholic and independent schools, at the expense of government schools.

The oft-quoted claim of selectivity in enrolment by non-government schools not only overlooks the increasing propensity of lower income families to send their children to low fee schools, but ignores the deliberate choices made by parents in response to issues such as patchy teacher quality, substandard curriculum and a lack of values-based education pervading the government school system.

Contrary to the views of the AEU and education scholars such as Jack Keating, the solution to the problems of government schooling is not to redirect funds from the growing non-government schools sector.  The problems of public education must be tackled at their source - within government schools and the Education Department bureaucracy.

It is recognised in the international education literature that greater autonomy and flexibility are keys to ensuring that schools embrace educational excellence and respond in a tailored way to the needs of individual students and local communities.  In simple terms, more flexible and innovative government schools should provide a basis to reduce the extent of the enrolment drift towards Catholic and independent schools.

While Victorian government schools are relatively decentralised compared to their peers in other states, there is a need to reinvigorate school self-management that was largely left to wither away by the former Labor government.

Following the 'independent government schools' approach now being adopted in Western Australia, the Victorian government should introduce greater curriculum and human resources management autonomy for individual government schools.

To maintain the integrity of curricula choice for Victorian schools, the state government should not proceed with the implementation of the Gillard government's national curriculum that has been widely criticised by educational experts for providing substandard guidelines for student learning.

To prevent the modern scourge of curriculum overcrowding, individual government schools should be encouraged to specialise in certain subject areas particularly for the senior years of schooling.  This should be coupled with the removal of any zoning restrictions to allow parents to select a specialised government school of choice, regardless of residential location.

Finally the government should pursue as a top priority the measurement of teacher quality, identified by the Victorian Auditor General as an area of neglect by the previous government, and institute measures to systemically improve the quality of teaching.  These include encouraging retired teachers and mature-age professionals in other fields to enter the teaching profession, and working with universities to ensure the highest standards of English, mathematics and science proficiency by prospective teaching graduates.

The new state government should take seriously the endemic structural problems of government schooling, given that failures in public education represent a substantial risk in terms of promoting quality human capital investment, not to mention the wastage of scarce taxpayer dollars.

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12.0 TRANSPORT

During the period that the Bracks and Brumby governments were in office, transport policy, in particular the operation of the Melbourne metropolitan rail network dramatically grew in prominence as an issue.  Indeed, some commentators have attributed the change of government solely to the loss of a string of seats straddling the poorly performing Frankston rail line.

REGIONAL TRANSPORT

The Bracks government devoted much of its early attention to regional transport issues.  It promised fast trains to a number of regional centres for the ludicrously low figure of $80 million.  By the following year, the now Labor government admitted the actual cost would be $556 million, while the final cost ended up blowing out to more than $750 million, and over $1 billion when rolling stock is included.

While the increased demand for services has seen patronage growth, the performance of the V-Line Passenger business has often been disappointing, with many restrictive work practices still requiring reform.

The Regional Rail project is designed to improve the service delivery of both V-Line services and metropolitan services in the western suburbs -- the new government must ensure this is delivered on time and on budget.

In the medium term, the government should attract international expertise into the supply of rail services to Victoria's regional commuters by re-franchising V-Line Passenger.

The other vital area for transport policy in regional Victoria is freight.  This is covered in the Agriculture section of this paper.

Regional roads have also been neglected.  There is currently a $100 million maintenance backlog which the new government will need to address as a priority.

METROPOLITAN PUBLIC TRANSPORT

The Bracks government inherited a vastly more efficient public transport service than the previous Labor government had left behind.  The Kennett government had presided over increases in services and patronage while halving the cost to taxpayers and reducing the workforce.  Late in its term, it locked these reforms in by contracting out the service delivery to private operators.  It is crucial that the incoming Victorian government appreciates the importance of these reforms and that all of its own reforms build on this legacy.

In its early years, the Bracks government focused on regional areas, while in the metropolitan area the only developments were new rolling stock and system extensions which came on line had been initiated as part of the 1999 franchising.  In the process, it ignored some of the vital transport needs that were developing in Melbourne.

Clearly, transport policy is vital to modern urban areas.  Notwithstanding the IT revolution, the speed of moving people and goods around a city is an essential ingredient of its efficiency, cohesion and liveability.  In the case of Melbourne, its growing population has placed extra strain on its transport networks.

The population growth and increased economic activity has seen deteriorations in travel times.  The latest publicly available data suggests that in 2006 people spent 40 per cent more time travelling to and from work than 15 years earlier which has led to congested roads and a patronage boom on public transport.  The increase in public transport patronage since private operators took over in August 1999 has been striking:

Table 12.1 | Metropolitan Melbourne public transport patronage

	Metropolitan trains	Trams
1998-1999	118.0 million	120.4 million
2009-2010	219.3 million	175.6 million
Percentage change (%)	85.8%	45.8%

Source:  Victorian Department of Transport.

The privatised system undoubtedly provided better services and saw the end of the industrial chaos of much of the government-run era (although there remains scope for further progress in the area of work practices).  However, the stresses placed on ageing infrastructure and inadequate rolling stock by the patronage boom as more patrons trying to access trains led to growing punctuality problems.

