tag:theconversation.com,2011:/global/topics/user-pays-9598/articlesuser pays – The Conversation2022-06-30T18:44:46Ztag:theconversation.com,2011:article/1856632022-06-30T18:44:46Z2022-06-30T18:44:46ZAir traffic control funding model ravaged by pandemic as industry struggles to recover<figure><img src="https://images.theconversation.com/files/471233/original/file-20220627-14-u2wv8a.jpg?ixlib=rb-1.1.0&rect=0%2C233%2C6000%2C3727&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Airlines experienced their worst year on record in 2020, with passenger numbers down by 60 per cent compared to 2019.</span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Darryl Dyck</span></span></figcaption></figure><p>Commercial aviation is critical to the global economy. In 2019, it supported more than <a href="https://www.icao.int/sustainability/Documents/AVIATION-BENEFITS-2019-web.pdf">65 million jobs</a> and had a global economic impact of US$2.7 trillion. The COVID-19 pandemic has been unlike any crisis, both in terms of depth and duration, and damaged the aviation industry more than most sectors. </p>
<p>The global economy contracted by more than three per cent in 2020 — more than enough to cause a severe decline in air transport. The economic downturn was <a href="https://www.washingtonpost.com/graphics/2020/business/coronavirus-airline-industry-collapse/">compounded by the closure of international borders and strict quarantine procedures</a> imposed by governments around the world. </p>
<p>As a result, airlines experienced their worst year on record in 2020, with passenger numbers down by <a href="https://www.icao.int/sustainability/Documents/Covid-19/ICAO_coronavirus_Econ_Impact.pdf">60 per cent</a> compared to 2019. The total revenue generated by passengers fell by 69 per cent and net losses were more than <a href="https://www.iata.org/en/pressroom/pr/2021-08-03-01/">US$126 billion</a>. </p>
<p>The collapse in traffic was mirrored in the number of flights handled by air navigation service providers. These service providers are responsible for the safety of flights on departure from and arrival at airports and in transit. In North America, losses exceeded <a href="https://data.icao.int/coVID-19/ansp.htm">US$448 million</a> in 2020. </p>
<p>Our international team, based in the United Kingdom, Ireland and Canada, has spent two years researching the impact of the pandemic and the financing of air navigation services in the airline industry. <a href="https://www.bristol.ac.uk/media-library/sites/management/documents/2022%20NAVIGATING%20THE%20COVID19%20CRISIS%20Turnbull%20Thomas%20Harvey%202022.pdf">Our full report found</a> the COVID-19 pandemic severely impacted air navigation service providers, and raises concerns about the industry’s current finance model.</p>
<h2>Current airline ‘user-pays’ model</h2>
<p>Air navigation service providers are a public good — just like street lighting — that serves the interests of all. Because of this, it’s not possible to prevent people or clients from using the service. It also means that, when the good or service is consumed, it does not reduce its availability to others. </p>
<p>Nonetheless, as airlines and their passengers are the most direct recipients of air navigation services, many air navigation service providers have adopted a “user-pays” model. The user-pays model is an approach to funding where customers pay the full cost of the good or service they consume.</p>
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<img alt="People walking through an airport" src="https://images.theconversation.com/files/471230/original/file-20220627-21-g7rvk5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/471230/original/file-20220627-21-g7rvk5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/471230/original/file-20220627-21-g7rvk5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/471230/original/file-20220627-21-g7rvk5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/471230/original/file-20220627-21-g7rvk5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/471230/original/file-20220627-21-g7rvk5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/471230/original/file-20220627-21-g7rvk5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The airline industry suffered massive layoffs during the COVID-19 pandemic.</span>
<span class="attribution"><span class="source">(AP Photo/Nam Y. Huh)</span></span>
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<p>For the user-pays model of air navigation services charges are typically determined by a <a href="https://www.investopedia.com/terms/c/cost-plus-contract.asp">cost-plus system</a>. The calculation is determined by the air navigation service providers’ costs divided by airline traffic, plus a markup that allows service providers to make a small profit. This model does not reward performance. Otherwise, charges are determined by a pure price cap whereby the regulator sets the price, giving air navigation service providers the incentive to reduce costs.</p>
<p>The purpose of these models is to make air navigation service providers more efficient, but in the absence of competition — service providers are natural monopolies — this system does not work as intended. Some have even pointed to the <a href="http://afgelocal200.org/wp-content/uploads/2017/01/2003-Pitfalls-Of-Air-Traffic-Control-Privatization-Columbia-University.pdf">dangers of air navigation service provider commercialization</a>.</p>
<h2>Labour challenges</h2>
<p>These models have proved inadequate in the face of a crisis, like the one created by the pandemic. Consequently, <a href="https://airlines.iata.org/news/new-figures-highlight-potential-job-losses">staff costs were cut, resulting in job losses</a>, recruitment freezes and a reduction in training. These measures might achieve cost savings in the short term, but they also create a problem for the organization when passengers return and traffic increases. </p>
<p>Many airlines have faced problems in serving returning passengers, leading to the <a href="https://worldfinancialreview.com/covid-19-labour-cost-minimisation-and-its-consequences-in-civil-aviation/">cancellation of flights</a> and <a href="https://www.ctvnews.ca/world/airport-chaos-european-travel-runs-into-pandemic-cutbacks-1.5959561">chaos at airports</a>, as a direct result of the cuts made in response to the pandemic. </p>
