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Someone’s gotta pay

By 2353NM

According to the Coalition government, the ALP’s campaign over the privatisation of Medicare was somewhere between dishonest and outright lies. While it is true that the Coalition has frozen some Medicare rebates and eliminated others, attempted to introduce a $7 co-payment to see a doctor in the 2014 budget and set up a task force to examine the outsourcing of payments to Australians, the Coalition claims that these measures were nothing to do with the privatisation of the Medicare entity. Really, if the payment system was privatised, the Medicare rebate would still appear in your bank account at some point after the doctor’s visit. The election is over and Turnbull has promised not to outsource the payment services of the Medicare entity. We’ll see if his promises have more validity than Abbott’s did over time but at this stage let’s take him at his word.

There is a larger issue here — privatisation. Despite the rhetoric of governments around the world that they are trying to emulate business operations, the prime purpose of government is to provide the services that the society requires and can afford. The ultimate aim of business is, frankly, to make a buck (or pound or euro or rouble) for the owners of the business. The business could be the school-aged boy walking dogs after the homework is done or as large as Wesfarmers, Microsoft or General Motors — the profit margin is what any business is looking for. New walking shoes cost; just like employment of engineers, purchases of inputs to the production process and marketing people.

Ross Gittens observed recently that one of the reasons Turnbull’s government was considering the outsourcing of Medicare payments was:

… the department’s computer system is old and clunky and needing to be replaced — a prospect that always seems to frighten governments, especially those trying to keep their budget deficit low by postponing needed asset replacement.

A large computer system takes a considerable amount of time and money to replace. It’s not like you can go to your local ‘big box’ retailer, pay the money, take it home and plug it in. As Gittens observes:

For instance, one of the ways federal and state governments seek to retain their AAA credit ratings is by using “public/private partnership” agreements to have the borrowing for motorways and other big projects done by some private enterprise. This way, the debt appears on its balance sheet rather than the government’s.

Small problem: hiding the government’s debt in this way ends up being far more costly to taxpayers. The oh-so-holy credit rating agencies turn a blind eye.

So while the government doesn’t have the development and operational costs for the system on its books, it is locked into paying for the development, operation, staffing and depreciation over a period of many years.

In some ways it is like people who are moving into their first home away from their family. Rental of a new refrigerator is sometimes seen as an alternative to the only other affordable option — purchase of a second hand unit where the paint isn’t as shiny, there may be a few dents and a shelf or two might be missing. On the face of it, a few dollars a week is more affordable than a couple of hundred for the second hand one, but sooner or later the rental payments will exceed the cost of both the second hand fridge or even a new one. And that’s where the rental company makes its profit (which for the rental company is the major objective of the entire exercise).

Assuming Gittens is correct, the concept seems to be that a private company develops a computer system to handle the millions of payments that Medicare makes every week. They then get the right to operate the system on behalf of the Australian government for a number of years. While the government doesn’t pay up front for the development of the system (which will take considerable time, resources and intellectual property), included in the monthly payment for the processing of the claims would be the value of the claims made, the operational costs of the system (lights, power, staff, maintenance and so on), a proportion of the development costs as well as a profit for the company that operates the system. Assuming the system is large and complex it would be difficult for the government to change providers at the end of the contract as the initial provider would own the systems, processes and intellectual property associated with the system. If there was a clause to hand the equipment and intellectual property to the government, we’re back at square one with an obsolete computer system that needs to be redeveloped at the end of the contracted period.

A-ha, you say, governments have a lot of clever people who will ensure that they don’t get sucked into a scheme this simple to transfer public money into private profit. Well, they might not. In 1999, Coalition Premier Jeff Kennett privatised the provision of public transport in Victoria. The claim was that the granting of licences to operate trains, trams and buses in Melbourne and across regional Victoria would make the government $28.05 million per year in 2013 and more thereafter. The reality is somewhat different. The Victorian government paid the public transport operators around $2 billion in 2013.

The public elects governments to provide services. A lot of governments around the world provide subsidies to public transport services. Those that support public transport would argue that the subsidy is worth it as there doesn’t need to be as much ground covered in asphalt, space allocated for parking, oil consumed, traffic management costs and so on. Others would suggest that it is a waste of money as there should be more ground covered in asphalt, or they don’t get a direct benefit from the subsidy and so on. Regardless, governments around the world either provide or support public transport in larger towns and cities for the perception of benefit it provides to the communities serviced.

