June 4, 2006


States should embrace reform - it’s in their interest (Des Moore, 5 June 2006, Online Opinion)

Victoria has taken the lead on private-sector infrastructure.

At the Council of Australian Governments (COAG) meeting in February, all state and territory leaders of Labor governments readily reached an almost unprecedented agreement with a Liberal prime minister on a national economic reform agenda designed to improve health and education outcomes, to increase competition in the energy, transport and ports markets and to reduce the regulatory burden on businesses.

So reform is supposedly in the air at all levels of government and the emphasis is on boosting competition. [...]

The line between the private and government sectors has ceased to be clearly defined because governments - and others - are increasingly realising the private sector can provide much of what have hitherto been regarded as public goods.

A deliberative policy of increasing the competitive environment for service provision can be implemented in two ways.

First, by further encouraging the expansion of private sector services that compete directly with government services, or by taking over of the public sector role where that appears likely to improve the efficiency and quality.

For example, since 1997-98 the proportion of students attending fee-charging non-government schools has risen from 28 to 33 per cent, and the million-plus students attending such schools in 2005 effectively save state governments, and thus the taxpayer, about $8 billion a year. A similarly large increase in the proportion of patients treated at fee-charging private hospitals, up from 33 to 39 per cent in 2003-04, is saving over $9 billion a year.

In effect, the higher quality and the wider choice that modern society wants means users of private services are increasingly voting with their feet, even though they have to pay fees as well as taxes. It pays governments to further assist this process both financially and through reduced regulation.

Second, it can be implemented by acting directly to expose to competition the services provided by government, either through purchaser-provider arrangements under which such services would actually be delivered by the private sector, or through public-private partnerships (PPPs).

Victoria has taken the lead in this approach by both contracting out to private operators, for example, some public hospital operations and by using PPPs for infrastructure projects such as the Casey Hospital, the re-development of the women’s hospital and now the children’s hospital. Victorian Treasurer John Brumby claimed at a Canadian conference last November that Victoria was leading the market for PPPs by, inter alia, establishing a national PPP forum among the states.

So why is it likely to be in the governments’ interests, when an increase in the private sector's role will mean a smaller government sector? The answer is that the provision of services through a competitive framework will benefit the consumers of those services - that is, most state residents.

One of the unfortunate effects of the partisan passions Al Gore whipped up in November 2000 is that Democrats have only rarely been able to make similar agreements with George Bush and they generally haven't even recognized when they've done so (NCLB, Medicare Reform, etc.)

Posted by Orrin Judd at June 4, 2006 7:50 PM
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