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<img alt="People wait in long lines at an airport" src="https://images.theconversation.com/files/471231/original/file-20220627-24-xk7tlc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/471231/original/file-20220627-24-xk7tlc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/471231/original/file-20220627-24-xk7tlc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/471231/original/file-20220627-24-xk7tlc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/471231/original/file-20220627-24-xk7tlc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/471231/original/file-20220627-24-xk7tlc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/471231/original/file-20220627-24-xk7tlc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Travellers wait in long lines to check in and board flights at Amsterdam’s Schiphol Airport, Netherlands, on June 21. Airlines have struggled to accommodate the influx of travellers now that COVID-19 restrictions have been lifted.</span>
<span class="attribution"><span class="source">(AP Photo/Peter Dejong)</span></span>
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</figure>
<p>At several European air navigation service providers, the age profile of the workforce also complicates matters. A considerable number of air traffic control officers are approaching retirement as traffic returns to its pre-pandemic level. </p>
<p>It would be disastrous to both stop recruitment and to reduce headcount in such circumstances, because the training of new air traffic control officers is a long process. In fact, rising traffic delays across Europe prior to the pandemic were attributed to the <a href="https://www.gatco.org/wp-content/uploads/2020/09/GATCO-NATS-TATCs.pdf">declining number of air traffic control officer trainees</a>. </p>
<h2>Problems with ‘user-pays’ model in air navigation</h2>
<p>There is a fundamental problem with the user-pays model of air navigation that is disrupting the industry’s recovery from the current crisis. The problem is this: as the airline industry begins recovering from the pandemic, airlines will be expected to pay more for air navigation services, at a time when they can least afford to.</p>
<p>At the same time, air navigation service providers will be expected to invest more in skills and equipment while trying to recover lost and deferred revenue from their exhausted cash reserves. We need only point to the case of WestJet and NAV CANADA to illustrate this point clearly. </p>
<p>NAV CANADA could have raised its rates by 42 per cent to cover all its financial needs, but WestJet’s CEO described the price hike as “<a href="https://simpleflying.com/westjet-nav-canada-price-hikes">scandalous</a>” and launched an appeal to Canada’s national transport regulator — Canadian Transport Agency. The agency agreed with NAV CANADA, dismissed WestJet’s appeal and prices increased by almost 30 per cent. </p>
<p>The pandemic has demonstrated, beyond doubt, that the user-pays system of air navigation services is neither resilient enough, nor sustainable. Just as a nation’s road network is typically funded by general taxation and road tolls, a similar approach is entirely feasible for air navigation services. General taxation would allow air navigation service providers to fund minimum level of service and staffing levels.</p><img src="https://counter.theconversation.com/content/185663/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Geraint Harvey has received funding from the International Transport Workers' Federation.. </span></em></p><p class="fine-print"><em><span>Huw Thomas has received funding from the International Transport Workers' Federation and European Transport Workers' Federation.</span></em></p><p class="fine-print"><em><span>Peter Turnbull's research on air traffic management received financial support from the International Transport Workers' Federation (ITF). </span></em></p>The COVID-19 pandemic has been unlike any crisis, both in terms of depth and duration, and has damaged the aviation industry more than most sectors.Geraint Harvey, DANCAP Private Equity Chair in Human Organization, Western UniversityHuw Thomas, Lecturer in Work, Employment, Organization & Public Policy, University of BristolPeter Turnbull, Professor of Management, University of BristolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/468522015-08-30T20:07:43Z2015-08-30T20:07:43ZUser-pays ASIC model shift costs, but is bad for the public interest<p>The <a href="http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2015/Proposed-industry-funding-model-for-ASIC">discussion paper</a> released by Assistant Treasurer Josh Frydenberg suggests that businesses be “levied” to pay for a large part of the costs incurred by the Australian Securities and Investment Commission. </p>
<p>At present ASIC is largely funded from consolidated revenue. The new proposal is that industry should pay a much larger share. In essence costs would be shifted from government onto business.</p>
<p>The arguments made in the discussion paper in support of this increase in business taxes are:</p>
<ul>
<li><p>the Financial System Inquiry suggested it;</p></li>
<li><p>the change would ensure that the costs of the regulatory activities undertaken by ASIC are borne by those creating the need for regulation (rather than all taxpayers);</p></li>
<li><p>it would establish price signals to drive economic efficiencies in the way resources are allocated in ASIC;</p></li>
<li><p>it would improve ASIC’s transparency and accountability.</p></li>
</ul>
<p>There are a number of problems with the proposal.</p>
<p>The fact that it was suggested by the Financial System Inquiry is important but not decisive. It seems likely that the Government will pick and choose amongst the recommendations of the Inquiry, supporting some and not others. The recommendation is thus a factor but not a deciding one.</p>
<p>The second argument is far more interesting. The discussion paper pitches the proposal as an example of user pays. The logic is that consumers of financial products need to be protected and that the costs of ASIC providing that protection should be paid by the firms operating in that industry. </p>
