Here’s what you’ll have most regrets about

They say no one on their deathbed ever regrets not spending more time at the office. Which is not to say we don't have other regrets, nor that we have to wait until we're drawing our last breath to have them.

This column will tell you nothing about the state of the economy, or business or the financial markets, but that's its attraction.

Maybe there are other things you should be paying attention to, so as the cut the number of unticked items left on your lifetime To Do list.

I can't tell you what you most regret – or will come to regret – but I can give you some big hints, using a study by two professors of psychology, Mike Morrison, of the University of Illinois at Urbana-Champaign, and Neal Roese, of the Kellogg School of Management at Northwestern University in Illinois, which I learnt of through the PsyBlog website.

The profs commissioned a nationally representative survey of 370 American men and women. The most common regrets they found were romance, lost love, 18 per cent; family, 16 per cent; education, 13 per cent; career, 12 per cent; finance, 10 per cent; parenting, 9 per cent and health, 6 per cent.


That regrets about our relationships – 43 per cent by the time you combine romance, family and parenting – well-exceed working-life concerns – 35 per cent, when you combine education, career and finance – shouldn't surprise you.

If it does, keep reading. It's well established by psychologists that the quality of our relationships is hugely important to our wellbeing. Far more important than how many bucks you make.

"We found that the typical American regrets romance the most. Lost loves and unfulfilling relationships turned out to be the most common regrets," the authors say.

"People crave strong, stable social relationships and are unhappy when they lack them; regret embodies this principle."

The trouble isn't that most of us don't realise this in principle, I reckon, but that so many of us find it hard to remember day by day in the struggle to get ahead in life, or even just derive satisfaction from our work – which psychologists know is another key source of "subjective wellbeing" (AKA happiness).

It's telling that women were more likely than men to have romance regrets, whereas men were more likely to have work regrets.

Other research confirms that women tend to value social relationships more than men, which suggests Harry Chapin knew what he was doing when he directed Cat's In The Cradle at the less-fair sex:

"When you coming home, dad?/ I don't know when/ But we'll get together then/ You know we'll have a good time then."

Except that, for family-focused regrets, there were no significant differences according to sex, age, education or relationship status.

As we've seen, men were more likely to have work-related regrets about career and education.

People who lacked a romantic relationship had the most regrets about romance, just as those who lacked a higher education had the most regrets under the heading of education.

But here's a twist: those with high levels of education had the most career-related regrets.

Huh? The authors suggest that the higher your education, the more sensitive you are about how well you've been able fulfil your aspirations.

Of course, our regrets come in two kinds: things we did but now wish we hadn't (known in more godly days as acts of commission) and things we didn't do but now which we had (acts of omission).

Turns out regrets about our actions are about as common as regrets about inaction, but regrets about inaction last longer – true for people of all ages.

Roese reminds us that, although regret is painful, it's an essential component of the human experience.

It may be that part of its evolutionary purpose is to motivate us to fix whatever of our errors and omissions we can fix.

Previous research on regret has mainly used samples of college students. This study, however, used a random sample representative of all Americans.

This more representative sample allowed to authors to conclude that "one's life circumstances – such as accomplishments or shortcomings – inject considerable fuel into the fires of regret".

Students worry most about education and career, and little about family but, as we've seen, older people acquire very different priorities.

Here endeth the lesson. Now, back to work. It may not be more important, but it is more pressing.

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Worsening school performance is everyone’s business

Amid all the uncertainty about where we'll be left by the many pressures bearing on us and our economy – climate change and digital disruption, for starters – there's one truth we can cling to: the more we enhance our natural capital and our human capital, the better placed we're likely to be.

Unfortunately, seeing the sense of this is a lot easier than ensuring it happens.

On natural capital – the preservation of species and physical resources, and the healthy functioning of the ecosystem – we've got one whole side of politics still struggling to get its climate-change deniers back in their box.

Even on human capital – the acquisition of knowledge and know-how – there's plenty of conflict, ranging from economic rationalists who think constraining the growth in government spending and taxation more important than accruing human capital, to people in the education system who think the adequacy of their present performance is no one's business but their own.

On the one hand, we've got the smaller-government brigade saying the performance of, say, school education can be fixed without spending an extra dollar.

On the other, we have teachers – some of them, anyway – arguing there's no problem that having taxpayers hand over a lot more bucks wouldn't fix.

How would the extra money be spent? That's for teachers and education departments to decide, and for everyone who isn't a teacher – and therefore knows nothing about schools – to mind their own beeswax.

The smaller-government brigade closes its eyes to the need to improve the performance of our schools and to the significant economic and social gains we stand to make by improving that performance.

The size of these gains can be demonstrated using the Fairfax-Lateral Economics index of Australia's wellbeing, compiled by Dr Nicholas Gruen and published every quarter upon the release of the national accounts.

The index overcomes the limitations of gross domestic product as a measure of economic progress by starting with the most appropriate modification of GDP – real net national disposable income – and adding to it estimates of the value of human capital, natural capital, the effects of distributional inequality, environmental amenity, health and employment-related satisfaction.

The measure of human capital takes account of early childhood risk, school performance, tertiary education, innovation (multi-factor productivity) and skills atrophy from long-term unemployment.

The indicator used to measure our progress in school education is the change in our score from the regular testing of our 15-year-olds' reading ability under the OECD's Program for International Student Assessment.

Our kids' reading score has fallen almost continually since 2000, from 528 to 503, or 4.7 per cent. By comparison, Canada's score has declined only marginally over the period, from 534 to 527.

The index's estimates suggest that, were we able to lift our score only to Canada's level, this would increase the value of our human capital by almost $17 billion a year.

That's equivalent to about 1 per cent of GDP – far more than promised by almost any other proposed economic reform, including cutting the company tax rate.

Putting it another way, had our 15-year-olds' performance not deteriorated since 2003, the estimated value of the human capital – know-how – in the heads of this year's 15-year-olds would be $17 billion greater than it is.

Our kids' academic performance in each of the areas measured in the PISA tests – reading, maths and science – has been deteriorating, though at differing rates. This is worse than the picture shown by successive NAPLAN test results, summarised as flat to down.

This is why teaching is a problem too important to be left to teachers. The more so because some teachers – a minority, I trust – have become hyper-defensive, refusing to acknowledge there's a problem, telling themselves that, if there is a problem, it's everybody's fault bar their profession's, and branding any non-teacher who dares to offer an opinion a "teacher-basher".

