Labor must grasp this opportunity to inspire

Labor’s 2015 National Conference is the most important in a generation. Our party is at a critical juncture. The 47th National Conference must set the path both on policy and on internal reform.

After many false starts, real Party reform is now within reach, Now is the time to guarantee rank-and-file members a direct vote for not just the leader but also for delegates to National Conference and Senate candidates. Just as essential is the continuation of our equal partnership with the union movement, the largest social movement in Australia. This opportunity to inspire must not be squandered.

One critical Conference debate will focus on the need for Labor to build a credible economic agenda. As Tom Skladzien argues, that does not mean slashing spending driven by a ‘surplus fetish’ or the imposition of arbitrary tax-to-GDP ratios. Instead we must ask: how can government best pay for the services Australians need and expect?

A progressive fiscal policy for Labor must address the revenue question. This is an absolute prerequisite to realising the society and public services we want to deliver. Jo Schofield rightly points out: if we accept an ever-shrinking tax base, progressives will end up squabbling over the ever-decreasing pool of revenue.

So how can Labor fund the program as that Australians need? Richard Dennis’s outlines four progressive revenue-raising measures.

Labor cannot lock itself into a low-revenue future and nor allow itself to be cast as a pale imitation of the Coalition. As Nadine Flood points out, the ALP must advocate a positive case for the role of over meant as an essential enabler of future jobs and prosperity.

Conference will feature several other key policy debates that will shape Labor’s approach in government. Asylum seekers, marriage equality, a fairer tax system that tackles corporate tax avoidance, housing affordability and tackling climate change are all high on the Left’s agenda.

Conference will also debate Labor’s core objective. It is a debate that seems to have been mainly conducted in the conservative press. While the case for change has not yet been made, we should always have the confidence to debate Labor’s purpose. In that spirit, we are publishing two competing views on the socialist objective.

The British election proved that even incompetent and hated governments can triump on the back of cynical fear campaigns. Being the least worst option will not lift Labor to government. Neal Lawson offers two lessons from the UK election.

Labor must grasp the vital opportunity offered by th 2015 National Conference. Facing a federal election, we must demonstrate our evolution as a modern, democratic movement with a positive policy vision for the future.

Originally appeared in the Winter 2015 edition of Challenge

Control of the Upper House is the most important battle of the NSW election

While the media has focused on how many seats Labor may pick up off the Coalition on March 28 and the impact of Luke Foley as Labor leader, the Legislative Council election is shaping up to be the most important battle of the upcoming NSW election. Whoever controls the Upper House will determine whether electricity privatisation (and the Coalition’s second term agenda) occurs.

Current distribution of seats

The current distribution of seats in the Legislative Council (42) is 14 ALP, 12 Liberals, 7 Nationals, 5 Greens, 2 Shooters and Fishers and 2 Christian Democratic Party (CDP).

In 2011, the Coalition won 11 of 21 spots while Labor won 5 and the Greens won 3 with one each for the CDP and Shooters and Fishers.

The Liberals have been able to form a majority (22) in the Upper House by dealing with the CDP and the Shooters and Fishers Party.

The fight over electricity privatisation

Along with Labor and the Greens, the Shooters and Fishers have pledged to oppose the privatisation of electricity. There may be scepticism as they have a tendency to be bought off but they have stated that they will not deal on privatisation. The CDP has, however, indicated it will support the privatisation of electricity. This isn’t a surprise given the far right former Liberals that are in the CDP and the preference deal they had with the Liberals had at the 2011 election.

To gain a majority to sell off the poles and wires, the Coalition needs to win 9 seats with the support of the CDP (assuming Nile is re-elected). 11 seats would give them a majority in their own right. To win 9 of 21 suggests a primary vote of 41% (potentially less because of Optional Preferential Voting). A recent Galaxy poll has suggested that the Coalition is on a primary vote of 43% meaning they are hovering around a majority for privatisation.

The danger of a Coalition victory in the Upper House

The big danger is if the Coalition gains control of the Upper House (with the CDP) they will try to implement a radical free-market agenda that goes beyond electricity privatisation and includes the privatisation of water, trains and extend contestability and outsourcing across public health care, education and social services.

