Health, education and industrial relations must face reform test

THE reforms of the 1980s, the story of which has started to appear in this year's cabinet papers, are not impossible to replicate. But they are different. Here is what to do and how.

The voter should ask politicians these questions. "Is the proposal you advocate likely to improve lives of the intended beneficiaries and, if so, does it risk long-term expense to others?" For example, changes to single parents' benefit, whereby parents lose benefits after a child reaches eight years of age, creates an incentive to return to work. The risks for the beneficiaries are low as are costs to others. It passes the reform test. More spending on schools through a change to the federal school funding formula, a la Gonski, however, does not pass the reform test. Pay-off in terms of better education for any child is weak, and the cost is massive.

Reforms must be real, substantial and achievable. Changes to government programs may not be real reform. Benefits from real reform may not be substantial. Real and substantial reform may not be achievable. As George W. Bush would say, it's complexified!

Some economic reforms have all of these good elements. Floating the Australian dollar, lowering tariffs, making the Reserve Bank more independent occurred because they were real, substantial and achievable. The known benefits were real and substantial, even if diffuse and long term, and the federal government alone had the power to make the change. These advantages were sufficient for the pain in losing industries to be managed politically.

But that was a long time ago. Times have changed. There are now, in effect, four levels of government, three in Australia, and the UN. The many international treaties to which Australia is a signatory have not only transferred power to the commonwealth to override the states, but also to some citizens to override the national government. Substantial funds are also leaving Australia to flow into the hands of international agencies. The ability to agitate on behalf of non-citizens, has resulted in the commonwealth losing control over Australia's borders and has shifted substantial costs to the states. From a state perspective, Canberra has had a taste of its own medicine. It may be dawning on the commonwealth that there is little political benefit in being involved in some policy fields. Here is a chance to achieve further reform in a federal system.

Calls by credible people for the non-credible option of abolishing the states are a sign of reform exasperation. Only a constitutional lawyer would believe in it. New taxes for the states are also unlikely. The commonwealth and the states must get back to deal making.

The commonwealth may, in time, find it is smart politics to withdraw from some fields but transfer an agreed part of its monies to the states. It should not insist on goals. Only then can the states credibly wear the opprobrium of unhappy electors. The states will blame the commonwealth for a lack of funds, but the commonwealth can point to a clear list of responsibilities and incomes.

Industrial relations reform in the Hawke-Keating years was difficult because it involved promoting a national conversation between bosses and workers about business. It involved generating a totally different mindset in the workforce. It achieved better use of assets in business and greater rewards all round. Recent changes through Fair Work have undone the good of earlier reforms. Tony Abbott has a choice to either hand back the system to the states or get back into the game.

Kevin Rudd and Abbott, at one time or another, threatened to take over public hospitals should states fail to achieve "better outcomes". Neither had a substantial case as to how this would help patients. The commonwealth national government should probably get out of health, but it worries about healthcare costs because it funds Medicare and pensions. Despite the fact that it has no experience in running hospitals (or doctors' surgeries) it will, nevertheless, stay involved.

The National Disability Insurance Scheme is probably not reform. It is a transfer of funds from one group to another, the benefits are substantial to some but the costs to others are great. The pay-off in terms of workforce participation is likely to be overstated. Indeed, there is now a worrying sign from the Productivity Commission that all sorts of "equity" measures are justified on economic participation grounds. Equity is a matter for electors, not economists. The national government should exit the NDIS, but assign the states funds that it would otherwise spend.

Similarly, Julia Gillard and a host of federal ministers before her, fund "equity" in schools but have no substantial case for achieving better outcomes, and have no experience in running schools. School education is the area where the commonwealth should exit the field. Having competing state models of good schooling is more likely to create better outcomes at no extra cost.

Reform is possible in the 2010s; the commonwealth has to think smart and use the states.