Julia Gillard's attempt to use the measurement (via NAPLAN) and publication (via the My School website) of students' and schools' academic performance to raise standards by fostering competition between schools was misguided – pseudo-economic – and has failed.

But too much of the resistance and criticism of NAPLAN and My School arise from some teachers' desire to continue avoiding public accountability for the quality of their work.

It should go unmeasured (because fault can be found with every form of measurement humans have tried) and, to the extent that performance information exists, it should remain confidential to insiders, because outsiders lack the expertise to interpret it correctly.

Sorry guys, but more money comes at the price of greater accountability to, and scrutiny by, the mug taxpayers who cough it up.

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Where to next with The Great Gonski

I was in Moscow, recovering from a 12-day train trip from Beijing via Mongolia and Siberia, when I heard that Malcolm Turnbull's Gonski 2.0 shift to needs-based funding of schools had been passed by the Senate in the early hours of the morning.

So forgive me for being late to the party, but I can't let this key economic and social reform – surely one of the Coalition government's greatest achievements – go without acknowledgement and explanation.

The new act seeks to allocate government funding to schools, public and private, on a rational basis – the needs of individual students – rather than on what you got last year and what special deals you've done with politicians.

It seeks to phase out the decades-long sectarian basis for funding, where how much government assistance a student gets varies with the denomination of the church – or religion, or secular state – running their school.

Remarkably, Turnbull's success was achieved against the implacable opposition of the very people who spent the past four years professing to want "the full Gonski" – Labor, the teachers' union and, in the end, the Greens.

I'm still deciding whether Labor and the Greens were subservient to the union, or the union was staying loyal to Labor in hope of future largesse.

That Turnbull and his capable Education Minister, Simon Birmingham, were nevertheless able to win sufficient support from the minor parties, tells us the Senate isn't as unworkable as many suppose.

And whereas efforts to win minor-party support usually involve watering down the proposed measures, this time they significantly strengthened them – paradoxically, thanks largely to the efforts of Greens Senator Sarah Hanson-Young.

These improvements included a new independent body to review the accuracy of the various measures of student disadvantage (as recommended by David Gonski's review, but rejected in Labor's "full Gonski") and shortening the phase-in from 10 years to six (so that all schools reach their proper funding levels long before they would have under the "full Gonski").

Because the act will unwind the special deals the previous Labor government did with particular state- and private-school systems, moving federal funding on to a uniform basis across the country, it produces both winners and losers among the states and religious school systems. Be sure we'll be hearing more special pleading from them.

To acknowledge the Turnbull government's achievement isn't to suggest its job is done.

For a start, although the amended act includes a mechanism that would claw back federal funding to the states should they fail to maintain their own funding, the states need to realign their own funding of public and private schools to fit with the new formula under which, by 2023, the feds will fund 20 per cent of the assessed needs of government schools and 80 per cent of the needs of private schools.

So the states should provide 80 per cent of the funding needed by their own schools and 20 per cent of that needed by their private schools. This will require increasing grants to some schools, but cutting them to others.

More importantly, ensuring public funding goes to schools on the basis of their students' needs is just the first step towards the ultimate objective of improving our schools' performance.

As we well know from the regular local NAPLAN and international PISA ratings of students' academic performance, our schools' performance hasn't improved, and in some respects has deteriorated from earlier years, while slipping back in comparison with other countries.

To me, however, the clearest evidence of our schools' poor performance is the shockingly high proportion of students – about a quarter – who leave school without an adequate education. That's a terrible failure rate.

Doing more to help our most disadvantaged students do better is almost certain to require more money. That's why basing our school spending on the needs of particular students is essential.

But it's just step one. If we could be certain the extra money going to needy students would be spent well without further intervention, our schools' performance wouldn't be as poor as it is.

No, the next step is to ensure the redirected money is spent as effectively as possible, on teaching techniques and interventions proven to be most effective.

There is, for example, a lot of evidence that "targeted teaching" – where teachers keep checking to ensure particular students have actually learnt what they've just been taught, and don't press on until they have – stops kids falling behind.

Similarly, there's evidence that using expert teachers to help younger teachers improve their teaching style, and to help introduce new teaching methods, works to lift performance.

The need to ensure taxpayers' money is being spent as effectively as possible is, of course, the object of the new inquiry Turnbull has asked The Great Gonski to perform.

It would be good to see him recommend setting up a national outfit to develop a body of evidence on the most effective teaching techniques, pass this to schools, and also conduct independent evaluations of new approaches tried in particular states or schools, making the results public.

And once we've lifted our schools' ability to teach conventional academic subjects, we should turn our minds to helping kids gain the softer skills – to communicate well, think critically, be creative and resilient – they'll need to survive in an ever-changing working world.

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How Treasury lost its way on economic reform

From the almost stony silence of the nation's economists, you'd never know that Malcolm Turnbull's successful move to needs-based funding of schools is the most significant economic reform in many a long year.

It's notable, too, that this reform seems to have been achieved with little or no involvement by the high priests of economics at Treasury and the Productivity Commission.

Only a few economic reform projects are more important than raising the efficiency and effectiveness of federal and state spending on primary and secondary education.

Allocating that spending according to student need is the necessary first step towards the ultimate goal of reducing the shockingly high proportion of students who leave school without an education sufficient to go on to further study – in a trade course, for instance – or even to a life in which the normal state is employment, not recurring periods of unemployment.

The Australian economics profession's slowness to see the economic – not just the equity – significance of "Gonski" is a sign it's yet to learnt the lessons leading economists in America and Britain are drawing from the populist revolt against the way developed countries' economies have been managed during the era of "neo-liberalism" – better called economic fundamentalism.

Consider how well needs-based funding fits with former US Fed chairman Ben Bernanke's list of the economic managers' "errors of omission" in recent decades:

They failed "to expand job training and re-training opportunities, especially for the less educated; to provide transition assistance for displaced workers, including support for internal migration; to mitigate residential and educational segregation and increase the access of those left behind to employment and educational opportunities; to promote community redevelopment, through grants, infrastructure construction and other means; and to address serious social ills through addiction programs, criminal justice reform and the like."