For anyone who believes in essential services should be kept in public hands, stopping the NSW Coalition from being able to implement its agenda must be a priority. Success will mean others will attempt to emulate Baird’s neoliberal agenda. The importance is underscored by Paul Kelly who states that:

Defeat for Baird would constitute the most lethal blow for market-based economic reform for years…

The added danger is a good Coalition result in the Legislative Council will make it harder to unwind any changes or pursue progressive reforms if Labor wins in 2019. Unlike federally, there is no mechanism to clear the NSW Upper House and the term served by each MLC is eight years. It makes it all the more important to stop the Coalition (and their allies the CDP) from being able to get a majority.

UPDATE 10/03/15: Antony Green has suggested that because of Optional Preferential Voting, the Coalition may only need around 39% to gain 9 seats.

Lessons from Victoria

Labor’s victory in Victoria was a watershed. For years, it had been a political truism that Government’s always win a second term. The defeat of the one-term Napthine Government not only shatters that illusion, it gives hope to Labor Oppositions everywhere.

Then we saw the unprecedented results in South Australia’s Fisher byelection and the Queensland polls showing Labor is neck-and-neck with the LNP. We can now truly believe that Labor has turned a corner.

Victoria has blazed a trail for Labor. We now have a proven campaign model for Labor to embrace federally and in other states, a model that we can use to campaign and win.

Campaign tactics received a lot of attention, but the biggest lesson out of Victoria is the embrace of the broader grassroots labour movement by the Party. As Premier Daniel Andrews said:

There are some that wanted to it be all about unions and workers, and that is exactly what it was.

Victorian Trades Hall’s ‘We Are Union’ campaign electrified the election effort. Unions mobilised hundreds of firefighters, nurses, teachers and paramedics across marginal seats. These workers were instrumental in eliminating a one-term Coalition Government. Just as with the Your Rights at Work campaign, when organised workers are front and centre in a united campaign, we will not be defeated.

The other lesson from the Victorian election is the need to communicate a clear policy agenda. Incumbency was not enough to offset a muddled message from the Coalition. Labor, in contrast, made clear election commitments on the East-West Link, improving public transport and restoring TAFE funding.

Federal Labor must likewise present a clear policy agenda or face disillusionment and aimlessness. Rejection of Tony Abbott’s extreme agenda combined with a small target strategy may be appealing – but it will not be enough to win and consolidate power.

Shaun Wilson makes a strong case that the next federal Labor Government will face a new set of challenges more difficult to solve than those faced by its predecessors.

Those challenges will not be met by wallowing in nostalgia. Rather Labor must provide answers to the pressing problems of contemporary life. We must address the growing pressures on the balance between work and caring, and the need to reform our welfare state to reduce growing inequality and improve living standards. We must ensure quality and affordable early childhood education.

Avoiding these tough questions will do Labor no favours in the long run. We must carve out a new agenda consistent with Labor values.

Originally appeared in the Summer 2014-15 edition of Challenge

Labor needs a culture of ideas

Keynes in his General Theory famously wrote: ‘Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.’

For Labor, his words are a reminder we need to reform our ideas, not merely our rules.

Challenge aims to foster this debate and to create a culture within Labor that puts real discussion about policy front and centre.

The need to challenge the increasingly radical agenda of the Coalition makes this all the more urgent. Their agenda is pre-planned and well-organised, inspired by zealots from the Institute for Public Affairs and donors with deep pockets expecting high rewards.

A culture of ideas can only be achieved by engaging in discussion both within and outside the Party. External expertise has always been vital to the Labor agenda. The original Medibank, introduced by the Whitlam Government, was conceived and designed by health economist John Deeble and his colleague Richard Scotton.

In that spirit, Richard Denniss from The Australia Institute tackles the big challenge of how to fund our social program while still balancing the budget. His analysis lays bare one of the key debates inside Labor in the lead up to National Conference, how can we honestly accept the current level of taxation as a proportion of GDP given Labor’s aspirations for the size and role of Government?

Our search for the best ideas must also have an international lens. Our counterparts across the globe face similar challenges. We look to them for ideas and inspiration. Mark Ferguson outlines some of the radical reforms that the British Labour Party has undertaken as it approaches the 2015 General Election.

As a party of government, Labor can never forget the critical need for ideas that capture the imagination. We need to give people hope about the Labor project and a vision of what Labor will bring to government. The lessons of 1972, 1983 and 2007 are that a positive agenda, full of ideas, is necessary for Labor to win.

