Productive Roundtable Reform in a Proceedings Federal System Canberra, 27–28 October 2005 © Commonwealth of Australia 2006 ISBN 1 74037 201 8 This work is subject to copyright. Apart from any use as permitted under the Copyright Act 1968, the work may be reproduced in whole or in part for study or training purposes, subject to the inclusion of an acknowledgment of the source. Reproduction for commercial use or sale requires prior written permission from the Attorney-General’s Department. Requests and inquiries concerning reproduction and rights should be addressed to the Commonwealth Copyright Administration, Attorney-General’s Department, Robert Garran Offices, National Circuit, Canberra ACT 2600. This publication is available in hard copy or PDF format from the Productivity Commission website at www.pc.gov.au. If you require part or all of this publication in a different format, please contact Media and Publications (see below). Publications Inquiries: Media and Publications Productivity Commission Locked Bag 2 Collins Street East Melbourne VIC 8003 Tel: (03) 9653 2244 Fax: (03) 9653 2303 Email: [email protected] General Inquiries: Tel: (03) 9653 2100 or (02) 6240 3200 An appropriate citation for this paper is: Productivity Commission 2006, Productive Reform in a Federal System, Roundtable Proceedings, Productivity Commission, Canberra. JEL code: H, I, J The Productivity Commission The Productivity Commission, an independent agency, is the Australian Government’s principal review and advisory body on microeconomic policy and regulation. It conducts public inquiries and research into a broad range of economic and social issues affecting the welfare of Australians. The Commission’s independence is underpinned by an Act of Parliament. Its processes and outputs are open to public scrutiny and are driven by concern for the wellbeing of the community as a whole. Information on the Productivity Commission, its publications and its current work program can be found on the World Wide Web at www.pc.gov.au or by contacting Media and Publications on (03) 9653 2244. Foreword The Productivity Commission convened a roundtable on the topic Productive Reform in a Federal System at Old Parliament House, Canberra on 27 and 28 October 2005. The invitees included senior government officials, consultants, academics, and representatives from industry and community groups. Reflecting the need to build on past reforms, the roundtable focused on issues associated with the challenge of securing better policy outcomes from our federal system of government. Participants initially examined some generic issues associated with federal systems and their operation in principle and practice. The roundtable then explored opportunities for improving outcomes in the key areas of health, the labour market and freight transport. The final session harvested ideas about ways forward. As it turned out, the roundtable came at an opportune time during the efforts of senior government officials to develop a reform agenda for consideration by CoAG. The agreement finally reached by CoAG on 10 February 2006 was as wide-ranging and ambitious as many at the roundtable had hoped for. That said, much remains to be done to translate that agreement into practical reforms. This publication has been prepared to enable wider dissemination and consideration of the ideas and insights that emerged from the roundtable. It includes the papers prepared by the speakers as well as the responses of the discussants and panellists and summaries of the general discussion sessions. Also included is an overview covering the key points raised by the speakers and other participants. The Commission remains grateful for the constructive contributions of all those who participated in the roundtable, the value of which is evident in this volume. Gary Banks Chairman FOREWORD III Contents Foreword iii Acknowledgments ix Abbreviations x Overview 1 1 Introduction 17 Gary Banks Part A Institutional frameworks to promote productive outcomes 2 Productive reform in a federal system 25 Jonathan Pincus 3 Competitive federalism — wasteful or welfare enhancing? 