It needs to be said that the first decade or so of "micro-economic reform" in Oz – floating the dollar, financial deregulation, eliminating protection, reforming the tax system, decentralising wage-fixing and reducing intervention in a host of highly regulated industries – was necessary, often unavoidable given what was happening in the rest of the world, and on balance, of great benefit to the populace.

It's impossible to imagine returning to the bad old pre-reform economy. Treasury and the Productivity Commission's predecessor body must be given most of the credit for promoting and designing these reforms.

But it's equally impossible to avoid the thought that, sometime been then and now, Treasury lost the plot, allowing the reform push to degenerate and be captured by business rent-seekers, politicians with ulterior motives and other government departments that didn't understand what they were doing.

To a fair extent the present populist revolt is explained by Bernanke's errors of omission: governments' failure to help the victims of the structural change their policies promoted and to ensure most of the cost of that assistance was borne by the winners from the change.

How could Treasury forget such an obvious way to minimise popular resistance and resentment of government-promoted change in the structure of industry?

Because it was misled by the mistaken notion that economic efficiency and distributional fairness are always at daggers drawn, and by the dubious ethic that economists should stick to promoting efficiency in the allocation of resources and leave fairness for others to worry about.

But also because Treasury allowed itself to be seduced away from strictly economic objectives to the essentially political objective of "smaller government".

We've got an economy heavily affected by multiple forms of market failure – including huge areas with public goods characteristics – but our overriding goal must be less government intervention in markets, less government spending and lower taxes, particularly on high income-earners.

There's little empirical evidence that economies with large public sectors perform worse than those with small ones, and no evidence that high marginal tax rates do much to discourage economic activity among high-paid full-time workers.

But Treasury's embrace of the smaller government objective does much to explain the Abbott-Turnbull government's loss of interest in budget repair (because cutting government spending turns out to be politically impossible), the neglect of measures to assist the losers from structural change (because they would add to government spending) and the lack of interest in reform of spending on education (because the need to go easy on the losers from spending reallocation means greater spending during the transition to more rational, cost-effective arrangements).

In the new era of populist backlash against the mounting evidence of stuff-ups in the later years of micro-economic reform, Treasury will continue to flounder and its influence wane until it switches its goal from smaller government to more effective government.

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Labor’s professed preference for policy purity is phoney

For the growing number of us who care more about good policy and effective governance than party loyalties, the news isn't good. With one main exception, Labor is allowing the supposed perfect to be the enemy of the good.

The exception is a good one: although the "clean [or low] emissions target" for the national electricity market recommended by the Finkel report is far from perfect as the chief means by which the Turnbull government seeks to reduce our carbon emissions in line with our Paris commitment, Bill Shorten has indicated that the opposition would be open to supporting a "well-constructed LET" in the Senate.

There aren't many issues more important than filling the policy vacuum left by Tony Abbott's abolition of the carbon tax three years ago. And, in the process, greatly assisting efforts to fix the ailing electricity market, reducing the risk of blackouts and further price rises.

Everyone bar the Coalition's crazy backbench climate-change deniers knows coal's days are numbered, which is why both sides of the electricity industry – fossil fuels and renewables – are desperate for greater certainty about how the government plans to manage the transition.

But it's not just that the government needs to make up its mind. It's also that the alternative government isn't planning to change the Coalition's arrangements.

This explains why pretty much all the adults involved have agreed that a CET or LET is the best way forward, given the aforementioned crazies' rejection of anything more sensible.

And why Labor deserves a tick for seeking bipartisanship by moving from its own, better policy for an "emissions intensity scheme" and accepting a LET, provided it isn't too badly compromised.

Now it's up to Malcolm Turnbull to get his troops' agreement to a "well-constructed" LET – which won't be easy.

Sorry, but it occurs to me to wonder whether, should Turnbull fail, Labor isn't positioning itself to claim the moral high ground on both climate change and a workable electricity market.

I wonder about Labor's motives because, on most other policy issues, Shorten is putting his electoral ambitions well ahead of the nation's interest in good policy and effective governance.

All in the name of more nearly perfect policy, naturally.

It's hard to avoid the suspicion that, though he wants to be seen as positive and co-operative, his true motive is to pay the Coalition back for the way Abbott tried to destabilise and neuter the Gillard government and to keep alive the policy differences – on health, education and budget fairness – that brought him so close to unseating Turnbull at last year's election.

Take Shorten's utterly unreasonable position on needs-based funding of schools, that because Labor's version is supposedly superior to the Coalition's, Labor should do all in its power to block the government's legislation in the Senate and leave needs-based funding in limbo until Labor's re-election.

Shorten professes to care deeply about disadvantage students, but it makes you wonder.

As Dr Peter Goss, of the Grattan Institute, has argued, "Gonski 2.0 is a precious opportunity to lock in fairer deals on school funding. It should be seized by all sides of politics.

"Australia's long and toxic funding wars must end so we can move onto other much-needed education reforms."

In any case, Goss's analysis suggests that most of the extra $22 billion over 10 years that Labor says should be spent wouldn't be directed to student need.

Next is Labor's opposition to covering the rising cost of the National Disability Insurance Scheme with a 0.5 percentage point increase in the Medicare levy, in two years' time.

Since such an increase would be roughly proportional – hitting high and low income-earners by a flat percentage increase – Shorten wants to impose the increase just on those earning more than $87,000 a year.

For good measure, he wants to continue the Coalition's temporary 2-percentage-point budget repair levy on income above $180,000 a year, beyond its promised expiry at the end of this month.

All very virtuous (and I wouldn't object to paying either impost). But not if it's used as an excuse to block the government's increase in the Medicare levy.

It's easy for those out of power to advocate making the tax scale more progressive, but this would be a first for Labor in office.

Should Shorten win the next election, I wouldn't hold my breath waiting for him to reimpose the 2 per cent levy. And he doesn't want us to remember that funding the disability scheme with a 0.5 percentage point Medicare levy increase was perfectly fair enough for the Gillard government.

Somehow, I don't think these guys are fair dinkum.

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Our universities aren’t earning the money we give them

Sorry, but the small funding cuts imposed on the universities in the budget don't rouse any sympathy from me.

In an ideal world we'd be investing more in our universities, but our world is far from ideal. And so are our unis. They're inefficient bureaucracies, with bloated administrations and over-paid vice chancellors.

To hear them talk, you'd think unis were the fount of all economic virtue. According to Sydney University's Michael Spence, the budget was "an opportunity missed, because the government's done nothing about the significant cost of research and, of course, university research is fundamental to the innovation economy about which the government is so enthusiastic".