In the quest for a Labor culture of ideas, Challenge applauds the great work happening elsewhere, including by the Fabians and the Chifley Research Centre. The NSW Left’s own Annual Bruce Childs Lecture provides a new forum for sustained analysis. The Left will continue to champion a Party culture where debate about ideas and policy is as crucial as discussions about party rules.


Originally posted at Challenge Magazine

Decisions about trade-offs are always political

One issue I find that does not get discussed enough in policy making or political circles is that of “time”.

We live in an increasing sped up and interconnected world. Technology has created a 24/7 news cycle that did not exist not too long ago. There is no reprieve and where there is a vacuum, attempts by other actors are made to fill it.

At the same time, there is an expectation of increasingly better decisions with more involvement and genuine consultation. People expect to have a greater voice, have greater access to information and processes yet they also want action quickly and immediately.

We have a consumerised culture where people expect things now, on demand, but we also expect those decisions to be made without error. It is not realistic.

Ensuring the quality of information and decision-making through the use of deliberation, proper processes, fact-checking and analysis all takes time. You cannot always have a speedy and an error free result. There is often a trade-off that has to be made.

The former Labor Government’s stimulus program is a good example. I don’t think it should be a surprise that it had some problems and wastage. The speed at which it had to be delivered meant it was inevitable. It was a trade-off to meet its goal of averting a recession because “time” was of the utmost importance.

How we reconcile these competing demands of needing time and public demands remains a challenge. There are limits to how much a decision can be sped up while ensuring it is a thorough and sound decision when humans are involved. Decisions have to be made about how much speed versus how much quality. The real challenge is how we determine the trade-off.

These questions about trade-offs aren’t just limited to “time” vs “quality”. They are equally applicable to “efficiency” vs “equity” or “freedom” vs “security”.

There is no scientific rule about what is the appropriate extent to trade one thing off. It is ultimately a political decision. We cannot pretend it is not a political choice, nor should we. I only wish more of us had the courage to admit that trade-offs are inevitable in decision-making and decisions ultimately political.

Where’s Australia’s Labourlist?

One thing I have always found odd is the lack of a political party blogging culture in Australia. Political blogging exists but bloggers tend to avoid wearing a party label or instead concentrate on a niche area like psephology or policy. Rather than through political blogs, party debates and conversation tend to occur exclusively through the traditional medium of newspaper op-eds (or on newer but similar op-ed platforms like The Drum), mediated by journalists.

In comparison, other similar countries like Great Britain has sites like LabourList and ConservativeHome. They are vibrant forums for the grassroots of the party, aligned but independent, providing party news and opinion on a regular basis and even shaping internal party debates. Anyone can contribute and everyone does from rank-and-file members, MPs, pressure groups, even yours truly. While both sites have paid staff, there are many other smaller individual and group party blogs that provide a platform for debating and discussing ideas and what is going on within and even across parties.

Arguably party discipline and a lack of supporting resources have played a role in creating a culture not so conducive to open discussion and debate in Australia, especially in New South Wales. None of this is to say that there hasn’t been any attempt encourage a culture of thinking and discussion on the Labor side of politics. There were attempts a decade ago with Evan Thornley’s ”LaborFirst” group attempting to set up a blogging network and a left-wing online newspaper Labor Tribune that briefly existed. The establishment of an online presence for Challenge Magazine (Labor Left) and Voice (Labor Right) are more recent examples but both are semi-regular at best. The Chifley Research Centre is attempting a “Left Foot Forward/ThinkProgress” model with its own blog. It is a welcome addition but it is more geared towards campaigning rather than discussion. There is an understanding of the need for these kinds of forums but the capacity is just not there yet for something like a LabourList.

Rather than just wistfully pine for something better, I thought I‘d kick things along by starting a list of what could be considered as a Labor blogosphere.

Feel free to make any suggestions (including your own blog) and I’ll keep adding to the list.


UPDATE 30/4/14: The ALP has announced it will be establishing an online news service, Labor Herald. It seems to be modelled on LabourList as it will have a full-time editor and they will be seeking content from members. The real test will be whether it publishes pieces on contentious debates and be somewhat independent like LabourList.

