VCOSS Submission

Productivity Commission Review of
National Competition Policy Reforms

 
January 2004

CONTENTS

Overview	…………………………………………………………………………..	2

Introduction	……………………………………………………………………	3

Public Interest Test and Equity Considerations	………………………….		4

Sustainability	……………………………………………………………………	5

Inadequate measures of the Impact of NCP and related reforms	……...	6

Human Services Reform and Community Service Obligations	………	5

Health System Reform	………………………………………………………	8

Rural and Regional Impacts	……………………………………………….	9

Transport	…………………………………………………………………………..	10

Utilities – Energy Reform	………………………………………………………	10

References	…………………………………………………………………….	12

Attachment A – Rural and Regional Impacts

Attachment B – Utilities: Energy Reforms

Overview
The Victorian Council of Social Service (VCOSS) is the peak body of the social and community sector in Victoria. VCOSS works to ensure that all Victorians have access to and a fair share of the community’s resources and services, through advocating for the development of a sustainable, fair and equitable society.

VCOSS members reflect a wide diversity, with members ranging from large charities, sector peak organisations, small community services, advocacy groups and individuals in social policy debates.
VCOSS Vision
The VCOSS vision is that we are a society where people are interdependent of one another and committed to living out the principles of equity and justice. We respect the land we live in and recognise the Indigenous custodians of the country. We have reconciled all injustices with Indigenous Australians.
Our vision is one where social well being is a national priority, and:
•	Ensures everyone has access to and a fair share of the community’s resources and services;
•	Involves all people as equals, without discrimination; and
•	Values and encourages people’s participation in decision making about their own lives and their community.

This is consistent with Article 25 (1) of the 1948 Universal Declaration on Human Rights which states:
“Everyone has the right to a standard of living adequate for the health and wellbeing of [her or] himself and of [her or] his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood.”

Introduction
VCOSS welcomes the Productivity Commission’s Review of National Competition Policy Reforms, believing that the Review provides an important opportunity to develop a model that incorporates a more satisfying concept of the public interest text, and which is based on a greater regard for the diversity of organisations that contribute together with governments in the promotion and support of the wellbeing of society.

VCOSS shares the view of ACOSS and other state COSSs that the views and experiences of the human services sector are imperative to inquiries such as this current Review of National Competition Policy (NCP) Reforms, to ensure that a more holistic picture is provided, particularly in relation to those who experience socioeconomic disadvantage. Past experience has shown that policy change frequently impacts disproportionately on those who experience socioeconomic disadvantage, so therefore it is critical that their interests are represented. VCOSS endorses the submission of the Australian Council of Social Service (ACOSS).

VCOSS notes its concern regarding the short timeframe for making submissions. This has compromised both the ability of many sector and academic organisations to contribute to the Review, and the depth of submissions by those organisations that have made submissions. Given the extent of the social, economic and environmental impacts of NCP, VCOSS believes the Productivity Commission should be proactive in ensuring a more thorough process. 

Given the timeframe restrictions, VCOSS has limited this submission to a few key areas that VCOSS believes require specific attention as part of the Commission’s Review of National Competition Policy Reforms:
•	Public Interest Test, Equity Considerations and Sustainability,
•	Sustainability – need for a broader definition incorporating social, environmental, cultural and economic sustainability equally
•	Inadequate measure the impacts of National Competition Policy and related reforms
•	Community Service Obligations
•	Human Services Reform & Community Service Obligations 
•	Health System Reform
•	Utilities – Energy Reform
•	Rural and Regional Impacts
•	Transport 
Given the experience in Victoria, VCOSS has made a significant contribution around the areas of Utilities and Rural and Regional Impacts.

VCOSS believes that the costs and benefits of NCP across economic, social, cultural and environmental areas, have not been transparently demonstrated. VCOSS notes that alongside the aggregate economic growth that has occurred since NCP was introduced, inequality has grown. VCOSS advocates that equal emphasis must be given to economic, social, cultural and environmental indicators to better ensure that the wellbeing of all in the community, particularly those on low incomes and who experience disadvantage.

Alongside this, greater acknowledgement of the significant contribution non-government community and social sector organisations make to social and economic growth is required. These organisations have a major role in the delivery of human services, contribute to strengthening communities, and are an important part of the economy – to the value of $? million in Victoria alone.

Public Interest Test & Equity Considerations 
Public Interest Test
VCOSS supports the view in the report that an effective public interest is essential to secure beneficial reform as well as community acceptance of the reform process. Now is clerarly the time tio make the public interest test both comprehensive and meaningful. VCOSS advocates that it is necessary to redefine the way in which the public interest test is conceived and ensure it incorporates an evidenced-based approach. 