<p>By similar logic all consumer product protection undertaken by the ACCC should also be costed out to the industries involved. All food safety protection might be dealt with the same way and all border protection might be farmed out to all international travellers. We would not even need public schools, because students could be charged for the educational services they receive.</p>
<p>Clearly we could operate that way. In effect, our taxation system would not be necessary and it would be replaced by a complex system of user charges. Unfortunately the Minister is not proposing to reduce general taxes, just to raise some specific ones.</p>
<p>The suggestion that the system of levies paid by industry would improve ASIC’s transparency and accountability appears naïve. Under the current arrangements ASIC has to fight for its funding in the budget round with a Finance Department determined to restrain the growth of public spending. </p>
<p>The new proposal shifts ASIC towards a cost-plus framework, overseen by an array of committees to entities it regulates. Thee would still be some budgetary oversight but inevitably the disciplines would be weaker.</p>
<p>The proposal is rather like asking the players before a match to announce publicly how much they were going to pay the referee. It will be difficult for the groups being regulated by ASIC to complain about its spending for fear of potential retribution. Costs are likely to rise as a result.</p>
<p>The way in which the system will be managed creates further problems. Frydenberg proposes setting panels of industry representatives to oversee the ASIC budget proposals. For a minister responsible for reducing red-tape, it is a very unusual proposal. It is complex, it shifts even more costs onto industry, and is likely to be completely ineffective. </p>
<p>Inevitably it will result in groups fighting with each other to shift ASIC’s costs from between categories and ASIC has the potential to set them off against each other. And there will still be some budgetary oversight so there are no savings just costs.</p>
<p>The proposal will have strong support from ASIC and Finance, and will probably succeed. ASIC has lobbied hard to have accepted its cost-plus model of funding raised from the parties it regulates. The Finance Department too will appreciate having more of ASIC’s costs shifted off budget.</p>
<p>However it is not clear that the proposal is in the public interest. It does not reduce costs. It is an increase in business taxes. The budgetary pressure on ASIC will be reduced and ASIC is likely to grow a lot bigger. The mechanisms proposed to raise the funds are also complex and shift further costs onto the industry.</p>
<p>Looking further ahead, if ASIC succeeds in shifting costs onto industry, other regulators will surely follow. The consumer protection functions of the ACCC are almost the same as those of ASIC so it will certainly follow the new funding model. </p>
<p>Separating the regulators from most of the normal disciplines in the budget round could make them lazier, cost-plus operations, but there are also examples in the international experience where by encouraging the regulator and the regulated closer together creates increased potential for regulatory capture.</p><img src="https://counter.theconversation.com/content/46852/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rodney Maddock does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Both ASIC and the finance department want a user-pays model, but costs - borne by business - will rise.Rodney Maddock, Vice Chancellor's Fellow at Victoria University and Adjunct Professor of Economics, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/432592015-06-16T02:05:54Z2015-06-16T02:05:54ZRoad users must pay, sooner rather than later<figure><img src="https://images.theconversation.com/files/85133/original/image-20150616-5829-1lpho85.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A well designed user pays system for Australian roads would help boost productivity.</span> <span class="attribution"><span class="source">Image sourced from shutterstock.com</span></span></figcaption></figure><p>The idea of motorists paying for the roads they use beyond tolls, fuel excise or registration fees has taken hold in Australia. A user-pays system might replace existing fees with charges based on motorists’ actual use of roads. New technologies would allow charges to be applied at different rates during peak periods in the same way we pay for the use of telecommunications or electricity networks.</p>
<p>The <a href="http://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/Papers/Final_Report_Part_2/chapter_e3.htm">Henry Tax Review</a>, the <a href="http://competitionpolicyreview.gov.au/2015/04/14/speech20150414/">Harper Competition Review</a>, the Productivity Commission’s <a href="http://www.pc.gov.au/inquiries/completed/infrastructure/report">Public Infrastructure Inquiry</a>, last week’s <a href="http://www.nationalpolicyseries.com.au/conferences/financial-services-conference/afr-national-infrastructure-summit">AFR National Infrastructure Summit</a>, and now the <a href="http://www.9news.com.au/national/2015/06/15/00/04/tax-system-needs-bold-remodelling-ai-group">Australian Automobile Association</a>, agree it’s time. But politicians aren’t sure it will pass the <a href="http://www.news.com.au/finance/motorists-being-asked-to-consider-user-pays-model/story-e6frfm1i-1227397413591">“pub test”</a> with voters.</p>
<p>A user-pays system is necessary to reduce <a href="https://au.news.yahoo.com/thewest/wa/a/28188195/perth-gridlock-to-top-nation/">congestion</a> on our roads and improve productivity into the future. We must have a debate over <em>how</em>, not <em>if</em>, we should implement a road user-pays system. But chances are political debates will send the user-pays idea down a rabbit hole before it even begins.</p>
<h2>Can it pass the “pub test”?</h2>