Sorry, prof, but the electorate's too well-educated to swallow such spin. The unis contribute to innovation, but it comes from other sources as well, and the unis' contribution should be better than it is without extra funding.

It's true our unis are obsessed by research, but any innovation this leads to is almost accidental. The research the unis care about is papers published in prestigious foreign journals, which they see as the path to what they're really striving for: a higher ranking on the various international league tables of universities.

Education Minister Simon Birmingham boasts that, on one table, six of our 43 unis are in the top 100, with nearly half in the top 300.

The pollies should stop doing this. It just encourages our "sandstone" unis – the self-dubbed Group of Eight – in their crazy, self-absorbed race.

Had Birmingham's predecessor succeeded in deregulating fees and let the sandstones exploit their monopoly pricing power, they would have delighted in overcharging their students and increasing students' cross-subsidy of the academics' research.

All of us should strive for excellence in our work, but when you start trying to force the pace with league tables and the dreaded KPIs – key performance indicators – you lose the plot.

You shift the rewards from intrinsic to extrinsic, and almost as much effort goes into trying to game the indicators of excellence as being excellent. The big rewards go to those who excel at appearing excellent.

Our big unis are so obsessed by research that academics' promotion is determined almost solely by how many papers you've had published and how prestigious were the journals you got into. Plus how much in research grants you've brought to the uni's coffers.

Apart from the time they spend thinking of ways to turn the same bit of research into more than one paper, our sandstone academics seem to spend more time applying for research grants than doing research.

Then there's the cultural cringe. The sandstone unis are filling their upper positions with sunshine-seeking Poms, Canadians and the odd eccentric Yank, in the belief they'll do better than the locals at getting published in prestigious international journals.

Our academic economists have even conned the federal government into spending taxpayers' money in ways that penalises those economists foolish enough to want to research the Australian economy.

That's because American journals won't publish articles about a small and boring country like ours, but our own journals don't rank in the unis' eternal quest for a higher international ranking.

Notice anything missing? Ah yes, all those students hanging around universities.

The unsatisfactory state of our unis is partly the product of our federal politicians' – Labor and Coalition – decades-long project to quietly and progressively privatise our universities via the backdoor.

Like so much misconceived micro-economic reform, this project hasn't worked well. Put a decades-long squeeze on unis' government funding and what happens? The unis intensify their obsession with research status-seeking and do it by exploiting their market power over students – while building ever larger bureaucracies.

There are some excellent teachers in universities, but they're the exception. The unis pretend to value good teachers – and award tin medals to prove it – but, in truth, there are no promotions for being a good teacher.

Students are seen as a necessary evil, needed because the public thinks teaching their kids is the main reason for continuing to feed academics.

Since Julia Gillard's spendthrift decision to remove the limits on how many uni places the government is prepared to fund, the unis have slashed their entrance requirements so as to rip as much money off the feds as possible.

Are they producing more would-be teachers or journalists or candlestick makers than the economy needs?

Who cares? All the unis know is that cramming more students into lecture theatres yields economies of scale that can be diverted to pay for more research – and pay for some part-time casual to do your teaching for you.

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Why I don't feel sorry for fee-paying students

I have my heroes among leading American economists and psychologists, some of whom I know. One I don't is Alan Blinder. But when he wrote a book called Hard Heads, Soft Hearts, I knew I'd found my guiding star as an economics writer.

There are plenty of lovely souls whose heart bleeds freely for all manner of people who want us to believe they're being treated badly.

But hanging around with economists has left me imbued with the harsh reality of opportunity cost, my version of which says you can have anything you want, but you can't have everything you want. So be careful deciding.

The hard-headed truth is, feeling sorry for almost everyone is little different from feeling sorry for no one. I have only so much compassion to go around.

So, sorry, but among all the people claiming to have been hard done by in this month's budget, I don't have much sympathy to spare for the university students complaining about the increase in their debts.

By contrast, I have much sympathy for all those unemployed people hoping and searching for jobs that don't exist – unless, of course, the government's own figures for job vacancies are grossly understated.

Had industrial fate not intervened to prevent me attending my 43rd successive budget lock-up, I planned to wear my jumbo size JOB HUNTER NOT DOLE BLUDGER T-shirt, put up to it by friends at the admirable Brotherhood of St Laurence.

How prescient that would have been. The budget turned out to include an attempt to traduce the reputation of all job hunters by launching the government's umpteenth Crackdown on the Crackdown on all those "leaners" who lounge about taking drugs when they should be out pounding the pavement.

Did you know that some people are being given the dole before any savings they have are completely exhausted? It's an outrage on us upright citizens, groaning under the weight of massive taxation.

Isn't Centrelink bright enough to understand that forcing the jobless to go cap in hand to the Salvos whenever some large and unexpected expense occurs is part of their punishment?

Not content with cracking down on the unemployed, this budget cracks down on those lazy loafers at Centrelink. Do you realise there are days that pass without people on benefits being harassed in some way?

Do you realise that older people, some just a few years from pension age, aren't hassled nearly as much as young people are? It's wrong, it's discriminatory, and the ironically named Christian Porter and his hardworking sidekick Alan Tudge are just the punishers and straighteners we can trust to stamp it out.

I don't understand those two. Do they enjoy beating up the poor, or is it a hateful job they must do to keep their jobs in the ministry, to gratify all those pathetic voters desperate to feel morally superior to someone?

Nor do I get Malcolm Turnbull. He produces a surprisingly good budget intended to convince us he's not the pale imitation of Tony Abbott we thought he'd become, that the Coalition is committed to fairness after all, but can't resist adding the most lurid attempt to stigmatise anyone of workforce age who can't find a job.

Is Turnbull that much in fear of losing votes to the Redheaded One? Malcolm, you're a rich man, you don't have to sink so low.

(But let's not have too much righteous indignation from the Laborites. They're the crowd who went for six years without affording a significant discretionary increase in our pathetically low unemployment benefits. Perhaps they had to spend too much trying to prove they could punish asylum seekers with just as much relish as the Liberals.)

Back to the revolting uni students. You'd never know it from their cries of woe, but Education Minister Simon Birmingham has thrashed them with a pillow.