Thus, the first challenge of the new government is to make the trains run on time.  In the short term they need to:

• Radically simplify the existing rail timetable to make gaps between trains more consistent, make stopping patters more predictable and to dramatically improve reliability.  This plan has been on the operator's agenda for some time, but the outgoing government had not got around to implementing it.
• Undertake a thorough audit of the metropolitan rail system to identify which pieces of infrastructure are currently the most responsible for delays and establish a plan to rectify these faults.

The other issue that received significant prominence during the campaign was personal security.  I recommend that the new government:

• Reconsider whether the announced Coalition policy of two protective officers on every station is the best way to deploy resources, or whether alternatives, such as using them on board vehicles, may be a better option.

In the campaign, the Coalition also announced that it would be establishing an Independent Transport Authority.  The new government should:

• Detail the structure and timing of the set up of the independent transport authority to clear-up uncertainty about how future decisions will be taken.

The government should also:

• Undertake a thorough audit of the Myki project, resolve any residual performance issues, settle any outstanding commercial issues at lowest cost to the taxpayer and map out a logical process to conclude a project which the former government botched, but which is now inevitable and can actually be turned into a plus for Victorians if it is well managed.

The longer term strategy of the Brumby government was detailed in its $38 billion Victorian Transport Plan (VTP) released in 2008.

The new government needs to assess the existing plan (in particular big ticket projects such as the metro from Footscray to Caulfield), and its own longer-term promises made in the campaign (studies of rail to Doncaster, the airport etc.), to determine what its own priorities will be.  In all cases, proposed rail solutions need to be carefully costed against alternative approaches involving increased road capacity.  Costings also need to be addressed:

• In particular, there is an urgent need to investigate whether there is scope for projects such as Mill Park extension and Regional Rail to be delivered at a cheaper cost per kilometre than is currently predicted.

It also needs to be recognised that in recent years the Victorian government has been particularly successful in securing commonwealth funding for projects in Victoria.  As well as being of the same political hue, it also needs to be recognised that the fact that the VTP was based on the Eddington Report clearly means that Infrastructure Australia (chaired by Sir Rod Eddington) appreciated the underpinnings of the plan.

Buses are an important road-based part of the transport network, but have suffered in the past from having rigid and completely uncommercial fixed routes.  The outgoing government invested in the orbital bus concept originally initiated by the Kennett government.  In the medium term, the government needs to ensure that when existing bus contracts expire that they take the opportunity to allow competition in the sector and that further contracts are awarded on the basis of competitive tendering.

Another longer term issue the government should address is pricing and whether pricing policy can better match demand to available supply of capacity both on-board public transport vehicles (an opportunity greatly enhanced by Myki) and in terms of road space.

TAXIS

The fundamental problem currently crippling the taxi industry is entrenched monopoly interests, exemplified by high license fees.

This ultimately needs to be replaced by a system of as-of-right licensing, subject to suitability checks and a modest administrative fee.  This would not only benefit consumers, but would be of huge help to drivers, particularly those seeking to become owners.  They would no longer need to take out a huge loan to fund a plate and thus many more drivers would have a chance to be self-employed.

The government will need to develop a reform model which provides some compensation to existing plate holders, without imposing too great a burden on taxpayers.

In the shorter term, the government should issue further taxi licenses for specific time periods only.

METROPOLITAN ROADS

Melbourne's road network's mode share of all trips remains close to 90 per cent and with population increases and economic growth the aggregate number of trips increases annually, even as patronage on public transport increases.

It is important that the road network is upgraded to cope with this increased demand.

Many important road projects, vital elements of Melbourne's future road network, were given longer term priority in the VTP.  These urgently need to be re-assessed and re-prioritised as appropriate.  Key examples are the north-east link to link Eastlink with the Metropolitan Ring Road;  and the east-west link between the Eastern Freeway at Clifton Hill and the Tullamarine Freeway and the western suburbs, and to provide an alternative to the Westgate Bridge.

Longer term, a key project will be the outer western ring road through the outer western growth area.

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REFERENCES

1.  Richard J. Wood, 2009, ''A growing risk:  The impacts and consequences of rising state government employment'', Occasional Paper.

2.  See, for instance, Dennis Coates and Brad R Humphreys ''Do Economists Reach a Conclusion on Subsidies for Sports Franchises, Stadiums, and Mega-Events'', Econ Journal Watch v5 n3, September 2008;  Trevor Mules, ''Taxpayer Subsidies for Major Sporting Events'' Sport Management Review 1998;  Tyler Cowen, ''Should Governments Subsidise Stadiums and Events?'', New Zealand Business Roundtable, 1999.  A useful evaluation of the discrepancy between consultancy economic impact studies and the academic literature is Ian Hudson, ''The Use and Misuse of Economic Impact Analysis:  The Case of Professional Sports'', Journal of Sport and Social Issues 2001

3.  Given the significant involvement of the commonwealth in the funding of schooling, there is a case for the rationalisation of recurrent funding responsibilities between state and commonwealth governments.  One proposal would be for the states to retain responsibility for per capita base funding entitlements, while the commonwealth provides top-up funding for students with special educational needs.