<p>No politician wants to be the one who implements a user-pays system for roads. But while the <a href="http://www.heraldsun.com.au/news/victoria/transurban-to-probe-travel-habits-of-melbourne-drivers-as-part-of-road-tolls-overhaul-push/story-fni0fit3-1227278656758">jury is still out</a> on whether motorists support the idea of user-pays, the current fuel excise hits those who can <a href="http://www.smh.com.au/nsw/replace-petrol-taxes-with-payasyougo-road-charging-experts-say-20150504-1mzfay.html">least afford it</a> the hardest. </p>
<p>A well-designed user-pays system would be fairer. And road users would know exactly what they were getting for their money.</p>
<p>There can be no such thing as a simple debate about transport reform. A debate about user-pays must cover: </p>
<ul>
<li> earmarking <a href="http://fueltaxinquiry.treasury.gov.au/content/backgnd/002.asp">(hypothecation)</a> road-related revenue for road construction and maintenance</li>
<li> efficient use (or <a href="http://www.economist.com/news/finance-and-economics/21654085-cash-strapped-governments-are-leaving-riches-wayside-neglected-wealth">“sweating”</a>) of our existing transport infrastructure</li>
<li> ways of <a href="http://www.smh.com.au/business/billion-dollar-moorebank-freight-terminal-to-go-ahead-as-qube-aurizon-reach-deal-with-federal-government-20141205-120tfo.html">enabling intermodal freight movement</a></li>
<li> public-private partnerships to take advantage of available capital and <a href="http://www.smh.com.au/federal-politics/political-news/reserve-bank-governor-glenn-stevens-more-infrastructure-spending-now-please-20150610-ghl1ri.html">ramp-up infrastructure spending</a></li>
<li> efficient approaches to <a href="http://www.abc.net.au/news/2015-04-14/france-spain-make-official-about-cancelled-east-west-contracts/6390906">competitive tendering</a> for infrastructure projects</li>
<li> changes to the existing <a href="http://www.skynews.com.au/news/top-stories/2015/05/29/greens-negotiate-on-fuel-excise.html">fuel excise</a></li>
<li> effective ways to <a href="http://www.canberratimes.com.au/federal-politics/political-news/australians-living-standards-face-the-greatest-threat-in-a-generation-report-20150423-1mrppz.html">limit the impact</a> of user-pays on those who can least afford it</li>
<li> new ways to <a>capture the value added</a> to nearby properties by infrastructure improvements</li>
<li> better ways to <a href="http://www.businessspectator.com.au/news/2015/5/29/policy-politics/greens-will-accept-portion-pt-fuel-excise-deal">fund public transport</a></li>
</ul>
<p>The debate will be intense. But <a href="http://www.theguardian.com/australia-news/2015/may/22/gridlock-australian-traffic-congestion-could-cost-53bn-by-2013">business-as-usual</a> will only lead to mounting congestion in our cities, decreased productivity and ultimately a decline in our standard of living. And it will be very difficult to implement the necessary reforms without a user-pays system. </p>
<h2>Pricing and charging are not the same</h2>
<p>Two important issues must be considered separately in the debate: pricing and charging. First, there needs to be a way to recognise the price – the amount consumers are willing to pay for using roads - relative to the costs associated with the funding, construction and maintenance of roads. Second, there needs to be a way to charge users for actually using the roads where the amount charged reflects the price. </p>
<p>Much of the political debate will likely focus on charging, though pricing will be the major reform. Even though voters are already paying for roads, they don’t really know how much and the contribution has little to do with their actual use of roads.</p>
<p>Without accurate pricing, we can only guess at how to prioritise road construction and maintenance. In the absence of such market information, simply <a href="http://www.perc.org/articles/study-building-roads-cure-congestion-exercise-futility">building more roads</a> will not address the underlying issues.</p>
<p>Although a simple per kilometre charge is supported by many, accurate pricing would mean different charges to reflect demand. This may require a combination of per kilometre and <a href="http://www.bbc.com/news/uk-england-london-21451245">congestion charging</a>. Also, charges would need to vary to reflect how much motorists would be willing to pay under different circumstances. A broad user-pays system might even encourage more flexible work practices as the cost of commuting becomes more transparent.</p>
<p>But there are many sticking points. For one thing, the Australian Motoring Enthusiasts Party is <a href="http://www.pc.gov.au/__data/assets/pdf_file/0004/135499/subdr149-infrastructure.pdf">opposed to any user-charges</a> for existing roads, even though road pricing may make it <a href="http://www.abc.net.au/news/2015-04-06/regional-aged-care-and-road-funding-reform-needed/6372848">fairer for motorists in regional areas</a>.</p>
<h2>We can’t afford another GST ‘birthday cake’</h2>
<p>The introduction of road pricing may prove as <a href="http://www.abc.net.au/news/2014-03-13/infrastructure-rethink-could-save-1-billion-annually/5317002">difficult</a> – if not more – than the introduction of the GST. That took <a href="http://www.abc.net.au/news/2010-07-01/36428">30 years</a> to happen. Can we really afford to wait that long? </p>
<p>At 650 pages, the Coalition’s Fightback! policy was known as the <a href="http://www.smh.com.au/federal-politics/federal-election-2013/unloseable-election-haunts-tony-abbott-coalition-20130906-2t9bh.html">“longest political suicide note in history”</a>. But more than two decades later, most of Fightback! <a href="http://www.cis.org.au/publications/issue-analysis/article/3776-the-long-march-of-fightback">has been implemented</a>. </p>
<p>However, the GST debate was less complex than the road user-pays debate is shaping up to be. For one thing, John Howard had the backing of the States to introduce the GST. The introduction of road pricing will require getting the States on board again, but in an area that is clearly within the States’ constitutional powers. </p>