Their tuition fees – and hence their debts to the government - are being increased by just 7.5 per cent on top of indexation to consumer prices, spread over three years. When fully implemented, this will increase total fees for a four-year degree by between $2000 and $3600 – with that range roughly aligned with the likely earning-power of the particular degree.

We keep being told that the level of income at which people with debts begin having to start repaying them has been lowered from $52,000 a year to $42,000. What we're rarely told is that the bottom rate of repayment has been lowered from 4 per cent of their income to 1 per cent.

Combining the two changes, the time it takes to repay loans will increase by less than a year.

Uni students come mainly from the comfortable middle class and go to uni to get a certificate that pretty much guarantees them a well-paying job, including a much lower risk of becoming unemployed or staying jobless for long.

It's true the wider public benefits from the money governments spend educating people to graduate level, but equally true that the personal benefits to the particular graduate are about as great.

On average, Birmingham's changes will increase the graduate's share of the cost of their degree from 42 per cent to 46 per cent – and, thanks to the unchanged design of the loan scheme, do so without discouraging students from poor families from bettering themselves.

Sounds fair enough to me.

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How needs-based school funding would work

In education economics, the hot question is whether Malcolm Turnbull's Gonski 2.0 plan for school funding yields a better and more cost-effective combination of fairness and economic efficiency than Labor's Gonski 1.

Since both sides of politics seek to sanctify their funding approach by labelling it with the sacred name of David Gonski, the businessman who chaired the 2011 government inquiry into school funding, remember both sides' plans fall well short of what he recommended.

He started by recognising that, at least since the Whitlam days, government funding of the nation's schools had no rational basis.

Funds came from both federal and state governments, and were spent on three differing sectors – government, Catholic "systemic" and independent schools.

This meant funding differed by state, and by sectarian status. Politicians on both sides and at both levels did special deals aimed at currying favour with Catholic voters. Many governments favoured non-government over government schools, in the name of giving parents greater "choice" (provided they could afford private school fees).

In other English-speaking countries, religious schools get no special treatment. If they want government funding, they play by government rules. If that's not acceptable, they can do their own thing without government funding.

Gonski's key proposal was to allocate government funding on the sole basis of the needs of particular students, doing so in a way that was "sector blind".

An independent "national schools resourcing body" should be established to set a needs-based "school resourcing standard" for each of Australia's 9500 schools.

The standard would start with a uniform basic amount per student, to which loadings would be added to cover their students' disadvantage in the categories of low socioeconomic status, English language proficiency, school size and location, and indigeneity.

In this way, the allocation of funds would be determined from the bottom up, not from the top down in negotiations with states and sectors.

Julia Gillard required Gonski to reallocate funding in a way that ensured "no school would lose a dollar". This necessitated him proposing that total spending be increased, creating the impression he thought schools needed a lot more spent on them.

The Gillard government rejected the proposal for an independent body to oversee the reallocation and came up with its own figures for the school resourcing standard.

Labor also stuck with the top-down approach, going around the states and sectors trying to persuade them to sign up before the 2013 election.

As a result, some states and sectors did much better deals than others, which they now resent Turnbull trying to unwind.

Labor's reallocation was to be phased in over six years, with much of the cost delayed until the last two calendar years, 2018 and 2019.

Tony Abbott claimed to have accepted the plan's first four years, but reneged immediately after the election, saying the states could spend their grants however they chose.

In the 2014 budget Abbott announced that, after 2017, funding for schools would simply be indexed to consumer prices, yielding a huge saving to the budget. But he couldn't persuade the Senate to amend the act implementing Labor's funding plan.

Just before last year's election, Turnbull agreed to funding increases for 2018, 2019 and 2020 that were more generous than Abbott had wanted but less that Labor's plan.

And now, Education Minister Simon Birmingham surprised everyone by unveiling the Coalition government's own version of needs-based funding, dubbed Gonski 2.0.

It involves adjusting all schools' federal funding at different rates over 10 years so that, by 2027, all of Labor's disparities and anomalies would be removed, leaving all government schools (which are mainly funded by the states) getting 20 per cent of their school resourcing standard – up from an average of 17 per cent at present.

All private schools (whose government funding comes mainly from the feds) would be getting 80 per cent of their school resourcing standard, up from an average of 77 per cent at present.

Total federal funding of schools would grow from $17.5 billion this year to $30.6 billion in 2027, an increase of $2.2 billion over already-planned spending over the first four years, rising to an extra $18.6 billion over the 10 years.

You see from this that Gonski 2.0 would take a lot longer than Gonski 1 to reach full needs-based funding. Like Labor's six-year plan, the Coalition's 10-year plan is heavily "back-end loaded".

Of course, on Labor's calculations, a hypothetical continuation of its scheme would cost $22 billion on top of the extra the Coalition plans to spend.

Much of Labor's extra spending above the Coalition comes from its built-in higher rate of annual increase in funding, relative to the Coalition's assumed average indexation rate of 3.3 per cent a year.

Some of Labor's extra would go on higher grant increases for already overfunded private schools, and some on bigger pay rises for teachers.

Unlike Labor, the Coalition would make small cuts in grants to 24 highly overfunded private schools, while another 350-odd somewhat overfunded private schools would get smaller increases until, in 2027, every school's federal funding was aligned with its own needs-based school resourcing standard.

A big weakness in Gonski 2.0 is the way it gets federal funding sorted but ignores the eight states and territories' role in achieving needs-based funding overall. The states would merely be required to maintain the real value of their funding per student, allocated however they chose.

A weakness both schemes share is that though state-based school systems (including government systems) will receive grants based on the individual needs of each of their schools, they will be left to determine the basis on which it's actually allocated to particular schools.

My conclusion is that the opportunity Gonski 2.0 presents to have both sides politics accept and entrench needs-based federal funding, and an end to sectarian deals, should be grabbed with both hands.

There's nothing to stop Labor, or anyone else, coming along later and fixing its weaknesses.

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Fixing disadvantaged students key to fairer, better economy

We have a big problem in Australia that has been happening for so long we hardly notice it. It's that far too many of our young people leave school with an inadequate education.

According to Victoria University's Mitchell Institute, 26 per cent of students fail to finish school or a vocational equivalent.

I'm sure some of these people catch up in later life, while others lead rewarding lives without benefit of further education. But I fear most of the 26 per cent lead lives of economic insecurity and limited personal fulfilment. They are the shockingly high proportion of students our school system has failed.