VCOSS endorses the view that public interest tests are integral part of NCP so as to help ensure that the benefits of particular reforms outweigh the costs. However VCOSS does not believe the Commission has fully acknowledged in the report the need for a broader range of indicators when applying the public interest test. VCOSS advocates that a new framework of contestability should be developed that has a greater regard for outcomes other than economic efficiency. Alongside economic growth, other indicators, such as contributions to social, environmental and cultural development should be incorporated.

It is also important that the public interest test be consistently applied across governments. As noted by the Senate Select Committee, there has been “inconsistent application and interpretation of the public interest test with its domination by economic assessment ahead of the harder-to-measure intangible attributes in the social and environment areas”. To redress this domination, VCOSS directs the Commission to the significant body of work around social and economic indicators that has been developed over the past five to ten years, including the recent Measuring Australia’s Progress work of the Australian Bureau of Statistics.

The public interest test must also encompass a broader definition of sustainability, and include the importance of a proactive role for government.

Equity Considerations
The Commission’s report does not deal substantially with equity considerations in relation to NCP, and appears to have ignored much of the recent research documenting key social impacts of NCP.

The view of the Commission that other policies, such as the social security net and the employment services network, will ameliorate adverse impacts suggests that NCP is a flawed policy. Any public policy that requires other policies to ameliorate its impact can be argued to be fundamentally flawed. Public policy should be designed and implemented in such a way that ensures it achieves positive outcomes across economic, social, environmental and cultural indicators. Equity considerations should be included at the core of NCP – it should not be assumed that other public policies will redress any negative outcomes.

Any reconceptualisation of the public interest must take account of the concepts of distributive justice are critical, which relates to fairness in the distribution of goods.  Residual markets are not only unacceptable in social justice terms, but are also unacceptable in relation to the broader economic and social impacts on the whole community.

Sustainability
VCOSS advocates that any new policy must encompass a broader definition of sustainability that incorporates social, environmental, cultural in addition to economic sustainability and efficiency, and which promotes social inclusion of all citizens. The primary focus of National Competition Policy is currently economic outcomes, with minimal, if any, consideration given to social, environmental and cultural factors.  Any new model must be multi-dimensional, with equal consideration given to each of social, environmental, cultural and economic factors. 

“If growth does not provide properly for the well-being of all Australians, if it does not contribute to the solution of existing social, cultural and environmental problems, if it increases disadvantage, produces new inequities, and further despoils the environment, then it not only causes pain and hardship to those affected but also undermines the fabric of the society and the future potential of the economy.”

VCOSS questions the Commission’s assertion that “costs experienced by some individuals or communities are not sufficient reason to forego reforms that are of substantial net benefit to the community as a whole.” (p.79). As noted above, it is critical that the indicators used to assess ‘net benefit’ are broadened beyond the economic. VCOSS also advocates that certain indicators, such as those assessing impacts on rural and regional communities be privileged over other indicators. A detailed outline of why this is important is provided in the section on Rural and Regional communities in this submission, using the example of the reforms in the LaTrobe Valley, Victoria.

A broader definition of sustainability should be incorporated across all aspects of NCP, but particularly in the Public Interest Test.

Inadequate measures of the impact of NCP & related reforms
The Commission’s report suggests that NCP has significantly contributed to the economic growth experienced in Australia, and that therefore NCP has made a positive contribution to the wellbeing of the Australian community. However, as also noted by WACOSS, it is well established that aggregate growth alone is not sufficiently indicative of community wellbeing. 
Given that a range of social indicators suggest that poverty levels and levels of inequality have risen during this period of aggregate economic growth, it is not true to say that the broader wellbeing of the community has increased. The snapshots below of such indicators support this:
SNAPSHOTS OF POVERTY & INEQUALITY IN AUSTRALIA
•	Poverty and income inequality rose in the 1990s - while incomes of the top one-fifth of households increased by almost 14 per cent, the incomes of the bottom one-fifth of households grew by only 1.5%.  The incomes of the middle one-fifth grew by 10.2%.
•	2.4 million, or 13.3% of Australians do not have enough money to meet basic, everyday needs such as housing, clothing and food.
•	More than 30,000 working households went without meals in 2000 due to money shortages; almost 170,000 could not pay utility bills and 30,000 could not afford to heat their homes
•	the top 20% of households have 44% of all private income, while the bottom 20% had just 3%.
•	one in five low-paid workers now lives in a low income family.
•	41,639 Victorians are on the public housing waiting list due to lack of available stock to meet demand
•	More than 90,000 Australians face ‘housing stress’, spending more than half their income on rent
•	Over 702,000 Australian households, or 10%, spend more than 30% of their income on housing
•	Waiting lists for public dental services are almost two years long; in some regional centres there simply are no public dentists
•	Between 1993-94 and 1998/99: the approximate 2.5 million Australians in the lowest quintile of household incomes received an average weekly increase of $9, a 5% increase to $160/week.  In contrast, the top 20% of income earners received a weekly increase of $343, a 23.4% increase to $1,996/week
•	30% of households have a combined annual income of less than $20,000
•	there has been a sharp increase in poverty levels among 15-18 year olds who have left the parental home or who are still living at home but are not in full-time study.