<p>Prime Minister Tony Abbott’s relationships with <a href="http://www.couriermail.com.au/news/queensland/premier-annastacia-palaszczuk-tells-tony-abbott-and-his-mps-they-must-be-on-team-queensland/story-fnn8dlfs-1227391345881">Queensland</a> and <a href="http://www.theage.com.au/victoria/victoria-will-be-loser-in-any-funding-fight-over-east-west-link-warns-warren-truss-20150514-gh1la0.html">Victoria</a> are far from congenial. And transport reform is shaping up to be a major issue for all levels of government. So it is not difficult to see why politicians “<a href="http://www.smh.com.au/business/motorists-may-have-to-pay-more-to-cut-congestion-20150522-gh7lib.html">are wary of a voter backlash </a>” over transport reform.</p>
<h2>Media one-liners will hinder reform</h2>
<p>To make matters worse, the complexity of transport reform will be more difficult to explain in media-grabbing one-liners than the impact of the GST on a birthday cake. And history suggests that another “birthday cake” incident has the potential to put transport reform on hold for several years. </p>
<p>We cannot put all of the responsibility on our politicians. Sensible debate with large-scale community support for reform is essential. Otherwise, achieving transport reform will make the implementation of the GST look like a political cake-walk. </p>
<p>In the meantime, whether user-pays happens now or in the future, the longer we wait, the <a href="http://www.theguardian.com/australia-news/2015/may/22/gridlock-australian-traffic-congestion-could-cost-53bn-by-2013">more we will pay</a>.</p><img src="https://counter.theconversation.com/content/43259/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael de Percy does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The longer Australia waits for reform to road use pricing, the more commuters will ultimately end up paying.Michael de Percy, Senior Lecturer in Political Science, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/308872015-02-05T03:58:13Z2015-02-05T03:58:13ZWhy the government would have us pay more for poorer health<figure><img src="https://images.theconversation.com/files/71034/original/image-20150204-14362-mxdfg4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Coalition government is on the wrong track of reform for delivering better health.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/alanenglish/5046379960">Alan English/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p>The Coalition government has been claiming that Australia’s public health system is unsustainable since the 2014 budget. But its plans for the health system actually reflect the underlying belief that user-pays health systems are better – despite evidence to the contrary. </p>
<p>Less than a year and a half into the Abbott government’s first term, we’re on our second health minister and the third iteration of some kind of plan to introduce a co-payment for seeing a doctor. Despite widespread and vocal opposition to its plans, the government remains <a href="http://www.theguardian.com/australia-news/commentisfree/2015/feb/04/abbotts-leadership-threatened-by-policy-blunders-in-absence-of-a-clear-rival">committed to introducing this price signal</a> into the public health system.</p>
<p>Underpinning this move is the government’s commitment to a user-pays health system. But there’s now a large body of evidence showing such systems not necessarily great for the nation’s health. Here are four common ideas about market-based health systems and why they are not true.</p>
<h2>Myth one: market forces increase efficiency</h2>
<p>The administrative costs of Australia’s public health system are considerably lower than that of the private health insurance sector. So while this cost for Medicare is <a href="http://johnmenadue.com/blog/?p=113">around 6% per year</a>, the 2012-13 private health insurers’ <a href="phiac.gov.au/wp-content/uploads/2013/12/2012-13-accessible-pdf.pdf">annual report</a> estimates that 15% to 18% of private health insurance premiums go towards administration. </p>
<p>Both these figures are similar to those in the United States, the country with the most expensive health-care system in the world. <a href="http://www.oecd.org/els/health-systems/oecd-health-statistics-2014-frequently-requested-data.htm">Figures from the OECD</a> estimate that, in 2011, the per capita health cost in the US was US$8,508 (A$10,912) per head or 17.7% of GDP, compared to Australia, where the figure was US$3,800 (A$4,875) per head or 8.9% of GDP. </p>
<p>But the US figure quoted above is effectively still an underestimate. The premiums for about half the Americans who have health insurance are paid by their employer; they are essentially a business deduction underwritten by the taxpayer. </p>
<p>The inefficiencies of the market-based system are also apparent when comparing costs for similar conditions. Health insurance industry figures from <a href="http://static1.squarespace.com/static/518a3cfee4b0a77d03a62c98/t/534fc9ebe4b05a88e5fbab70/1397737963288/2013+iFHP+FINAL+4+14+14.pdf?">a 2013 report</a> show the average total reimbursement for a private hospital appendectomy in the United States is A$17,770 (US$13,851), while the cost for the same procedure in Australia is A$5,467. </p>
<h2>Myth two: market forces increase quality</h2>
<p>There’s no lack of evidence showing the market forces operating par excellence in the United States offer inferior health care when compared with public health systems. OECD data comparing mortality rates in member countries between 1980 and 2005, for instance, show only Portugal has had a <a href="http://www.compareyourcountry.org/01/mortality/index.php?cr=oecd&lg=en">smaller fall in adult mortality rates</a> than the United States.</p>
<p>And although it spends the highest proportion of GDP on health internationally, <a href="http://www.compareyourcountry.org/health?cr=oecd&lg=en">the United States ranks</a> 19th in infant mortality, 43rd in female mortality and 36th for life expectancy.</p>
<p>This is not to say that US health care cannot be outstanding; it just comes at a price rendering it grossly inequitable. Consider <a href="http://www.ncbi.nlm.nih.gov/pubmed/18787459">this 2008 study of 121,092 Americans</a> admitted to hospital with bleeding from liver cirrhosis. It found likelihood of death was significantly higher for certain groups. </p>