UPDATE: 10/9/14: It looks like the Labor Herald will not be like LabourList at all.

Open Labor

The plethora of ALP reform groups continues to grow. First there was OurALP, then there was Labor Renewal, then came Local Labor and now there’s a group calling itself “Open Labor” that is about to launch on Monday.

From what I have seen, the core individuals linked to this project seem to be Victorians with links to the Per Capita thinktank such as James Button, Josh Borstein, Nick Reece, Tom Bentley and Dennis Glover.

Compared to these other groups that are explicitly groups of party members, Open Labor seems to be positioning itself as a loose network of thinkers that exists beyond the confines of ALP, including non-members.

As part of their launch, Open Labor will have a public statement that they will be asking people to sign onto. The statement is below:


We are a group of people who seek renewal of the Australian Labor Party and a more open, optimistic and decent politics in Australia.

The 2013 election campaign showed that political debate, on the right and left, is exhausted. We need new, brave thinking about the state of our nation, and how to meet people’s needs and aspirations in a time of slowing economic growth, rising inequality, accelerating climate change and dwindling trust in our political institutions.

For more than a century the ALP has represented the hopes of millions of people for a better life. Many good people within it have fought for the big changes that have made Australia a better society.

Yet the Labor Party, for all that it has achieved, has in recent years struggled to find the ideas and ideals needed to inspire Australians. The party’s structures and rules too often serve the interests of those who hold power within them, not the wider communities they purport to represent.

The disengagement of so many Australians from politics is a major problem. Yet simply retreating from the field, abandoning politics to other interests, is not an option. Without a vigorous contest of ideas and strong voice for fairness, Australia will go backwards.

Labor remains the only party that can increase social and economic opportunity, embrace diversity and manage change for the benefit of all. But the ALP needs to confront and overcome its problems if it is rediscover its purpose, regain trust and properly serve the interests of Australians.

It must open up – to new people, ideas and methods.

It must become more democratic – in how it organises itself, how it develops policies, and how it connects with its members, supporters and the public.

We seek an open Labor Party: open to change, while building on its best values and traditions.

We want to work with people who believe that a more open and democratic ALP is vital to a better Australia, and who want to have a hand in shaping it. Some of those people are inside the Labor Party, but many are not.

The greatest source of energy, ideas and renewal will come from people whose values and principles make them sympathetic to Labor’s aims, but who find themselves alienated by the party’s culture.
We do not accept that the practice of politics must inevitably be self-serving, cynical or tedious. A modern political movement must provide its members with both the prospect of a better future and a sense of excitement and fulfilment now.  

As a group, we will not operate as part of the ALP, though many of our members are active within it. Instead, in partnership with people who join us, we will focus on building an open network of ideas, people and activities dedicated to supporting the renewal of the ALP and reconnecting Australia’s political culture with the people it is meant to serve.

Some of us will work on ideas and policy, some on party reform, some on community engagement. We do not have all the answers. Rather, we expect good ideas to emerge from a politics based on honesty and idealism, and an open conversation conducted with humility and respect.

We have no illusions about the size of the task. Inertia and entrenched self-interest are powerful forces inside the party, and disengagement and cynicism outside it.

But the excitement that has accompanied the recent election of Labor’s federal leader shows that there is a readiness — a hunger — for change.

In the widespread despair with our politics is an opportunity. We want to work with other people of goodwill to seize it.

If you support these aims, want to hear more, or would like to connect with others who share similar views please XXX

I understand that Per Capita will be launching an e-book on social democracy next year and have a feeling this initiative might tie into it. If there is a link between “Open Labor” and the plans for an e-book (and further publications), it may be similar to the Open Left project that British thinktank Demos ran a few years ago.

At this early stage, it is unclear what will be the outcome of “Open Labor”. It could disappear quickly after its launch or have little lasting impact. Still, it is worth keeping an eye on if it does promote a more pluralistic approach and challenging thinking on the centre-left.

UPDATE: Open Labor has now launched its website and there’s a few articles floating around about it. At this stage, it appears to be more of a traditional pro-reform pressure group (albeit inclusive of non-members and with higher profile participants).

What would your 75 ideas to “reshape the political culture” be?

“Inspired” by the Institute of Public Affairs’ 75 Radical Ideas to Transform Australia, Ben Eltham has made his own list of ideas that would make Australia a more progressive and fairer place.