Brisbane’s Airtrain is not subsidised by the Queensland government and from the Brisbane Airport to just south of Toombul Station runs on a track constructed and owned by a private company. The cost for a trip from Brisbane Central Station to the airport is $17.50 one way (peak period on a weekday) with a trip time of 24 minutes. For comparison, a 24-minute trip from Brisbane Central to suburban Geebung, which uses similar rolling stock and the same tracks from near Toombul to the CBD as the Airtrain is a subsidised $4.66 (peak hour with a ‘Gocard’. Airtrain makes a profit on the $17.50 it charges to take an adult to the airport. The operator has to pay for the train (operated by Queensland Rail under contract), maintenance, staff and all the other business expenses. While Queensland Rail may have a different formula for cost recovery on its own services rather than as a contractor to Airtrain, it’s hard to believe that the formula is so vastly different that the $4.66 charged to travel to the delightfully named Geebung is profitable to the operator.

Medicare is also a government service that subsidises Australian residents who need medical attention. While Australians theoretically pay a levy on top of their income tax for the service, not all Australian residents are taxpayers. As Turnbull admitted soon after the election, the ALP’s Medicare campaign was successful because Coalition governments over the years had provided evidence that they were not averse to disadvantaging those without private health insurance on top of the universal ‘free’ Medicare coverage.

Should the outsourcing of Medicare rebates go ahead (and Turnbull reneges on a promise) the Australian public will again be accepting the conversion of public money into private profits for a considerable period of time into the future. While it’s a cheap shot to suggest that this process is broadly supported by the Coalition and its business backers, the rest of us are paying considerably more than we should for the provision of a service the Australian public demands for years into the future.

Problems with outsourcing are not solely related to computer systems. Apart from the failure of outsourcing of Victorian public transport discussed above there are the considerable costs that the Tasmanian, Australian and New Zealand governments incurred to restore the Tasmanian and New Zealand rail freight networks after the sale and operation of the networks by private enterprise. ABC Learning is an example of what happens when a private service provider (childcare in this case), reliant on a business model involving considerable government subsidies and taking the place of the various government and non-profit service providers, fails. The current problems with a number of private providers permitted to replace the state-owned vocational education and training providers is fast becoming a case in point where the ‘make a buck’ ethos outweighed the requirement for appropriate costs and services to ensure the education of a considerable number of young Australians in trades, which will potentially lead to those caught up in the scam not being able to repay training debt (they can’t get a job if the training wasn’t delivered to the appropriate level) and for the rest of us, a shortage of qualified tradespeople for the next few decades leading to poor service and higher prices.

Governments argue that passing the risk and potential for profit to private enterprise is more efficient — as well as running government like a business. The problem here is that government is not a business, as a government should be providing services, not making a buck. For a start, one of the main reasons that business will contract out ‘non-essential’ services (transport and refund payments to name two) is that the cost of the service is an operational cost, written off the cost of producing their major products and therefore tax deductable. The cost of new assets (such as new computer systems) is deemed under taxation rules for business to be a capital expense and depreciated (the cost is recouped) over a number of years. There is a debt on the financial books of the business for the cost of the capital asset until it is depreciated in full, which is considered to be a poor leverage of available capital. The fundamental problem with the logic is that governments do not pay income tax — and therefore don’t need to maximise their operational expenses or leverage their capital.

It is also a fallacy that the private sector is always able to do the work cheaper over the long term (look at the Tasmanian and New Zealand rail systems where government intervention and rehabilitation was required after only a few years). Private enterprise has to do the work paying similar rates of pay and cost of overheads effectively for less to ensure they make a buck and will probably take shortcuts to achieve this apparently contradictory task.

Governments raise taxes and charges to facilitate the services they provide. In the case of state governments (which do not issue currency), they have to have a conversation around raising taxes to pay for the requirements of the society that they are supposed to be supporting. The federal government is in a slightly better position in that it can issue currency: however, this is not politically attractive at present.