<p>By contrast, a <a href="http://gut.bmj.com/content/early/2011/07/13/gutjnl-2011-300186">2011 English study</a> of gastric bleeding in 245,438 patients found that, once hospitalised, the risk of bleeding and mortality was independent of social class. So in England, an unemployed street sweeper with gastric bleeding faces a similar risk of death in hospital as a stockbroker. But the stockbroker would have a much better outcome in the United States. </p>
<p>It’s also important to remember that more care does not necessarily equate to better quality care. The <a href="http://resources.iom.edu/widgets/vsrt/healthcare-waste.html">Institute of Medicine recently estimated</a> the excessive annual cost of systemic waste in the US health-care system at US$765 billion. This is almost 30% of total health expenditures. </p>
<p>Over-servicing is a big problem in private health-care systems, where profits can create a perverse incentive to treat. Indeed, they potentially create a conflict with purely medical reasons for treatment. </p>
<p>A landmark 1970 analysis (not available online) comparing surgery and surgeons in the United States and in England and Wales showed that the former, with its fee-for-service system, had twice as many surgical procedures as the latter places, both of which have public health systems. A <a href="http://www.ncbi.nlm.nih.gov/pubmed/4748597">1973 analysis</a> found a similar doubling of discretionary surgical rates in fee-for-service Canada compared to the United Kingdom. </p>
<h2>Myth three: public health care is unaffordable</h2>
<p>A number of studies indicate that it is actually private health care that’s unaffordable. It’s <a href="http://www.nerdwallet.com/blog/health/2014/03/26/medical-bankruptcy/">estimated that almost two million people</a> in the United States declared bankruptcy due to medical bills or conditions in 2013. </p>
<p>That makes health care one of the biggest issues affecting bankruptcy in that country. Worse still, the majority of these bankruptcies were expected to affect people in the prime of their working lives, between the ages of 35 and 55. </p>
<p>Worse still, the problem may be snowballing: <a href="http://www.amjmed.com/article/S0002-9343%2809%2900404-5/abstract">a 2009 study</a> found medical reasons for bankruptcies had increased from 46.2% in 2001 to 69.1% in 2007. Most medical debtors were well educated, owned homes and had middle-class occupations, and 75% had health insurance.</p>
<p>Despite the Coalition government’s warnings to the contrary, health-care costs are not spiralling out of control. According to an <a href="http://www.aihw.gov.au/publication-detail/?id=60129548871">Australian Institute of Health and Welfare report</a> on health spending for 2012-13, growth in health expenditure was the lowest since the mid-1980s. </p>
<p>In fact, the average health expenditure per person fell from A$6,447 in 2011-12 to A$6,430 in 2012-13. This puts Australia’s health spending as a proportion of gross domestic product at 9.4% in 2012, just above the OECD average of 9.2% – and much lower than the cost of the US market-based system.</p>
<h2>Myth four: price signals work</h2>
<p>Indeed, the government’s commitment to price signals is itself rather problematic. Price signals temper consumption by making people consider whether what they are about to buy is worth the cost. This makes them <a href="https://theconversation.com/gp-co-payments-why-price-signals-for-health-dont-work-28857">ill-fitted to the health-care sector</a>, which is not an optional commodity subject to the same thinking that influences decisions to buy a television or a pizza.</p>
<p>The latest evidence about co-payments comes from the introduction of the <a href="http://en.wikipedia.org/wiki/Deficit_Reduction_Act_of_2005">2005 Deficit Reduction Act</a> in the United States, which allowed states to introduce emergency department co-payments for non-urgent visits. A <a href="http://archinte.jamanetwork.com/article.aspx?articleid=2091743">very recently published analysis</a> of figures from eight states that charged a co-payment and ten states that didn’t showed no difference in annual number of emergency department admissions, visits, or inpatient days. </p>
<p>Evidence to date is overwhelmingly against the privatisation of medicine. By pulling together in a public system, citizens get better value and the government gets better outcomes. </p>
<p>Along with education, health is a basic pillar of a just society. It represents government investment in the country’s social capital – its people. Failing to provide these adequately and equitably will reduce Australia’s productivity, competitiveness and, in the end, the sense of social cohesion that comes from equal access and equal opportunity.</p><img src="https://counter.theconversation.com/content/30887/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Attia receives funding from the National Health and Medical Research Council, the Australian Research Council, Hunter Medical Research Institute, and the HCF Foundation.</span></em></p><p class="fine-print"><em><span>John Duggan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Coalition government has been claiming that Australia’s public health system is unsustainable since the 2014 budget. But its plans for the health system actually reflect the underlying belief that…John Attia, Professor of Medicine and Clinical Epidemiology, University of NewcastleJohn Duggan, Conjoint Professor, University of NewcastleLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/261562014-05-01T05:42:04Z2014-05-01T05:42:04ZWealthier parents shouldn’t pay even more for public schooling<figure><img src="https://images.theconversation.com/files/47513/original/df9c92fp-1398914802.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Charging parents in affluent areas more for public schooling will only increase the inequity between schools</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/pbouchard/5168061145/in/photolist-8SFEwv-3TvR2K-5fxkGV-9zFNu-9zFWy-56fT8g-g1KZ7p-efNsZ6-7MPx7Y-6dCZhb-boqBmr-iofjgM-9dGAtT-4nq9mK-3TB8tA-9cjSUX-bAsR4-6K2bMS-7osoW5-5bb1AJ-56iRCS-MaKuZ-36EX4e-6n14nQ-bzTKMr-bzTLmc-3tY8-5FJErN-bmYYrs-5peuzD-avWqbJ-FTtnp-6bV6Nu-7fo2QU-bzTKGp-53ChTL-9cnPLY-8sQhd9-avTJv2-6k5dre-Gpqk2-7f3qPs-g1KxNh-g1KXpN-5fAjFd-bzTPPn-bzTMaM-bmYYT5-5HiW42-8sQhzC">Flickr/Philip Bouchard</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>The <a href="http://www.smh.com.au/national/rich-families-should-have-to-pay-to-attend-public-schools-report-says-20140429-zr13z.html">recent proposal</a> for wealthier families to pay higher fees for public schooling is unworkable and counter-productive on a number of levels.</p>