VCOSS shares the concern of ACOSS about the lack of government research and evaluation regarding the socioeconomic impacts of NCP. Greater attention is required on the socioeconomic impacts of NCP, given that the overall aim of NCP is to grow a productive society to improve the wellbeing of the Australian community.

Clearly there are difficulties associated with effectively measuring the costs and benefits of NCP. These difficulties have been compounded by the current emphasis within NCP on economic indicators. Short-term economically-focused methods of determining outcomes and measuring progress are not adequate, and do not reflect, the real level of community well-being.  VCOSS advocates that there is a clear need for integrated long-term thinking and planning, which recognises the interdependence between social, environmental and economic challenges facing our community.

Human Services Reform & Community Service Obligations
VCOSS strongly supports the pursuit of greater equity, efficiency and effectiveness in the provision of human services, however, similarly to ACOSS, WACOSS and NCOSS, VCOSS is not convinced that competition related reforms would deliver these outcomes in human services.

VCOSS endorses the view of ACOSS that the first and overriding objective of human service reform should be access to good quality human services by all who need them. The current inequities in access to health care must be addressed as part of any reforms.

VCOSS does concur with the Commission that “the importance of most human services extends beyond their economic significance. [That they] are not homogenous products to be sold at the cheapest possible process, but rather deal with the physical and emotional wellbeing of individuals … [and that these] social objectives add to, rather than detract from, the need for the community to receive ‘best value for money’.”(p.243). VCOSS also welcomed the acknowledgement by the Commission that human services are not ‘normal’ marketable products. VCOSS agrees that these objectives add to rather than detract from the need for the community to receive best value for money. However, like our New South Wales colleague, NCOSS, VCOSS shares the view that funding systems and funding adequacy are central to the quality of services and the achievement of outcomes. The drive by governments to achieve increased efficiencies and effectives in human services, does not absolve governments from responsibility for providing sufficient funding.

VCOSS questions the Commission’s argument that competitive tendering and competition for the market through ‘purchase-provider’ arrangements is likely to bring “efficiency and effectiveness benefits for the community” (p.252), noting that no evidence is provided in the report to support this assertion. The experience in Victoria, where the State Government strictly specified the services to be supplied and providers competed solely on price for the delivery of those services, highlights that extreme caution should be applied when considering the application of competition related reforms to human services. The report, Turning People into Commodities, documents some of the impacts of competition related reforms in Victoria, particularly around impacts on continuity and quality of care, and lack of coordination and collaboration between agencies in the provision of services. 

VCOSS does not support the argument of the Commission regarding the ‘right criteria’ for the application of purchase provider models. VCOSS endorses the view of NCOSS that this set of criteria is rarely applicable to complex human service delivery, particularly amongst the most disadvantaged population groups and communities. The emphasis should not solely be on the most efficient price or the most efficient purchase-provider contract arrangement – there are a range of other equally important factors which are going to result in successful outcomes for both individuals and the broader community.

The focus should be around a broader perspective regarding what will deliver the best outcomes for the community across a range of indicators – social, economic, cultural and environmental. The Victorian experience of purchaser – provider models saw an intensification of a silo based approach to delivery of community services, with competition encouraged between service providers. As noted above, this directly worked against the need for collaboration, which is now recognised as paramount in delivering positive outcomes for the community. VCOSS believes that competition or any kind of competition policy directly works against principles of collaboration, which the human services sector is actively trying to grow and engage with. Further, exposing the human services sector to full competition runs the risk of negating the distinctive role as social justice organisations 