If ‘big ticket’ items, such as the computer system owned by Department of Human Services is obsolete, one has to ask how many other major government assets across Australia are well beyond their use by date and there are no funds available to replace them?

In 1983, then Prime Minister Hawke called employers, unions, non-profit groups and state governments into a room and explained the need to restructure our economy. As a result, some taxes were increased, there was wage restraint and employees and governments co-operated to work together for the benefit of all. Hawke remained prime minister for nearly a decade.

If Turnbull is the smart politician he claims to be, maybe he should sit down and have the conversation with Australia about why there is a need to find a different way to fund the services required by our society (in part due to the extravagance of the Howard/Costello years) and ensure that Australia can continue to support these services into the future. Who knows business and employees sitting in the same room as government may come up with a better plan than cutting services and converting public funds to private profit. It worked for Hawke.

What do you think?

Would a Turnbull Economic Summit be as successful as the Hawke summit?

Would the Coalition’s conservatives and big business co-operate with a summit?


This article was originally published on The Political Sword

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  1. Steve Laing - makeourvoiceheard.com

    When someone can explain to me how the costs associated with having shops in shopping centres improves health outcomes and makes it more efficient for patients, I’ll continue to be cynical about medical insurance and the businesses that provide it…

  2. diannaart

    Steve I applaud that question. Rents and other overheads are very high in shopping centres and why would our government wish to encourage people into the labyrinth that has become the usual shopping experience for many?

  3. Carol Taylor

    In order to have an Economic Summit that was worth more than the time of day, Turnbull would have to have some authority within his own party. To date we have had Turnbull’s ‘everthing on the table’ reduced to poverty rations as soon as there was even a modest amount of controversy. So why would Turnbull risk a summit, only to have himself once again look weak and ineffectual? I would like him to try, but don’t hold much hope.

  4. mark delmege

    credit agencies serve the whole rotten global robber baron elite – they are not value neutral.

  5. Phil

    The conservatives are not open to change – they have an ideology and they will not alter course. Turnbull will continue as the political failure he has always been. We are in for three years of abject stupidity, neoliberal chicanery, and pointless, degrading national conversation.

    The LNP has no goal other than to cream off the system for itself and its backers whilst demeaning and diminishing those those they consider to be undeserving, that is, the majority of us.

    Australian society and culture is in a holding pattern for the remainder of this government’s tenure – may it end sooner than later.

  6. Pauline Westwood

    Actually, although the task force may be disbanded, but in April the government commissioned Productivity Commission to undertake an inquiry into introducing competition into all human services, including health and education. The main page is at http://www.pc.gov.au/inquiries/current/human-services

    Pauline Westwood

  7. Glenn K

    totally agree with you Phil!
    …and a great article which clearly explains the logic behind the ALP’s quite accurate description of the privatisation threat to Medicare. I waited and waited for ANY media source to validate what the ALP were saying – none did, they all followed the LNP’s line about it being a lie.
    No wonder we get this mob in power….

  8. Jack Russell

    Whatever is on the IPA list of instructions is what they will do. So, if you’re familiar with the IPA wish list, then you’ve known what’s coming since 2013. Their internal Dirt File Department doesn’t permit deviation from The Plan.

  9. 2353

    @Steve Laing – I agree, that’s why I am with a health fund who’s only office is over a thousand km from my place. The internet, mobile phone app and even the good ole’ 1800 number works well, the HICAPS system handles most refunds on the spot – and the refund is higher as they don’t have shiny offices in shopping centres.

    @Carol Taylor & @ Phil – Sadly, you’re both probably right, Turnbull doesn’t have the ticker to leave the reservation, however a summit would be a way to break the deadlock.

  10. RPerssons

    Paying nearly $5000 for private health insurance-if the gap on everything wasn’t so huge
    I would at least think it was worth the cost.when all I get towards prescription glasses is $180 and gap $892.Dental as bad. Physio pays $23 and after a year being treated with frozen shoulder that has become very expensive. Add prescription tabs and I’m upwards of another $4500. Thats with no admissions to hospital. Now I have just found out cannot claim out of pocket medical expensives on our tax return if over $2000 anymore.
    The biggest thing Govt could do to make Private Health more relevant to more is t0 ensure Private Health funds actually cover what they say they do. Then we might not complain so much if the 30%rebate disappears and that govt money used for Medicare where it rightfully belongs.

