Price signals work, but in a dumb way

YES, price signals are a well-known economic phenomenon. You put up the price and demand falls. People are discouraged. This government has imposed, in the words of Prime Minister Tony Abbott this week, a price signal on visiting the doctor. It also wants to impose a price signal on university degrees through higher fees.

So the message, or “signal”, is do not stay healthy and do not get more education.

And yet, the government has removed a price signal on carbon emissions. So the message is keep burning the fossil fuels.

These are really dumb price signals. And they are not in the national interest.

The earlier you detect disease the better. If you discourage people from visiting a doctor, they will wait until it becomes impossible to go on without medical help. So they will present at over-stretched hospitals. Disease diagnosed later is harder to treat. Ultimately, it will cost the nation more.

Equally, the better educated people are, the more productive, competitive and fulfilled they usually become.

The more carbon we emit, the more we will be beaten up by other nations for not pulling our weight — for being leaners, in the words of Treasurer Joe Hockey. We will get trade sanctions and generally be seen as pariahs unless we do our share of reducing carbon emissions.

Further, by not giving a price signal against carbon and a price signal for renewables, Australia looks like missing out on a booming industry. Solar panels are getting ever more efficient and cheaper. Indeed, Australia’s Professor Martin Green from the University of NSW has just broken the record for solar-cell efficiency. But no doubt some other country with a more renewable-friendly government will develop it and make the profit.

The cost of centralised coal- and gas-fired power with poles and lines is more likely to rise than fall. Solar and battery technology, on the other hand, will get dramatically cheaper and better — in the same way that other new technologies have: mobile phones, digital music players, computers, TVs and so on.

So, that’s the price signal. What about the fairness signal?

Abbott said, “Whether the patient faces a price signal is the choice of the doctor.”

The policy is unfair to doctors. GPs are strained enough as it is. Under the new policy GPs are supposed to make financial assessments of individual patients. Alternatively, they can impose the $5 on all non-concession patients and carry the consequent opprobrium.

The tertiary education policy also fails the fairness test. The higher interest on student loans is profiteering because governments can borrow at lower interest rates than they want to charge students.

The generous tax breaks to the mining industry, the abolition of the carbon tax and cuts to renewable energy are unfair because they will saddle families with higher energy bills in the future because we will not have developed our own renewable-energy industry.

Further, most of the tax breaks are going indirectly to foreign shareholders.

This week’s GP co-payment revision was like a rugby scrum on a wet day. A big huddle down and suddenly the ball pops out.

There was no consultation with doctors or health professionals. No thought-out position on long-term consequences. Just an ideological war to wind back as much of Medicare as they think the electorate will tolerate.

Then we have the inconsistencies. The Government was supposed to be driven by fixing the budget position as a first priority. But it has made it worse by abolishing the carbon and mining taxes. And the money from the GP co-payment is being squandered on a medical research fund instead of fixing the bottom line.

Nothing is being done about generous superannuation tax breaks.

The only consistency here is policy by lobby group.

DOT DOT DOT

EVERY now and then the usual government process of appointing a person who could be trusted to recommend all the right things (from the government’s perspective whether Coalition or Labor) goes deliciously wrong.

And so it was with the inquiry into the financial system headed by David Murray.

Murray was chief executive of the Commonwealth Bank from 1992 to 2005, so it was probably thought could be relied upon to give the government’s mates in the financial services sector an easy ride.

Ho, ho, ho, not a bit of it.

Having been at the top of the banking sector and presided over moving the Commonwealth Bank from a partly publicly owned bank into a great big integrated financial services business, Murray new where all the skeletons were buried.

He obviously knew all the weaknesses in the system and said so.

He wants tougher regulation, unlike former Assistant Treasurer and former NAB top executive Arthur Sinodinos, who upon joining the Abbott Government set about removing protections the previous Labor Government had proposed to tighten up the financial services system.

Finance Minister Mathias Corman has also been keen on giving the financial-services an easier ride.

It seems to me that Murray has more credibility than either Sinodinos or Corman and the Government should get on with putting his recommendations into law.
CRISPIN HULL
The article first appeared in The Canberra Times on 13 December 2014.