Avoidable Costs: Better outcomes and better value for public money is a report from the Centre for Policy Development that illustrates the substantial direct costs governments incur by failing to address the root causes of social and environmental issues.
Known as ‘failure demand’, these costs arise when delayed or insufficient attempts to address harms lead to an even greater demand for government services. In short, failure to properly plan for and address harms now, leads to higher costs down the track. This shows up significantly in areas like acute healthcare, criminal justice, support payments and disaster response.
The report uses three examples – childhood poverty, preventable disease, and chemical contamination – to illustrate the extent of avoidable spending, and make the fiscal case for tackling issues as early as possible. Doing so would not only be good for government budgets, it could have a major impact on people’s quality of life and the health of our environment.
Avoidable Costs is a report from the Centre for Policy Development that addresses the substantial costs governments occur by failing to address the root causes of issues, and makes the financial case for tackling problems early.
The report uses available data to model the annual direct costs of failing to address child poverty and health issues earlier. It finds:
It also shows that a lack of timely regulation of harmful chemicals like asbestos, lead and PFAS in Australia has left more than 160,000 contaminated sites, the costs of which mean they are unlikely to be cleaned up. Instead, the nation will bear the ongoing health consequences and land use restrictions.
The case studies in the report are just three examples of government spending that could be avoided by considering the causes of harm and addressing them. There are likely to be 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 initiatives, that sometimes have high upfront costs but can save money over their lifespan.
To do this, the report recommends establishing an Avoidable Costs Unit within the Commonwealth Treasury and within each state and territory treasury. These units would support line agencies to model failure demand, identify avoidable costs, and build the internal capacity needed for upstream, preventative budgeting. By adopting a preventative approach the government could save billions, which could be reinvested in other support services, improve lives and create a more efficient, productive future for Australia.
Another strategy for incentivising early intervention and prevention initiatives was recommended by CPD in an earlier paper, Banking the Benefits, which suggested that Commonwealth budget rules be amended so that the costs and savings a policy is likely to generate due to its effect on demand for acute services be included in formal policy costings.
Upstream thinking refers to the identification of the root causes of problems before they manifest. An upstream approach necessitates a systemic focus on the social, economic, political, institutional and environmental structures that shape outcomes downstream. Shifting the focus to system-level interventions encourages cross-sectoral collaboration and is more likely to generate sustainable and equitable – and financially efficient – outcomes.