It is actually a really good exercise to try. Quite often those on the progressive side of politics know what they oppose but find it much harder to articulate what they want. By jotting down your ideas, you get a sense of what your own policy programme would look like and what you would prioritise.

I started writing my own quick list of “radical ideas” in response when the IPA first released their piece. My 75 ideas were: 

  1. Abolish stamp duty and have a state-based land value tax to help fund public infrastructure and services
  2. Introduce a Progressive Estate Tax
  3. Abolish negative gearing
  4. Eliminate the childcare rebate and introduce universal early childhood education
  5. Increase the Medicare levy to fund universal dental care
  6. Eliminate the private health insurance rebate
  7. Make all income tax returns public
  8. Abolish the Senate & Upper Houses and introduce Hare-Clarke into Lower Houses in all Parliaments (where it does not already exist)
  9. Give employees co-determination over their workplace
  10. Introduce employee and consumer elected representatives onto Boards of State Owned Enterprises
  11. Make study leave a legislated right
  12. End mandatory detention and offshore processing
  13. End superannuation tax concessions for the wealthy
  14. End the funding of private schools and reinvest funds into public education
  15. Roll back copyright and intellectual property and only allow it in limited circumstances
  16. Legislate for at least six weeks annual leave
  17. Remove restrictions on secondary boycotts
  18. Legalise industrial action outside of bargaining periods and on non-industrial issues
  19. Make May Day, Eureka Day and Federation Day public holidays
  20. Allow optional voting from age 16
  21. Mandate the use of participatory and deliberative mechanisms in policy making
  22. Make TAFE and university education free
  23. Abolish the states & local councils and introduce regional and city government in its place
  24. Introduce a Robin Hood tax
  25. Introduce super profits tax on all mining companies and banks
  26. Introduce a Constitutional Bill of Rights
  27. Become a Republic with the Irish Presidential model
  28. Rewrite the Constitution to clearly delineate the division of powers between the Commonwealth and lower tier governments
  29. End the Northern Territory Intervention
  30. End compulsory welfare quarantining
  31. Sign a Treaty with the first Australians
  32. Introduce laws that stop media concentration and ensure media pluralism
  33. Introduce portable bank accounts
  34. Establish a new government-owned bank
  35. Introduce an Equality Act that incorporates all anti-discrimination legislation with a new strategic duty to reduce socioeconomic inequality, provision for equal pay audits and protection against dual discrimination
  36. Introduce congestion charges in CBDs with all revenue reinvested in public transport
  37. Restore indexation of fuel excise
  38. Getting utilities to embrace decoupling and incentivise retrofitting to improve energy and water efficiency
  39. Close the gap between corporate tax and top marginal income tax
  40. Reform capital gains tax by eliminating the 50% discount
  41. Abolish the baby bonus
  42. Create a single welfare payment with increased top-up payments based on individual circumstances
  43. Return employment services to the Commonwealth Government
  44. Strengthen privacy laws to ensure individuals control their own information & it cannot be a condition of use by corporations for products
  45. Expand the number of Commonwealth supported postgraduate places to make it more accessible
  46. Subsidise the part-time learning of foreign languages for adults
  47. Make it a right to request family friendly flexible work hours
  48. Remove restrictions on union bargaining fees and union shops
  49. Legislated rights for union delegates
  50. Make public transport free
  51. Campaign finance reform that allows participation of non-individual entities but does not allow the dominance of money
  52. Create a National Investment Bank
  53. Introduce a portable leave bank for all workers (personal, long service and holiday)
  54. Automatic and election day enrolment
  55. Elimination of fees to run for elections and lowering the number of party members required for political party registration
  56. Increase International aid to 0.7% GNI
  57. End the mining and export of uranium
  58. Legislate to clearly define casual employment and ensure there is a pathway to permanent employment for those in casual and part-time positions
  59. Extend the paid maternity leave scheme to cover give both parents equal paid leave for 52 weeks
  60. Return all monopoly infrastructure (e.g. poles and wires, water) to public ownership
  61. Link public funding of political parties to public transparency and enforceable internal democratic procedures
  62. Abolition of the efficiency dividend
  63. Make flextime the norm for all employees
  64. Remove the exemptions for religious organisations from anti-discrimination legislation
  65. Immediately legislate for marriage equality 
  66. Allow non-binding intiative and referendum
  67. Remove the requirement of where the national capital must be from the Constitution
  68. Supporting the creation of an international public ratings agency
  69. Creating a Chief Social Scientist position
  70. Give the Commonwealth Government sole power over water
  71. End the commercialisation of SBS
  72. Legislating for living wages
  73. Strengthening the rights of tenants
  74. Introduce pre-committment restrictions on gambling
  75. Give the Fair Work Commission the power to compulsorily arbitrate, not just concilliate, where agreements cannot be reached during enterprise bargaining negotiations

