Friday, April 2, 2010

The government's insulation scheme and fiscal stimulus

If you're looking for a balanced view of the govt's insulation or Building the Education Revolution schemes, The Australian newspaper is not the place to find it. The Australian has been running hard on a campaign against the govt, worried perhaps that the Opposition under Tony Abbott is not doing an effective job.

There is no doubt that there has been some significant rorting and that some builders have made inordinate amounts of money. The BER and the insulation schemes will provide important lessons for govt schemes and contracting, but they do not negate the important role of the stimulus during the worst of the crisis. Although the govt could have done a better job in its management of the contracts, the improvements in school infrastructure will be overwhelmingly beneficial.

A good way to consider the impacts of these schemes is to imagine the normal practice of building and insulation instalment and consider accident rates, fires, rorting etc and then consider these percentages in relation to the significant increases in the rate of building and instalment. Only then will we get an accurate representation of the problems associated with the programs.

If you want a more balanced account of these developments then I think it is worth reading Rodney Tiffen's "A mess? A shambles? A disaster?"
TO EVALUATE the achievements and failings of the scheme, it is important to recognise that home insulation was already a sizable industry. The government’s policy did not introduce new activities; it radically increased the scale of existing practices. So, in assessing the government’s responsibility for developments during 2009 and early 2010, the task is to disentangle which problems arose from an accentuation of existing sub-standard practices and which occurred because of an emphasis on quantity over quality and a drop in standards as new operators flooded into the industry. While some conclusions – for example, that the standard of work fell – are plausible, we can’t know for certain because there are no baseline measures of previous practices and outcomes.
In 2008, 3.18 million Australian dwellings (or 61 per cent) had insulation, and approximately 67,000 homes were insulated each year. The largest number of insulated homes had batts in the ceiling; a minority used foil. On average, between eighty and eighty-five fires per year were attributed to insulation faults, but no breakdown is available to show which of these arose from newly installed insulation and which from longer-standing insulation.
The Rudd government’s scheme was unprecedented in its scope, aiming to insulate two million homes in two and a half years at a cost of $2.45 billion. By the time the program was suspended last month, 1.1 million homes had been insulated with $1.4 billion approved for payment. These installations amount to roughly half the number of homes that had no insulation in 2008. It should also be remembered that the work done was disproportionately in older dwellings, which no doubt added to the difficulties of safe installation.
The benefits of home insulation have not been questioned by any of the program’s critics. The Department of Environment estimated that insulation would cut the normal household’s energy bills by around $200 a year. According to one estimate during the controversy, putting ceiling insulation in 2.2 million homes would save as much energy as taking a million cars off the road; a more conservative estimate said that 1.1 million insulated homes was the equivalent of taking 300,000 cars off the road. Another estimate said that ceiling insulation cuts household energy use by up to 45 per cent, while the Total Environment Centre said it would cut it by 25 per cent in centrally heated homes and 18 per cent in space-heated homes. Whatever the actual figures, the environmental benefits are clearly substantial.
When the program began, home insulation had few special regulations, although it was, of course, subject to normal work and safety provisions and employers’ duty of care. No certification was needed to enter the field, and indeed insulation was frequently installed by householders themselves. The lack of licensing and training in the area allowed sub-standard work to be completed and sub-standard occupational safety procedures to be followed. Although the numbers and proportions of each almost certainly increased as a result of the stimulus, the lack of existing safeguards also meant that an unknown number of instances of both shortcomings probably occurred in the past but had passed beneath the public radar.
Both licensing and training have been dramatically improved as a result of the program. As the increased scale and perhaps the decline in the quality of some work exposed more problems, the department mounted a national training and audit program, largely filling the regulatory vacuum that had permitted the previous abuses and problems. At best there is a grey area here. On the one hand it can be argued that it would be unreasonable for the department to anticipate all of these issues, and it can be argued that it acted fairly quickly once problems became apparent. On the other, should it have anticipated that such an expansion of funding would attract problematic operators and practices, and therefore acted pre-emptively?

“Every new fire and its front page headline will remind voters of the Rudd government’s recklessness and ineptitude,” the Australian’s columnist Janet Albrechtsen has written. Politically, she is surely correct, but that will happen largely because of the media’s innumeracy and lack of historical perspective. Under the program, the number of installations rose from 67,000 a year to 1.1 million; the number of fires rose from around eighty to 120. In other words, as Crikey’s psephological blog Pollytics has demonstrated convincingly, there is no statistical evidence that the existing problem of fires became worse with the program. Rather, because fires from insulation were now newsworthy and previously hadn’t been, this was seen as a new problem, one caused by the new policy, whereas in fact the number of insulation-related fires increased only slightly in absolute terms, and there was a decrease from previous patterns in proportional terms.

I think in coming years, commentators will look back on Australian economic policy during 2007-09 and realise that the govt  and the Reserve Bank did a pretty good job in keeping the Australian economy out of recession.

We can't blame the media for being sensationalist, but we don't have to play their game and believe the hype.

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