HIP Royal Commission submission (Part 6): What inefficiency and waste?

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Following his reports on economic stimulus in Independent Australia and elsewhere, Alan Austin was invited to present a statement of evidence to the Royal Commission into the 2009 Home Insulation Program (HIP). His was one of several submissions highlighting positive aspects of the program which the Commission failed to examine in the public hearings. The final report is due on Sunday.

This is part six of Alan's witness statement (edited only slightly for format).

Pink batts: What inefficiency and waste

The matter of waste appears to have been misrepresented by many critics of the HIP.

Of course, there were some inefficiencies. As with every scheme. Perfectly good girders were dropped into Sydney Harbour during bridge construction in the 1920s. Materials were wasted and workers were injured and killed building the Great Ocean Road, the Snowy River scheme and the Westgate Bridge.

Injuries, waste and fatalities were experienced building the Adelaide to Darwin railway line, expanding ports and mines and building the 2000 Sydney Olympic venues during the Howard Government period.

The Auditor-General found more than $7.5 million was fraudulently misappropriated in the 1996-97 gun buy-back scheme

'... for already-prohibited weapons, including mortars, grenade and rocket launchers and flamethrowers.'

In every major project there is inevitable inefficiency, fraud and safety risks which managers and workers strive to minimize.

The Home Insulation Program was distinctly different in character, however, from all of these earlier projects. The difference lies in its fundamental purpose — a distinction seldom made, either deliberately or through ignorance.

The challenge the HIP was required to meet was not to insulate homes to make occupants more comfortable. It was not to build the insulation industry in Australia. It was not to reduce energy costs for home owners for the next 100 years. Nor was it to save the planet by reducing emissions. All of these were fortuitous by-products.

The HIP’s main purpose was to get $2.8 billion into circulation as rapidly as possible to prevent Australia’s economy slipping into recession.

As New South Wales Coroner, H.C.B Dillon, explained:

"The Home Insulation Program was part of a $42 billion stimulus package designed to support domestic employment and shield the Australian economy from the financial collapses that had decimated employment in the United States and Europe." [31]

From that perspective, the outlays on inspections and remediation were just as efficacious as outlays on labour and materials for the initial installations.

The inspection and replacement phases of the HIP were built in at the outset as an integral part of the overall scheme. They were not, as depicted by some critics, shocking unforeseen outcomes that the hapless government had to scramble to rectify.

Even money fraudulently appropriated by shonky operators who collected payment for work not done contributed just as much to the success of the scheme’s main purpose. When the crooks spent their ill-gotten gains on groceries, car payments and holidays, they also stimulated the economy.

Of course, this dishonesty is not justifiable. The crooks must be punished. But to highlight these aberrant outcomes as evidence that the scheme was a failure misses the critical point.

The scheme’s purpose was to inject $2.8 billion into a vulnerable economy. This was achieved. Most of that quantum had been already disbursed or allocated to remediation when the program was terminated in February 2010. Virtually all of it ended up precisely where it was intended — in Australia’s steadily growing economy.

In lauding the effectiveness of the stimulus packages, economist Joseph Stiglitz noted, regarding waste:

‘Of course, we should strive to ensure that money is spent as productively as possible, but humans, and human institutions, are fallible, and there are costs to ensuring that money is well spent. To put it in economics jargon, efficiency requires equating the marginal cost associated with allocation (both in acquiring information about the relative benefits of different projects and in monitoring investments) with the marginal benefits.In a nutshell: it is wasteful to spend too much money preventing waste.’ [3]

The fourth quarter of 2008 had seen a sharp reversal in Australia as in the rest of the developed world, with negative GDP growth for the first time since 2000. Unemployment surged from 4.6% in December 2008 to 5.7% in March 2009.

It was absolutely critical that the looming recession be halted. As shown earlier, this was accomplished extraordinarily well via the HIP and, later, the school buildings scheme.

The NSW Coroner also noted that:

"The secondary objective was to reduce greenhouse gas emissions by making Australian houses more energy-efficient." [31]

This, whilst not the main aim, was achieved as well, with minimal waste overall.

You can follow Alan Austin on Twitter @AlanTheAmazing. Coming soon: Part seven: How the lying media and Coalition destroyed a remarkable program.








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