<p>It’s not generally known that the fees levied and collected by public schools already vary widely according to socio-economic status. Public schools in more affluent areas set fees and have a range of various “voluntary” contributions and costs associated with elective subjects and activities. This can total $2000 a year or more, despite the fact that public schooling is notionally “free”. Schools in poorer areas typically have much lower fees of $100-200 and a much lower rate of fees collected from parents. </p>
<p>Thus there is already a certain amount of inequity within public education – as well as between public and private education. The latest proposal would exacerbate this.</p>
<p>More generally, this proposal is another step along the road to “user pays” in schooling, with those who can pay more receiving a better-resourced service. Instead of public education being an investment in national personal, social and economic prosperity, it is <a href="http://m.theage.com.au/comment/why-free-market-will-not-fix-problems-with-teachers-and-teaching-20140402-zqpo2.html">increasingly being seen</a> as an industry that requires deregulation and exposure to market forces. This will enable governments to further abrogate their responsibility to adequately resource public schools.</p>
<p>Many parents have been convinced that public education has failed and that the interests of their children might best be served by opting out. Adding a new layer of fees to public schooling will be enough to trigger this decision for some. There is a danger that public schools, especially those in lower socio-economic areas, will be left to implode and crumble while parents with the means to place their children in better-resourced public and private schools will do so.</p>
<p>Finally, there is no mention as to how these higher fees for “wealthier” public school parents will be either set or collected. Will this be a job for the tax office? Will fees be based on taxable income for the previous financial year? Will fees be collected through regular income tax deductions? What of the self-employed or families with more than one income? This could become a costly bureaucratic nightmare to implement.</p>
<p>Since European settlement Australia has been built on the foundation of free, secular, compulsory and universally available public education. An equitably funded public education system is <a href="http://en.wikipedia.org/wiki/The_Spirit_Level:_Why_More_Equal_Societies_Almost_Always_Do_Better">better for everyone</a>. Where possible a choice of schools should be available to parents but this choice should not be based on either the relative affluence of a school or on the ability of parents to pay for such schooling.</p>
<p>Australia is <a href="http://en.wikipedia.org/wiki/The_Spirit_Level:_Why_More_Equal_Societies_Almost_Always_Do_Better">becoming a less equitable society</a>, and the <a href="http://docs.education.gov.au/system/files/doc/other/review-of-funding-for-schooling-final-report-dec-2011.pdf">Gonski Review of Funding for Schooling</a> was the latest and most comprehensive attempt to grapple with the issue. Previous schemes have been bedevilled by the political imperative that no matter what the model, no school or system would be worse off under the new arrangements. This entrenches rather than remedies inequity.</p>
<p><a href="https://austcolled.com.au/event/2014-jean-blackburn-oration">In a speech this month</a> David Gonski will reflect on the findings of the review and on the prospects for a more equitable and productive means of funding Australian education. Australians need to consider this review and the broader issues it addressed. We need a plan to sustain and nurture public and private education rather than half-baked measures.</p>
<p>Australia might be able to exist without a car industry but it can’t survive and prosper without an adequately resourced and supported public education sector.</p><img src="https://counter.theconversation.com/content/26156/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Dinham receives funding from the Australian Research Council.</span></em></p>The recent proposal for wealthier families to pay higher fees for public schooling is unworkable and counter-productive on a number of levels. It’s not generally known that the fees levied and collected…Stephen Dinham, National President of The Australian College of Educators, and Chair of Teacher Education and Director of Learning and Teaching, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/248732014-03-27T03:41:35Z2014-03-27T03:41:35ZMaking road users pay could clear infrastructure gridlock<p>This week, Australian motoring groups decided to <a href="http://www.theaustralian.com.au/national-affairs/motoring-groups-say-user-charges-could-be-fairer-for-motorists-than-the-excise/story-fn59niix-1226863692842">back road user charges</a>, arguing that it would be a fairer system. </p>
<p>At the same time, the groups said the change to user charges would secure sufficient funding for new infrastructure and provide incentives for drivers to avoid driving during peak hours. </p>
<p>This is an unprecedented move for motor lobby groups in Australia. </p>
<p>And it’s a win for Australians. Charging road users would mean payment based on distance travelled and the time driven, and the additional revenue would facilitate the removal of fixed fees like registration expenses and the fuel excise tax. </p>
<p>For many years car drivers have complained about the increasingly congested roads in Australian metropolitan areas, and have asked governments to do something about it. Governments have responded by building new road infrastructure and introducing new public transport services. </p>
<p>But governments clearly do not have sufficient funds for all required investments, so they do not make the necessary investments in public transport, and they propose toll roads to let motorists (partly) pay for the investments. </p>