As noted in our presentation to the Melbourne Public Hearing, VCOSS believes there are alternative models that should be explored. For example, with the current partnership arrangements between the Victorian Department of Human Services (DHS) and the funded sector here in Victoria, there has been some particularly interesting highlight projects around open book contracts and open book collaborations that have occurred between DHS and a range of funded organisations. Eastern Region Homelessness Project would be a good example, where collaboration and client outcomes have been enhanced dramatically through
open book approaches, so that people can see what amount of resource each respective organisation can contribute to a project. The model has not been solely about government resources, but rather a range of non-government community sector organisations' resources. Through having a collaborative approach, which incorporates an open book approach to budgeting, rather than a more traditional, "I'll make my profit margin and you make yours," it has had a measurable impact on the success of that project and on the success of client outcomes. VCOSS advocates that the Commission explore the range of interesting alternative models that are emerging and which are beginning to demonstrate the positive impacts of a less traditionally competitive approach.

Community Service Obligations
VCOSS also advocates that the Commission should further explore its acknowledgement that “increases in funding for community service obligations (CSOs) have not kept up with price increases” (p.85). VCOSS supports the view of the Commission that “funding systems and funding adequacy are central to the quality of services and the achievement of outcomes … [and that the] scope to achieve better value for money in service delivery does not absolve governments form responsibility for providing sufficient funding to meet reasonable community needs.” (p.244) VCOSS strongly endorses the need for a “clear linkage between desired outcomes and funding levels” to address “the risk that service quality and/or accessibility becomes a ‘residual balancing item’” (p.244).

Clearly, a key question to be considered relates to the outcomes and effectiveness of community service obligations. It is regrettable that the Commission’s Report does not canvass this issue of CSOs effectiveness. VCOSS notes that CSOs effectiveness does not solely related to funding, it is about the actual effectiveness and outcomes achieved by human services, and looking at how processes can signal indicators and outcome targets, not just quantum of funding. As noted in the previous VCOSS submission, when markets are viewed as the decisive means of redistribution with a minimal role for government, then social or distributive justice becomes disparaged, or is pushed down the priority list. 

We agree that these objectives add to rather than detract from the need for the community to receive best value for money. However, like NCOSS, VCOSS shares the view that funding systems and funding adequacy are central to the quality of services and the achievement of outcomes. So in terms of achieving better value for money, it doesn't absolve governments from responsibility for providing sufficient funding.

Health System Reform
VCOSS agrees that reform of the health system is an important national priority, and shares the perspective of ACOSS that any reform of the health system not be considered in isolation from other key human services, such as community and aged care and mental health services.

VCOSS endorses the recommendation in the Commission’s Report for an independent national review the health system, but similarly to ACOSS, would not support a Hilmer-type review which was very narrowly constituted in terms of its members and their outlook on the issues at hand. VCOSS endorses the proposal of ACOSS for an independent review structure similar to that of the Royal Commisssion on the Future of Health Care in Canada (the ‘Romanow Commission’), and that COAG is a suitable forum for coordinated national reform re health).

VCOSS supports the view of the Commission that there is much scope for efficiency gains in the health system. There are also potential benefits related to increased innovation and good practice in health care delivery. There are however significant potential costs: The Commission’s report outlines that any competition policy reforms would need to be introduced carefully and with consideration, however there is no discussion regarding how the introduction would be monitored and who would do so. It is important that the Commission note that health is central to both individual and broader community social and economic wellbeing. Therefore, any measures of the effectiveness of health services much include both social and economic indicators, as well as both quantitative and qualitative measures to fully reflect the outcomes achieved by health services. 

As noted at the Melbourne Public Hearing, VCOSS believes that any review and subsequent reforms of the health system must move beyond the acute health system. It is critical that all governments move to developing ways of structuring and planning for all aspects of the health system, looking at health care occurring along a continuum – health does not solely relate to hospitals, and incorporating a social model of health rather than currently where a medical model is dominant.

VCOSS strongly endorses the view of ACOSS that a key priority of any reforms should be to address current inequalities in the health system. VCOSS also supports the World Health Organisation (WHO) concept of new universalism noted by ACOSS. A new universalism recognises governments’ limits but retains government responsibility for the leadership and financing of health systems. This approach recognises that health is a fundamental human right. The four features of the WHO new universalism are:

1. Membership is defined to include the entire population
Health coverage is compulsory. Whether this is defined by citizenship or residence, the purpose is to ensure that the population covered is defined inclusively.

2. Universal coverage means coverage for all, not coverage of everything.
A core benefit package has to be clearly defined taking into account the resources available and the cost of priority interventions. This also requires an assessment of the services and inputs for which individuals are able and willing to pay out of their own pockets, and the political feasibility of various choices. Lower priority services will only be available for payment.