Thoughts and comments are more than welcome. 

You should try writing your own list too.

Inheriting opportunities

On the face of it, Australia seems like a much more equal country than it was half a century ago. Governments have actively pursued an agenda to increase equality through expanded access to higher education, a greater equality of access to public goods and the removal of discriminatory barriers. Yet, despite these changes, there continues to be a strong relationship between individual’s socio-economic status and that of their parents.

Labor MP and economist Andrew Leigh has previously noted that intergenerational mobility in Australia has changed little since the 1960s. This is despite greater access to education and the introduction of anti-discrimination legislation under Federal Labor Governments. At the same time, inequality has increased significantly over the past few decades. From 1980 to the late-2000s, the top 1 percent of Australians share of national income rose to 10 percent, nearly reaching 12 per cent share of the top 1 percent in 1910s and 1920s. This increased inequality has the potential become entrenched across generations.

An inheritance tax may be one practical measure to limit the entrenchment of this inequality and help to level the playing field. Australia is one of the few developed countries in the world that does not have any inheritance tax. State governments, following Queensland’s lead in 1977, abolished inheritance taxes at a state level and the Federal Government abolished the inheritance tax in 1979. The re-introduction of an inheritance tax at a federal level would help to ensure that individuals derive income from hard work and initiative rather than from their socio-economic background through inheritance. Any inheritance tax should also include a gift tax to prevent a person from avoiding paying inheritance tax by giving away all his or her assets before death.

While opponents of inheritance taxes have characterised it as deterring entrepreneurship, supporters include some of wealthiest individuals in the world such as George Soros and Warren Buffett. Buffett has emphasised its importance in maintaining a meritocracy and argued that the proposed scaling back of the inheritance tax in the United States would be like “choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics”, entrenching privilege and undermining equality of opportunity.

An inheritance tax will also encourage a stronger culture of philanthropy amongst the wealthy in Australia. While wealthy Americans gives 10-15 per cent of their net worth to charities, the average wealthy Australian gives less than three per cent. In the United States, philanthropy has provided significant funding to universities, the arts and various community organisations. Philanthropy has helped to enrich civil society across America, supporting many non-profit organisations, funding nearly a third of their annual budgets. An inheritance tax would provide a strong incentive for greater philanthropy and strengthen civil society in Australia.

There are some strong objections to an inheritance tax but the one that resonates most with many people is the desire of middle income families to set aside some modest assistance to their children. Australia has a relatively high rate of home ownership, at around 70 per cent of households and many may fear that house price rises on the family home, beyond the indexed rates of exemptions, will mean they are unable to leave anything to their children. A solution may be to introduce a progressive model of inheritance taxation, outlined by the philosopher John Rawls, indexed to average increases in household wealth.

Rawls argued that a just society would have an inheritance tax based upon on receiver of the inheritance. Under such an inheritance tax, individuals from a low socio-economic background receiving an inheritance would face little to no taxation while wealthy individuals would have any inheritance received taxed heavily.

The most recent data on inheritance patterns indicated that only ten per cent of inheritances over $100,000 go to individuals in the two lowest wealth quintiles. Almost half go to the richest wealth quintile. By indexing the tax to average increases in household wealth, individuals would avoid taxation due to rising average house prices on the family home, keeping its focus on the wealthy. Middle income families could “set something aside” for their children while preventing wealth transfers which would greatly widen existing inequalities.

In her maiden speech, Julia Gillard stated that:

a Labor vision, must also be a vision of opportunity, a vision whereby each and every Australian, no matter what their personal circumstances, is given an opportunity to develop and to excel.

