Gridlock: Removing barriers to policy reform Grattan Institute Support Grattan Institute Report No. 2021-08, July 2021 Founding members Endowment Supporters This report was written by John Daley. Bel Matthews and Rory Anderson provided extensive research assistance and made substantial contributions. The report draws The Myer Foundation on the work of all of Grattan’s past and current staff, and would not have been National Australia Bank possible without them. Susan McKinnon Foundation We would like to thank numerous current and former academics, government and industry participants and officials for their valuable and diverse input, particularly Affiliate Partners Aaron Martin, Allan Fels, Anne Twomey, Ben Jensen, Carmela Chivers, David Kemp, Ecstra Foundation George Williams, Glyn Davis, Jill Rutter, Joo-Cheong Tham, Lindy Edwards, Martin Parkinson, Mike Keating, Percy Allan, Peter Goss, Reuben Finighan, Sarah Nickson, Origin Energy Foundation Saul Eslake, and Sean Innis. Susan McKinnon Foundation The author is fully responsible for any errors or omissions, and the views expressed, which do not necessarily represent the views of Grattan Institute’s founding Senior Affiliates members, affiliates, individual board members, reference group members, or Cuffe Family Foundation reviewers. Maddocks We thank the Cuffe Family Foundation for its support to finalise this report. Medibank Private Grattan Institute is an independent think tank focused on Australian public policy. Our The Myer Foundation work is independent, practical, and rigorous. We aim to improve policy by engaging with decision makers and the broader community. We acknowledge and celebrate Scanlon Foundation the First Nations people on whose traditional lands we meet and work, and whose Trawalla Foundation cultures are among the oldest in human history. Wesfarmers For further information on Grattan’s programs, or to join our mailing list, please go to: Westpac http://www.grattan.edu.au. You can make a donation to support future Grattan reports here: www.grattan.edu.au/donate. Affiliates This report may be cited as: Daley, J. (2021). Gridlock: Removing barriers to policy Allens reform. Grattan Institute. Ashurst ISBN: 978-0-6450879-6-3 The Caponero Grant All material published or otherwise created by Grattan Institute is licensed under a Corrs Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License McKinsey & Company Silver Chain Urbis Grattan Institute 2021 2 Gridlock: Removing barriers to policy reform Overview Australia’s governance has deteriorated over recent decades. The have dragged significantly on the budget have also struggled. The formal institutions and the informal norms of behaviour are weaker. upper houses of parliament, and the division of federal responsibilities Others have written about how this soft corrosion can easily bloom – often raised in public discussion about governance – were rarely the into hard corruption. This report shows how weaker governance also root cause of governments failing to adopt reform. means that governments are adopting less policy reform – changes to policy that would improve the lives of Australians. Popular opinion, markers of party loyalty, and vested interests have blocked reform in part because the fourth estate has limited resources Many people hark back to the golden years of policy reform in the for expert journalism, is concentrated, is sometimes hyper-partisan, 1980s and ‘90s. This isn’t just a rose-coloured view: it is confirmed and is morphing due to social media. But there are other culprits. The both by a simple history of reform, and an analysis of OECD growing number and power of ministerial advisers make it harder to recommendations. The more recent gridlock of policy reform can’t pursue reform. The public service has been weakened: often it is not be explained away as the absence of worthwhile reform to do – asked to provide policy advice, is not capable of providing it, and is governments in Australia have failed to progress many reforms that overly pliable in serving the political interests of the government of have sat on the shelf for decades. the day. Reform is also undermined by political patronage – awarding government contracts, making favourable policy decisions, and granting This report analyses the outcomes of a wide range of reforms proposed appointments to partisan friends, made easier as the reasons for by Grattan Institute in the decade from 2009 to 2019. More than two decisions become more opaque. thirds of the suggested reforms have not been adopted. Institutional changes to ministerial adviser roles, to processes for Many reforms that were desirable for the reasons explained in Grattan’s appointing and dismissing senior public servants, to ministerial reports, were nonetheless unpopular with the electorate. None of these influence over government contracts and grants, and to controls over were adopted. Unpopularity has become an insuperable obstacle political donations, campaign finance, lobbying, and post-politics to reform, a significant change from the past when political leaders careers would all help to break the gridlock in policy reform. These implemented many reforms even if they were unpopular, doing their changes would also promote the emergence of champions who are best to explain why they were in the public interest. usually crucial to the prospects of reform. Reforms that crossed shibboleths – beliefs that mark party or factional Unfortunately, politicians from both major parties routinely block such loyalty – almost always failed. They have become a major obstacle to institutional changes. The most politically realistic path to institutional sensible reform, particularly in tax, superannuation, and energy policy. change is for independent members of parliament to champion Other reforms were blocked by powerful vested interests. But vested institutional changes, particularly when they hold the balance of power. interests were often overcome when substantial independent public Without institutional changes, Australian governments will not deliver evidence made the case for reform. Not surprisingly, policies that would many of the policy reforms that would increase Australian prosperity. Grattan Institute 2021 3 Gridlock: Removing barriers to policy reform Table of contents Overview . 3 1 Introduction . 5 2 The failure of policy reform . 7 3 Patterns from the past decade . 14 4 Improving the chances of reform . 39 5 Getting there . 58 A Grattan case studies . 63 B Summary of OECD recommendations . 74 Grattan Institute 2021 4 Gridlock: Removing barriers to policy reform 1 Introduction ‘Everybody knows’ that policy reform in Australia is gridlocked. And and do not – make a material difference to the prospects of reform. almost everyone has a theory about what the problem is – and what the Appendix A contains more details of our methodology, a summary of solutions might be. the reforms, their outcomes, and their characteristics. Although history is prone to interpretative bias, we hope that people will agree with most This report examines the evidence: which reforms did happen, and of our individual judgments, and therefore that the overall patterns are which did not? It identifies the blockers that consistently result in insightful. gridlock, and it identifies changes to the mechanisms and institutions of government to clear these blockages so that next time might be This is not a perfect approach to analysing institutions. Although the different. sample is much broader than most, and covers about 75 per cent of the areas where governments spend money,2 it does not include This report lays bare the concrete costs of how we have been substantial areas of government activity, particularly public safety governing Australia. Problems with our institutions – our systems of (including criminal law, policing, and national security), international governance – are cruelling the chances of policy reform.1 The slow relations (including diplomacy, defence, international agreements, and corrosion of our institutions is gnawing away at Australian prosperity. refugees), industrial relations, and telecommunications and media. We hope this report galvanises people to change how Australian government works. But our approach at least reduces selection bias: the reforms were all selected by Grattan Institute as necessary when its reports were This report shows that Australia tended to adopt policy reform more written, rather than as illustrations of institutional success or failure often in the past (Chapter 2). Such historical analysis can bolster the cherry-picked in retrospect. case for institutional change. If reform previously happened more often, then changed governance arrangements deserve more scrutiny. To forestall claims that policy proposals failed because they were not in the public interest, the report relies on the extensive analysis that To see how Australia could have done better over the past decade, Grattan Institute has already completed for each of them in the relevant this report systematically analyses the history of all 73 concrete reports. Grattan selected areas for its reports where the key questions policy reforms proposed by Grattan Institute between 2009 and did not depend on value judgments that were contested between the 2019 (Chapter 3). These include reforms across a wide range of two major parties.3 Instead it selected policy issues where evidence policy areas including budgets, tax and welfare, retirement incomes, could indicate better answers. As