The hardest question I'm asked as an economics writer is why when, until the mid-1970s, economists defined full employment as an unemployment rate of less than 2 per cent, today they say it's about 5 per cent. My explanation is that the economy has changed, but our schools haven't kept up.

The great majority of unemployed people are unskilled.

And many of these are people who left school early. They didn't understand what teachers were attempting to teach them, they hated school with a passion, and left the moment they were permitted to.

My theory is that, until about the mid-'70s, the economy generated plenty of unskilled jobs, sufficient to absorb all the children who left school without being too hot at the three Rs.

These days, there are proportionately far fewer unskilled, brawn-not-brain jobs available, but just as many under-educated children quitting school.

Our schools seem to accept their high failure rate as inevitable. This may be partly because the ever-greater socioeconomic segregation of our schools – church schools serving those from better-off families, public schools serving everyone who can't afford a church school – has concentrated the failures into government schools in outer suburbs.

Certainly, school authorities seem to have given little attention to explaining why the failure rate remains so high, and which modes of classroom operation and teaching methods have been shown to get better results.

As a nation, the inadequate education of so many of our children is an issue that just hasn't registered on our radar.

One part of the greater influence of the nation's "rich and powerful" is that we worry far more about the problems of the brightest and best than the problems of those at the bottom, struggling to keep their seat on the tram of prosperity.

Economists spend far more time worrying about whether the rich are overtaxed than why the poor are being under-educated.

Most people see this as a matter of fairness. Many profess to believe in "equality of opportunity", but if you're genuine about that it means ensuring everyone at least starts the adult race with decent education, if nothing more.

And when you remember how much better-off children inherit – not just money, but brains and socialisation – that means governments devoting more resources to helping the bottom end keep up than to helping the top end excel.

But I see all this as just as much a matter of economic efficiency. What's efficient about allowing a large minority of our young people to emerge from school without sufficient education to ensure they can attain regular employment?

If we could get the "natural" rate of unemployment down from 5 per cent and closer to 2 per cent – if we could increase by 2 or 3 percentage points the proportion of the available labour that's actually put to work – this would do far more to increase "jobs and growth" than cutting the rate of company tax.

The first step in ensuring all our children get a decent education is better early childhood learning – a vital issue I'll leave for its own column.

The next step is ensuring the money governments spend on schools is biased in favour of those students needing more help, not those schools that have managed to screw better deals out of the politicians over the years.

That's why my heart leapt in 2011 when David Gonski recommended a way of rising above our anachronistic division of government funding on a sectarian basis, sharing it purely on the basis of student need and in a way that was "sector blind".

The plan Julia Gillard delayed producing until not long before the 2013 election was a big spending, but heavily compromised version of what Gonski recommended. Labor was desperate to get the states and sectors to sign up, so some of them bargained better deals than others.

Tony Abbott wasn't genuine in his professed support for needs-based funding and abandoned it immediately after the election, proposing utterly unrealistic cuts in grants to schools.

That's why it's so encouraging to see Malcolm Turnbull and his hard-working Education Minister, Simon Birmingham, advancing their own improved but less expensive version of needs funding.

You'd expect anyone genuinely committed to a better deal for disadvantaged students to seize this rare chance for bipartisan agreement, locking in better policy for possibly decades to come.

If Labor thinks we should be spending a lot more on schools, it can promise to do so at the next election.

But for Labor and the teachers' unions to oppose Senate approval for the Birmingham plan invites us to wonder if they're putting their own interests ahead of the disadvantaged students they profess to care so much about.

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The local school is in decline, reducing social cohesion

I love living in my suburb. I shop locally, just so I can run across friends and neighbours on a Saturday morning, and be greeted with a smile – even a name – by shopkeepers who know me.

I figure the best ways to get to know people in your suburb is to own a dog – you get to talk to other dog-owners as you stand around in the local park – and send your kids to the local school. You can't help getting to know the other parents in your kids' classes.

But all that was some years ago, and times change. The local school isn't the institution it used to be.

Perhaps it won't surprise you to be told that, over the years, our capital cities have become more stratified, with a greater tendency for better-off people to live in better-off suburbs – the ones with water and views and, these days, those closest to the centre – and for the less well-off to live in less well-off suburbs far from the centre.

This is most true of Sydney, then Melbourne – which is catching up with Sydney in size – but less true of the other capitals.

But maybe this will surprise: something similar is happening to our schools, particularly secondary schools.

We have a widening divide between the schools attended by the offspring of better-educated, better-off parents, and those attended by, well, the not so well educated and paid.

This is happening partly in consequence of the increasing stratification of suburbs, but also because of the education policies pursued by federal and state governments.

Unlike almost all other rich economies, Australia runs three school systems rather than one.

This array has tempted us to treat school as though it was a market, where government, Catholic and independent schools compete for youthful customers, thus providing parents with greater choice and obliging government schools to lift their game.

John Howard was big on choice. Julia Gillard left Howard's pro-choice funding arrangements running until Labor's last year, while emphasising competition between schools.

She introduced the NAPLAN testing of literacy and numeracy and, to ensure parents were well-informed before making their choice, she introduced the My School website, loaded with detailed information about every school.

We got a lot of choice, but no improvement in measured performance. Moral: schools aren't a market.

One benefit, however, is that researchers can collate the My School data to give us a much clearer picture of what's happening to our schools. Leaders in this research are two retired high school principals, Chris Bonnor and Bernie Shepherd.

Everyone knows there's been a decades-long drift of students from government to non-government schools.

What our not-so-retired principals have discovered, however, is that this has masked a big shift from schools with low socio-educational advantage to those with high socio-educational advantage. (A school's socio-educational advantage is rated largely according to the socio-economic status of its students.)

My School shows that, over the five years to 2015, average enrolments at all schools grew by more than five students a year. But enrolments at schools with high socio-educational advantage grew by an average of 11 students a year, whereas enrolments at disadvantaged schools grew by just more than one student a year.

When choosing schools, many of us think of a hierarchy of excellence – in teaching and results – running from government to Catholic to independent. But that's just what you see on the packet. (Echoed by the prices of the packets.)

Studies estimate that 78 per cent of the variance in the performance of schools is explained by differences in their socio-educational advantage – that is, by the socio-economic status of their students.

Independent schools tend to get good exam results because most of their students come from well-educated families. Catholic schools get better results than you might expect because the days when their classrooms were full of working class kids are long gone.