<p>In the past, motoring groups have argued car drivers do not want to pay more for what they consider already high costs for driving a car. </p>
<p>This creates an impasse, and essentially we get what we pay for, which is heavily congested roads. The proposals put forward by the motoring groups follow recommendations for further user pay roads in the Productivity Commission’s <a href="http://www.pc.gov.au/projects/inquiry/infrastructure/draft">draft infrastructure report</a>, <a href="http://www.abc.net.au/news/2014-03-13/infrastructure-rethink-could-save-1-billion-annually/5317002">quashed by prime minister Tony Abbott</a>. </p>
<p>The aim of the new proposals is to ensure sufficient funds are available for investments in roads and bridges, and develop a mechanism that provides incentives to drivers that result in less congestion. It is important to note that the motoring groups do not say the average car driver needs to pay more. Instead, they argue that they should not pay less and they should pay differently. </p>
<h2>Doing the maths</h2>
<p>A quick calculation (based on average prices and average fuel consumption) shows the average car driver in Australia pays between A$700 and $800 a year in fuel excise tax, which is currently $0.38 per litre (plus 10% GST). Car owners in NSW pay around $300 per year in registration fees and between $200 and $300 in toll payments (although this varies widely). </p>
<p>A fixed registration fee seems unfair to people who drive very little. And toll roads only in certain locations seem unfair to people who happen to live in the area. But are Australians paying a lot? It depends on the point of reference. </p>
<p>Compared to the USA, where the fuel excise tax is about US$0.14 per litre, and where the annual registration fee is around US$46, Australians do seem to be worse off. But compared to many European countries we actually pay very little. For example, the annual registration fee in the Netherlands is around €600, and the fuel excise tax is €0.78 per litre (plus 21% GST). However, toll roads hardly exist in the Netherlands. The average number of kilometres driven by Dutch people is similar to Australia, and net incomes are lower. </p>
<p>So compared to car drivers in the Netherlands, Australians pay very little. Looking at the difference between transport systems in the USA and in Europe, it is clear where the extra money goes, namely to public transport. While the USA is a car-oriented country, European countries typically have strong public transport networks. </p>
<p>So why should car drivers pay for public transport? The answer is actually quite simple. If public transport was much more expensive (or did not exist at all), many more travellers would be driving their cars on the roads, causing massive gridlocks. </p>
<p>But current revenues aren’t enough to cover investments in infrastructure. The maintenance of existing roads is already very expensive, costing between $200 to $300 per person in NSW, around $300 to $400 per car. Expanding infrastructure is extremely costly. The WestConnex project in Sydney, for example, is <a href="http://engage.haveyoursay.nsw.gov.au/document/show/955">expected to cost around $10 billion</a>, or around $2000 per car in NSW. And revenues from fuel excise tax are actually going down since cars are becoming more fuel efficient. This is one of the reasons why motoring groups worry about future investment. </p>
<h2>A fairer approach</h2>
<p>A <a href="http://www.infrastructure.org.au/DisplayFile.aspx?FileID=1066">report prepared for the motoring groups by Deloitte</a> suggests a user charge based on weight of the vehicle, distance travelled, and based on location and time in which a rural car driver outside rush hours would pay much less per kilometre than a city driver in the peak hours. This can be done in a revenue-neutral fashion such that the average car driver does not pay more. </p>
<p>In fact, it can be introduced in such a way that the majority of people would pay less than what they currently pay by removing the fixed annual registration fees and making all costs based on usage of the road system, so people who drive less will pay less. Brendan Lyon, the chief executive of Infrastructure Partnerships Australia, is right to say this is a fairer way. </p>
<p>Its use in other countries has shown that offering car drivers incentives to avoid user charges is an effective and efficient way to combat congestion. An important underlying assumption here is that car drivers have alternatives to choose from. These alternatives are, for example, departing outside peak hours, taking public transport, working from home and car-pooling. </p>
<p>Surveys in NSW have <a href="http://sydney.edu.au/business/__data/assets/pdf_file/0010/198694/TOPS-2014-Q1-March_Media_final.pdf">shown that people in general are in favour of user pays</a>. This means we need to consciously think about our mobility, where we work, and where we live. </p>
<p>It means that the government should offer viable public transport alternatives. It also requires a conversation with companies to offer more flexible working hours and provide facilities to work from home. The time seems ripe for a change. Simply investing in road infrastructure, letting more cars into congested downtown areas, and waiting until cities become completely gridlocked is not an option. </p>
<p>Motorist groups are now advocating what economists have been recommending for years: remove fixed annual costs and introduce a pricing system with avoidable costs to make travelling more efficient. </p>
<p>The ball is now with the politicians.</p><img src="https://counter.theconversation.com/content/24873/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michiel Bliemer receives funding from the Australian Research Council.</span></em></p>This week, Australian motoring groups decided to back road user charges, arguing that it would be a fairer system. At the same time, the groups said the change to user charges would secure sufficient funding…Michiel Bliemer, Chair in Transport and Logistics Network Modelling, University of SydneyLicensed as Creative Commons – attribution, no derivatives.