Thursday, May 02, 2013

The NDIS. Why Joe Hockey is wrong, big-time

Joe Hockey is Wrong. The shadow treasurer said Wednesday he did not see a National Disability Insurance Scheme levy as “the right solution in this environment”.

“If the economy is underperforming, you don't tax it to increase performance. You never tax and regulate your way to prosperity,” he told Sky News.

He is quite right to say that taxes by themselves can’t improve economic performance. But they can improve economic performance if they are used for that purpose.

The Productivity Commission examined the question in its 2011 inquiry chaired by Patricia Scott, who worked Joe Hockey as the head of his human services department in the Howard government.

It found whereas the financial cost of the National Disability Insurance Scheme would be $6.5 billion, its economic cost of far less. The $6.5 billion was merely “a transfer of resources from one group to another”.

The economic cost would be around $1.6 billion, flowing from the distortionary impacts of raising the revenue.

“Given this, the NDIS would only have to produce an annual gain of $3,800 per participant to meet a cost-benefit test,” the report said.

“Given the scope of the benefits, that test would be passed easily,” it concluded.

One of the economic benefits was what it did for the lives of the people it helped.

Another would be its success in bringing into the workforce Australians who were previously unemployable for life.

“Were Australia to achieve employment ratios for people with disabilities equivalent to the average OECD benchmark — a highly achievable target given the proposed reforms — employment of people with mild to profound disabilities would rise by 100,000 by 2050,” it said.

In fact it expected an employment gain of 220,000. This isn’t the same as the employment gain often claimed by promoters of major projects which amounts to no more than moving existing workers from one region to another. The Productivity Commission was talking about actual newly-created workers able to produce things for Australia they otherwise would not have.

As Australia’s population ages and the supply of workers for each non-worker shrinks, finding extra workers able to make the things we need will become the main game in town.

The Productivity Commission said the newly-created workforce would be likely to push gross domestic product one per cent higher than it would have been by the middle of the century.

In the dollars of the time that would be $32 billion in additional GDP “in that year alone”. In the dollars of 2050 it will be more like $200 billion per year.

Some things are worth doing precisely for the reason that they will boost Australia’s economic performance. Whatever its other merits, the National Disability Insurance Scheme is one of them.

In today's Sydney Morning Herald and Age

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