3. Provider payment is not made by the patient at the time he or she uses the health service.
Health care always has to be paid for but the way it is paid for makes a major difference to who gets care and to overall levels of health. 'Out-of-pocket payments penalise the cash poor: those who work outside the cash economy, or who have only seasonal or occasional cash income, or who are unemployed. Heavy reliance
on out-of-pocket payment sets the wrong incentives for both users and providers, and results in an inequitable financing burden and barriers to access for the poorest. Prepayment allows a wide range of incentive-setting methods for the efficient purchasing of services.'

4. Services may be offered by providers of all types.
Ownership status does not matter. A stronger purchaser setting standard rates of remuneration and enforcing a common set of quality and utilisation regulations will enable the most efficient provider of services to flourish. Such arrangements will allow the very large numbers of private providers…to be brought within a structured but pluralistic health care system, benefiting from its resources and subject to sanction and regulation by professional and public bodies.

Regional and rural impacts
VCOSS welcomes the Commission’s acknowledgement that the early effects of NCP “have favoured metropolitan areas more than rural and regional areas” (p.91). VCOSS does not support the view that negative impacts in particular rural and regional areas should be viewed as acceptable if there are “net benefits to the nation over the medium term” (p.90). As noted in our presentation to the Melbourne Public Hearing, it is the view of VCOSS that there are clearly issues with the current public interest test, both in terms of how it is currently conceived and applied (see earlier section on Public Interest Test and Equity Considerations).

In this section (see detailed analysis in Attachment A), VCOSS assesses regional and rural impacts issuing from NCP and related reforms in the electricity sector.  In particular, we address the representation of regional communities, particularly Gippsland, Victoria, within concepts of  ‘the public interest’ and relate this to the ability of regions to either affect reform of NCP reducing its impacts on them and/or to attract appropriate ‘transitional assistance’.

Transport
VCOSS supports the view of the Commission that Australia has a long way to go to achieve a transport system that encourages an efficient mix of transport modes.

The current inefficiency is particularly evident in modal share between public and private passenger transport where substantial subsidies exist that privilege private transport. Between 1975 and 1998, the Federal Government spent $28 on roads for every dollar spent on public transport (PT). State governments also spend relatively more on capital for roads than for PT. This imbalance creates significant costs to the community in congestion, pollution, greenhouse gas emissions and traffic accidents. 

As the cost of petrol continues to escalate - and international business and environment commentators warn of a three-fold increase within 8-10 years – the imbalance of funding between public and private modes will have more serious economic consequences as labor and freight mobility will be curtailed. VCOSS advocates that any NCP reforms should encourage subsidies to be distributed to advance sustainability outcomes.

The Commissions report argues that additional nationally coordinated reform frameworks should be developed for freight and passenger transport. VCOSS notes that it should be recognised that there are potentially greater benefits in cooperation between transport modes such as bus and rail to enable efficient multi-modal journeys than in competition between modes. It should also be recognised that passenger public transport is essential economic and social infrastructure that provides mobility for people to access employment, social interaction and community services. The viability of communities may be undermined where services are unavailable – in particular where industries employ young apprentices, or have large numbers of aged members.

VCOSS advocates that further competition reform should focus on competition to reduce cost and incentives to improve performance, but leave governments in control of planning and organising public transport services and setting affordable fares.

Utilities – Energy reform
The Commission’s report notes that overall the benefits of NCP to domestic users has been inconsistent and in many cases resulted in increased, not reduced costs. Indeed, NCP has had some significantly negative impacts on those on low incomes, particularly in the area of the provision of electricity.

The Commission’s report argues that energy and water remain priorities for continued reform within a nationally coordinated framework, and that CoAG has already mapped out new reforms in these areas, which should be implemented, but other changes are also required. VCOSS views that there should be no further reform across the utilities area until redistributive mechanisms and accountability mechanisms are improved and finalised.

In this section on electricity reform (see detailed analysis in Attachment B) it will be argued that market based supply of electricity to households is highly problematic and the likelihood of market failure high. Far too much emphasis, under national competition policy, has been placed on ensuring competing suppliers without regard to demand-side characteristics, and the balance of power between the demand-side and the supply-side of industries. De-regulated essential service markets are a new but the precedents that exist point to economically inefficient outcomes and the exacerbation of inequality. 

The experience of electricity reform in Victoria, despite the essentiality of this service, is one in which little or no use was made of the public interest test. It is hoped that the data and information provided in Attachment B may prompt the establishment of a process in which the outcomes of reform to date can be critically examined according to the kinds of criteria set out in the public interest test.

Endotes - References