53 Cliff Walsh Discussant Ross Garnaut 85 General discussion 95 Part B Case study one — health reform 4 Health reform in the federal context 103 Vince FitzGerald 5 Directions for health reform in Australia 133 Andrew Podger Discussant Stephen Duckett 161 General discussion 167 CONTENTS V Part C Case study two — labour market reform 6 Labour market reform in a federal system: making the best of a flawed framework 175 Andrew Stewart 7 Functioning federalism and the case for a national workplace system 205 Peter Anderson Discussant John Freebairn 239 General discussion 245 Part D Case study three — freight transport reform 8 Furthering significant freight transport reform in a federal system 251 Rod Sims 9 Regulatory reform in land transport 277 Tony Wilson and Barry Moore Discussant — Henry Ergas 303 General discussion 309 Part E The way forward 10 The way forward 315 The panel discussion 315 General discussion 328 Further comments by the panellists 330 Concluding comments 332 Part F Dinner Speech 11 Time to 'get real' on national productivity reform 337 Ken Henry VI CONTENTS Appendices A Roundtable program 345 B Roundtable participants 347 References 351 Figures 2.1 Projected impacts of ageing on health expenditure and fiscal pressure 46 5.1 Changes in mortality rates, 1907 to 2000 141 5.2 Government and non-government health expenditure as a proportion of GDP, OECD countries, 2002 144 B.1 Organisational relationships between health and education sectors 162 8.1 Modal shares by freight type 254 8.2 Trends in inter-capital freight land transport 255 8.3 Impact of growth in freight on road traffic and CO2 emissions — business as usual 256 8.4 Projections of metropolitan freight traffic growth 257 8.5 Upgrade traffic levels for various car/truck mixes 257 8.6 Key reliability and availability service characteristics 258 8.7 Total cost comparison 259 8.8 Comparison of NRTC and BTRE heavy vehicle road cost allocations 265 8.9 Avoidable road wear costs and charges — six axle articulated truck 267 8.10 Comparison of access pricing policy regimes 269 8.11 Rail's regulatory regime allows for large access price increases 271 8.12 Impact of growth in freight on road traffic and CO2 emissions — unconstrained rail scenario 272 8.13 Costs of increased capacity and forecast rail share with existing track 273 CONTENTS VII Boxes 1 Advantages and disadvantages of federations 2 2 Some participants on competitive federalism 4 3 Some participants on cooperative federalism 5 4 Problems identified with the current health system 7 2.1 Australia's federation is in good company 25 2.2 The division of powers between the Australian and State Governments 29 2.3 Perspectives on Australia's federal system 31 2.4 What are 'vertical' and 'horizontal' competition? 32 2.5 The Murray-Darling Basin Natural Resource Management Strategy 41 2.6 An overview of the NCP reforms 43 2.7 Summary of the forward agenda proposed by the Productivity Commission as part of its review of NCP 49 4.1 National health priority areas 105 4.2 Changes in clinical practice and the delivery of health services 111 4.3 Primary organisations in New Zealand 121 4.4 Primary care trusts in England 122 4.5 Key elements of an integrated health care system 123 8.1 Access regime comparison — road versus rail 268 8.2 Road and rail have been subject to different investment criteria 270 VIII CONTENTS Acknowledgments The Commission extends its thanks to everyone who participated in the roundtable. Special thanks go to the speakers and authors of the main papers — Peter Anderson, Vince FitzGerald, Ken Henry, Barry Moore, Jonathan Pincus, Andrew Podger, Rod Sims, Andrew Stewart, Cliff Walsh and Tony Wilson — and the discussants — Stephen Duckett, Henry Ergas, John Freebairn and Ross Garnaut. The contributions of the panellists — Geoffrey Brennan, Paul Kelly, John Langoulant and John Roskam — are also gratefully acknowledged. Ian Monday, Jonathan Pincus and Gary Samuels from the Productivity Commission had primary carriage for organising the roundtable and contributed greatly to its success. This volume of proceedings was prepared by Ian Bickerdyke, Rosalie McLachlan and Joanna Abhayaratna under the direction of Ian Monday. Roberta Bausch provided valuable administrative support. The Commission is grateful to them all. ACKNOWLEDGMENTS IX Abbreviations ACAT Aged Care Assessment Team ACCC Australian Competition and Consumer Commission ACCI Australian Chamber of Commerce and Industry ACSQHC Australian Council for Safety and Quality in Health Care ACTU Australian Council of Trade Unions ADRs Australian Design Rules AHC Australian Health Commission AHCAs Australian Health Care Agreements AIHW Australian Institute of Health and Welfare AIPC Australian Institute for Primary Care AIRC Australian Industrial Relations Commission ATC Australian Transport Council ARTC Australian Rail Track Corporation AWAs Australian Workplace Agreements AWU Australian Workers Union BCA Business Council of Australia BTE Bureau of Transport Economics BTRE Bureau of Transport and Regional Economics CoAG Council of Australian Governments DHA Department of Health and Ageing DHAC Department of Health and Aged Care DOTARS Department of Transport and Regional Services DORC Depreciated Optimised Replacement Cost GP General practitioner GDP Gross domestic product EU European Union X ABBREVIATIONS HACC Home and Community Care HFE Horizontal fiscal equalisation IAC Industries