The failure of governments in Australia to intervene early in areas like health, child poverty and chemical pollution is wasting billions of public money and reducing quality of life for Australians, according to a new report from the Centre for Policy Development (CPD).
Avoidable Costs: Better outcomes and better value for public money exposes the annual costs to Australian governments of failing to address child poverty, chemical contamination and health issues earlier.
The report estimates that child poverty in Australia costs governments $16 billion a year. This huge sum includes costs like child protection, health services, legal system costs and homelessness services. Adults who experienced poverty as children are also more likely to rely on support payments such as Jobseeker and Family Tax Benefit.
It also estimates Australian governments spend between $18-29 billion a year on hospital stays, Medicare services, PBS expenditure and welfare payments arising from potentially preventable disease.
It says a lack of timely regulation of harmful chemicals like asbestos, lead and forever chemicals in Australia has left more than 160,000 contaminated sites, the costs of which mean they are unlikely to be ever be fully cleaned up. Instead, the nation will bear the ongoing health consequences and land use restrictions.
The case studies presented are just three examples of the extent of avoidable government spending, and there are further examples across every government portfolio.
The report recommends embedding avoidable cost analysis – the practice of using evidence to estimate future costs from preventable issues – into government budgets and policy design, to ensure the true costs and savings of policies are accurately reflected. Doing so would incentivise investment in preventative government initiatives, that sometimes have high initial costs but can save money over their lifespan, as well as enhance wellbeing across the nation.
To support this, the report recommends establishing an Avoidable Costs Unit within Commonwealth Treasury and each state and territory treasury. These units would support government departments to identify avoidable costs, and build the internal capacity needed to implement more preventative policies and help with budget forecasting.
CPD CEO Andrew Hudson said Australia is facing a dramatic increase in government spending that requires new solutions: “In many areas, our current approach is too reactive. Billions of dollars are spent cleaning up harmful chemicals that could have been regulated when their effects were known. Repeated hospital stays for someone experiencing homelessness is more expensive than helping them into housing. A young person’s interaction with the criminal justice system costs more than the support payments that could have kept their parents above the poverty line, and lowered their chances of offending.
“Australian governments should engage in avoidable costs analysis across all departments to stop the cycle of repeatedly using public resources to address harms that could have been prevented. By doing so governments can be more effective and productive, achieve a better quality of life for Australians and deliver better value for public money.”
Wellbeing Economy Research Director Warwick Smith said while calculating the avoidable costs embedded in policies is challenging, it’s far from unachievable: “We have the ability to plan for the long term. Infrastructure and defence for example, are just two areas where long-term strategic planning, using evidence and forecasting, ensures future risks are mitigated.
“Many social and environmental issues that require expensive interventions are the result of broader economic structures, such as insecure employment and a lack of accounting for the value of nature. Going to the source of issues, and ensuring basic foundations like economic security, can help avoid harms and prevent the need for runaway reactive spending.
“While governments will always need to respond to immediate, unavoidable challenges – and to bear the costs that come with them – the need to address root causes and take proactive measures to prevent harm must be prioritised.”