You'd expect this to mean public schools increasingly full of disadvantaged kids getting poor results. True, but they retain a higher proportion of advantaged students than you'd expect.

Why? Partly because public schools in posh suburbs still have lots of smart kids, but mainly because – particularly in Sydney and, to a lesser extent, Melbourne – state authorities have responded to the demand for greater "choice" by creating more selective schools.

But this means greater stratification on the basis of socio-economic status even within the government system, coming at the expense of disadvantaged government schools.

Choice, however, isn't available to all parents. To have a choice you need either brains or money (which usually comes with brains attached).

The vogue for choice has also allowed greater stratification of students on the basis of religion. These days, Jewish kids go to Jewish schools, Muslim kids go to Muslim schools and Baptist and Pentecostal kids go to "Christian" schools.

Trouble is, high socio-educational advantage schools aren't always located in high-status suburbs. So these days, a lot more traffic congestion is caused by a lot more students and parents travelling longer distances to and from school.

Leading to the decline of the local school. Less than a third of schools now have an enrolment that resembles the people in their local area.

Sounds a great way to reduce the nation's social cohesion.

What did the rich kid say to the poor kid? Nothing. They never met.

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Someone has to give if we’re to fix the budget

The nation's budget problem still won't be solved when, one day in the distant future, we get the federal budget back into surplus. Only a change in strategy is likely to produce a sustained solution.

As successive intergenerational reports demonstrate, on present policies government spending will just grow and grow, requiring ever-higher taxes.

If we don't like that idea – or politicians regard it as an impossible sell – we need to think a lot harder about what we're spending on, why it's growing so fast, what things we should stop spending on, and how we can make our spending more effective, in the process slowing the rate at which it's growing.

The five biggest areas of spending include welfare benefits, health, education and infrastructure. Infrastructure's too important to share a column, so we'll return to it.

But it, plus health and education, are even bigger when you remember how they dominate the states' budgets – a reminder that federal and state budgets need to be considered together, and that cutting federal grants to the states, and cost-shifting by the states back to the feds, aren't genuine solutions.

Of three categories – welfare benefits, health and education – the intergenerational reports make it clear health will be by far the fastest growing.

That's not so much because of ageing as because advances in medical technology are hugely expensive, and it's quite unrealistic to imagine that Australian voters will settle for anything less than gaining subsidised access to the latest and best technology ASAP.

Since this is the political reality, the problem (and much of the pressure on budgets) is easily solved.

Our politicians simply need to be brave and tell voters the truth: if they want ever more and better healthcare then, as with everything else, they'll have to pay more for it – in the form of, say, regular increases in the Medicare levy.

That's the fundamental solution, but we could also do more to slow the rate of growth in healthcare spending by removing at least some of the waste and inefficiency that everyone in the system tells us exists.

Much could be done to make education spending more effective. Instead, however, since the national knockback of the 2014 federal budget, the government's done little but crack down on the previous year's crackdown on the welfare cheats the Liberal hard right has convinced itself are ripping off billions every year.

Sorry, not nearly good enough. Nor is preaching the evils of tax increases while you wait for bracket creep to claw back the eight successive tax cuts we were awarded when Peter Costello thought the resources boom would run forever.

The trouble with many professed supporters of Smaller Government is that they want to have their cake and eat it.

They want to reduce government spending so they can pay less tax, but they don't want to give up the middle-class welfare they enjoy – much of it awarded to them by the great man who didn't believe in smaller government, John Howard.

Much of Howard's handouts to the comfortable came in the fifth big spending area, tax expenditures – which have the same cost to the budget as ordinary expenditures, but are hidden away on the tax side where they aren't noticed.

These include various new benefits for supposedly self-funded retirees, the private health insurance tax rebate, big increases in grants to non-government schools and Costello's unsustainably generous increase in superannuation tax concessions for high income earners.

To be fair, Malcolm Turnbull has made a good start to cutting back the super concessions – over the vociferous opposition of his hard right backbench.

More must be done to cut back rapidly growing tax expenditures.

But if we're genuine about achieving fiscal sustainability while restraining the rise in tax rates, we need to embrace a new principle to sit beside our heavily means-tested welfare system (which is the main reason Australia's overall level of taxation is so much lower than almost every other developed economy).

The companion principle should be: we're no longer prepared to subsidise positional goods in the name of encouraging "choice".

We'll put all our effort into providing a good public health system and a good public education system, and that's it.

Of course, it's a free country and if you think you can do better than the public system by making private arrangements, feel free.

But don't expect other taxpayers to subsidise your efforts to get better than they're getting.

In any case, the easier you make it for punters to enjoy positional goods, the less positional you make them, cheating the better-off of their feeling of superiority.

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Private schools becoming less fashionable

It's drawn little comment, but the decades-long drift of students from government to non-government schools has ended.

Figures released by the Bureau of Statistics last month show that 65 per cent of our 3.8 million students went to public schools in 2016, the same proportion as in 2013. If anything, the public-school share is creeping up.

The non-government share divides between Catholic systemic schools with 20 per cent and independent schools with less than 15 per cent. I'll refer to both as private schools.

But the public schools' 65 per cent today is down from 79 per cent in 1977.

Let's start by trying to explain those many years of drift before we wonder about why it's stopped.

When Ipsos Public Affairs asked people why they thought other people sent their kids to private schools, the most commonly cited reasons included the higher standard of education (50 per cent), the better discipline (49 per cent), the better facilities (46 per cent), the size of classes (43 per cent) and because it's a status symbol (40 per cent).

Almost uniquely among other developed countries, Australian parents have a much higher proportion of private schools to choose, and have been given greater freedom to choose between government schools.

Successive federal and state governments have seen greater parental choice between public and private as a virtue, and have encouraged it by increasing their combined grants to private schools at a much faster rate than their funding of public schools.

But I have my own theory on why so many people have opted for private schooling. I think a lot of it gets down to parental guilt.

These days families have much fewer children, which means parents take a lot more active interest in their kids' schooling than they did when I was the last of four.

And these days both parents are more likely be in paid work – meaning they have more money to spend, but see less of their kids than their parents did.

So what more natural than for parents to believe that, in their decisions about how to spend their income, ensuring their kids get the best education possible should have high priority.

And what's more natural in our market economy than to assume that the more you have to pay for something, the higher quality it's likely to be.