  11. Stephen Brailey

    A fairly balanced article that points out some of the risk but fails to reinforce that privatisation is the tool for so called conservatives to reduce government by feeding it piece by piece to business. This process has all but destroyed country Australia and with time reduce government to an largely ineffectual constitutional force with no power to effect the economy. Then we will have the same huge cyclical depressions of past centuries with no social safety net to catch us. The rich will see themselves and their loved ones healthy and educated whilel the rest of us will fight for the scraps. Get set to turn the clock back 100 years!

  12. michael lacey

    Conservatives have hated compulsory superannuation and Medicare since their inception. They will play this smoke a mirrors game all the time!

  13. Möbius Ecko

    Pitfalls of privatisation: ideologues will repeat mistakes

    Yet Stephen Brailey on the whole privatisation doesn’t reduce the size of government and in some instances increases it. It’s often the case the Public Servants, especially senior ones, sacked because of a privatisation go on to work for the private company and their costs are put back on the public in the way of fees and charges.

    Then there’s the mass of ever growing and more expensive consultants that are used by governments to plug the gap of the government expertise lost in the privatisation. And of course the ministers responsible for the portfolio to do with the privatised entity don’t take pay cuts or reduce their staff, indeed using the oversight of that private sector as an excuse they increase their personal staff and consultants.

    If privatisation did reduce government then the Howard and Abbott governments would have been smaller than the Rudd/Gillard one, and they weren’t, they were bigger, with Howard’s being the biggest and most costly government.

    Already both the Turnbull government and Shorten opposition have grown, in both these cases to appease factions, but I guarantee they won’t shrink in the future, even if in the extremely unlikely event Turnbull gets the States and Commonwealth to privatise everything it can.

  14. diannaart

    @Möbius Ecko

    Well stated

    If privatisation did reduce government then the Howard and Abbott governments would have been smaller than the Rudd/Gillard one, and they weren’t, they were bigger, with Howard’s being the biggest and most costly government.

    Well worth recalling in a future debate with some neo-con nutjob.

    Privatisation: not the biggest con enacted upon the public, but among the most pernicious.

  15. Ross

    Privatisation is the biggest con ever enacted on the public. No privatisation of of any public asset anywhere anytime has ever benefited the public. The current political elite, and I use that term in its loosest possible form, have thrown up their hands and admitted they are not up to the task of overseeing the running of institutions set up by our forebears for public, not private, benefit. Selling to the private sector also has the added advantage of a board position for later on, a nice little money earner for those on the inside. Wink, wink, nudge, nudge, say no more.
    What’s that hoary old chestnut, government of the people by the people for the people.

  16. Gangey1959

    ”While it is true that the Coalition has frozen some Medicare rebates and eliminated others, attempted to introduce a $7 co-payment to see a doctor in the 2014 budget and set up a task force to examine the outsourcing of payments to Australians, the Coalition claims that these measures were nothing to do with the privatisation of the Medicare entity.”…………………
    This sounds scarily similar to Ferovial’s comments in the Guardian earlier today re their running of the offshore detention centers.
    ”The company also argued it does not “run” the camps, but merely provides a considerable number of services,”
    It’s a bit like a pilot telling us as we buckle up that ”Im not flying this thing, I am merely the coordinator of a sequence of preset events that we all deeply desire will coincide to deliver us to the correct destination, or at least back to the ground alive. Enjoy your flight, the aircrew will be along shortly with the drinks trolley. I might leave you some if you are quiet before departure.”
    At some point the government, particularly the one WITHOUT a mandate has to admit that they were out bullshitted, and just shut the f*ck up. Or you could go back to the polls again turdbott. I dare you. On that note, can We the Voter get back from georgie brandstupid the difference in pay between federal Attorney Moron and a Vote Counter ?(the position he is currently filling somewhere in Queensland)
    Back on topic, is there that much difference between the mad monk’s ”carbon tax” raising the cost of electricity, $100 roasts, and ”mediscare”, apart from the fact that Medicare has a REALLY high probability of being privatised.
    I hate it when they treat me like I’m as dumb as they prove themselves to be.

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