The introduction of a progressive estate tax would be a practical and progressive way that the current Government could help fulfil that vision by helping to improve intergenerational mobility and equality of opportunity.

Social Impact Bonds? Don’t Believe the Hype!

If you believe the hype, Social Impact Bonds are the next big thing in social policy. Social Impact Bonds have been described as the latest ‘ethical investment’, a way to harness private finance for social good, but what exactly are they?

According to Social Finance:

A Social Impact Bond is a contract between a public sector body and Social Impact Bond investors, in which the former commits to pay for an improved social outcome. Investor funds are used to pay for a range of interventions to improve the social outcome.

Supporters argue Social Impact Bonds will shift the focus from the cost of services to improving social outcomes and ultimately lead to savings on future social costs. It addresses public sector disincentives to invest by involving the private sector and private investors will only paid if agreed targets are met. It’s a win, win situation for the public and society.

It sounded good enough to the previous NSW Labor Government that in 2010 they announced a trial program in collaboration with the Centre for Social Impact. The newly elected NSW Liberal Government has also embraced Social Impact Bonds and in March announced three trials.

A closer look at Social Impact Bonds, however, reveals limited information on how effective they actually are. The first trial of a social impact bond in Britain only commenced in March 2010 and the touted benefits will not be known for years.

Most concerning is that Social Impact Bonds sound suspiciously like a public-private partnership (PPP). The fact that the Centre for Social Impact is a business school partnership with corporate “investors” does little to dissuade this perception and it is reinforced by a comparison in a media release by the then NSW Labor Government on the pilot:

Social Impact Bonds are similar to a public-private partnership. They provide a mechanism for the private sector to invest in non-government community programs.

The rationale for a PPP for social services is questionable. PPPs have generally relied on the state socialising risk and guaranteeing a rate of profit for investors to secure funding, removing many of the assumed benefits of the private sector. As the government can borrow at a lower cost, PPPs are often more expensive than if it was directly funded by the state. It is likely that increased government spending on preventative projects is cheaper over the long-term than a SIB. This argument has been even been noted by supporters of Social Impact Bonds:

A common response from Treasuries are that Social Impact Bonds are an unnecessarily complex way of financing better social programmes. Since government’s costs of capital are significantly cheaper than markets, they should be providing finance. If there really are better approaches to cutting recidivism or unemployment, these should be directly funded by governments, rather than indirectly via Social Impact Bonds.

If an increased cost is likely, why are Social Impact Bonds being strongly promoted?

The prioritisation of balanced budgets and obsession with credit ratings cannot be overlooked. John Quiggin noted that PPPs were used to shift costs off the balance sheet to create balanced budgets and surpluses. With governments running deficits and seeking to returning to surplus as quickly as possible, Social Impact Bonds  may become the latest way to privatise and replace rather than complement funding. This seems likely given NSW Liberal Treasurer Mike Baird’s comments to 7:30 that:

What you’re seeing in the UK is what you’re seeing across every government here in Australia. I mean, it is a tough environment. Budgets are tough, revenues are falling.

The likelihood of gaming is another problem that cannot be ignored. From the past experience of PPPs and payments by results, there is a strong likelihood that investors will only fund easy projects rather than complex, riskier projects that need funding, leaving them to the state. Projects with easier targets are likely to be adopted to encourage investors and secure funding. It is not reassuring that target outcomes and corresponding Government payments were not determined and that work done on indicators had not been done prior to the choice of the trials. These are only some issues with Social Impact Bonds . There are many others that even proponents such as the Centre for Social Impact have admitted such as that:

…the biggest barrier is likely to be the lack of robust evidence of the efficacy and cost saving potential of programs and policy interventions.

This is all not to say that advocates are completely wrong. They are right about perverse incentives that deter public sector investment. Improved outcomes may lead to a reduction in spending and job cuts. It needs to be addressed. What is missing is the discussion about a better public sector funding model that does not penalise improved outcomes with funding reductions.

It is difficult to determine the effectiveness of Social Impact Bonds at this early stage. However, the lack of discussion about problems from past PPPs and the silence on improving the public sector funding model is concerning. As governments across the world reduce debt and deficits at any cost, Social Impact Bonds may become the latest way to privatise public services. We need be wary of claims made by advocates and will need to heavily scrutinise the costs and benefits for many years to come.