It's the old male cop-out, spread to women: I may not see as much of my kids as I'd like to, but I'm working night and day so I can afford to give them the best of everything.

The more materialist you are, the more you're inclined to judge a school by the quality of its facilities – gyms and swimming pools, music, art and drama theatres – than by the quality of its teachers.

Of course, the former is, as economists say, much more "observable" than the latter.

But whatever people give as their reasons for preferring private schools, you'll never convince me they're not well aware of the status they gain by sending their kids to private schools, especially independent schools.

Private schools are among the things economists classify as "positional goods" – they reveal your position in the pecking order.

But what's changed? Why has the drift to private schools come to an end?

One possibility is that the slow wage growth of recent years has made it harder for parents to afford private school fees.

This may be particularly the case for independent schools, where the rate of increase in fees from year to year bears little relationship to rate at which teachers' salaries are rising.

Nor does the rate at which government grants have been growing seem to have had much effect in slowing the rate at which independent school fees have grown. (The extra government grants may have gone into improving schools' facilities.)

My guess is that, as economic textbooks predict, independent school fees rise according to what the market will bear. They judge how strongly demand for their product is growing relative to supply by the length of their waiting lists.

In any case, keeping the cost of independent schooling high is an essential element in maintaining its status as a positional good.

Another possible contributor to the end of the drift to private schools is the decision of state governments – particularly NSW governments – to increase the number of places at selective schools. Why pay fees when you can get what you want inside the government system?

As a parent who's had one of each – independent and selective – I can assure you selective schooling works well as an (intellectual) positional good.

But there's one last possible contributor to the end of the trend to private schools: maybe parents are realising that paying all those fees doesn't buy your kid superior academic results along with their old school tie.

Julia Gillard's My School website has done little to encourage greater competition between schools (a silly idea she got from economists), but it has provided a fabulous database for education researchers.

Various researchers have used it to demonstrate that the best predictor of children's academic results is the socio-economic status (including level of educational attainment) of their parents.

And when you take account of parents' socio-economic status, there's little evidence that kids of similar backgrounds do any better academically at one kind of school than another.

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How we can get better school results

Have you noticed how our politicians, asked to explain or defend their policy on X will, within a sentence or two, switch to expounding on what's wrong with their opponents' supposed policy?

The sad truth is they much prefer scoring cheap political points and blame-shifting to getting on with developing policies to deal with the various problems the nation faces.

Coming up is policy on schools. We'll be hearing a lot on federal funding of schools in a few weeks when Education Minister Simon Birmingham debates the matter at a meeting with his state counterparts.

I've been boning up on schools in preparation for delivering the Australian College of Educators' Jean Blackburn Oration in Melbourne last week. Here's a taste.

The government keeps telling us the problem with schooling is that, for so many years, we spent more and more on school education and the results did not improve. In fact, they got worse.

Well, the last bit's certainly right.

As summarised by Trevor Cobbold, of Save Our Schools, a public schools lobby group, our results on the OECD's program for international student assessment, PISA, have fallen significantly over the past 15 years. We remain one of the high-performing countries in reading and science, but our maths results have slipped to about average.

The results show continuing declines in the proportion of students at the most advanced levels and also significant increases in the proportion of students below the international standard. This includes high proportions of low socio-economic status, Indigenous, provincial and remote-area students.

We get an even more worrying picture from the results of the national assessment program – literacy and numeracy, NAPLAN.

Peter Goss and colleagues, of the Grattan Institute, have pioneered the technique of converting NAPLAN results into "years of progress", using the results of Victorian students.

They note first that the NAPLAN “national minimum standards” are set very low. A year 9 student can meet this standard even if they are performing below the typical year 5 student – that is, four years behind their peers.

They find that the spread of student achievement from highest to lowest more than doubles as students move through school. Low achieving students fall ever further back. They are two years and eight months behind in year 3, but three years and eight months behind by year 9.

Students in disadvantaged schools make about two years less progress between year 3 and year 9 than similarly capable students in high-advantaged schools.

And get this: bright students in disadvantaged schools show the biggest learning gap. High achievers in year 3 make about 2½ years less progress by year 9 than if they had attended a high-advantage school.

Great. But what about the government's claim to have been spending more and more on schools? Birmingham keeps saying that federal funding has increased by 50 per cent since 2003.

This is highly misleading, particularly since what matters is total school funding, coming from both federal and state governments.

According to Cobbold's fact checking, the real increase in total government spending per student over the nine years to 2013-14 was just 4.5 per cent.

There's more. Although the non-government sector enrols less than 20 per cent of all disadvantaged students, the nine-year increase for non-government schools was 9.8 per cent, whereas the increase for government schools was only 3.3 per cent.

So, does spending more money buy better school performance? Not if you spend it on more of the wrong things.

The truth is that we haven't been spending a lot more in recent times but, in any case, much of what we have been spending hasn't been spent effectively.

Between the federal and state governments, we've given more to advantaged schools than don't need it, at the expense of disadvantaged schools that do need it.

When you study the standardised test results, the answer to how the money could be spent more effectively – that is, in a way that increases the probability it will produce better school performance – leaps out at you: we need to spend more per student on disadvantaged schools and less per student on advantaged schools, where parents have demonstrated their willingness to supplement the school's finances by paying fees.

In other words, the obvious way to make government spending on schools more cost-effective is to put it on a needs basis.

We'll know soon enough whether Birmingham has made any progress on that, or has succumbed to pressure from non-government schools following that less-than Christ-like motto: "For unto every one that hath shall be given".

But though it would help to direct more of the funding to schools with more of the disadvantaged students, we need to ensure schools spend whatever they get as effectively as possible.

One new technique that research says would improve outcomes is "targeted teaching".

One of its advocates, Goss of the Grattan Institute, says teachers should be provided with the time, tools and training they need to collect robust evidence of student learning, discuss it with other teachers, and use it to target their teaching to the wide range of student learning needs in their classroom.

Higher achieving students should be stretched, lower achieving students should be supported to catch up, and no student who stalls should go unnoticed, he says.

The school fosters a culture of progress, in which teachers, students and parents see learning success as being about effort and improvement, not ability and attainment. And see assessment as a way to improve, not to expose student failures.

The best schools in Australia are not necessarily those with the best ATAR or NAPLAN scores, but those that enable their students to make the greatest progress in learning. The goal is for each student to have made at least a year's worth of progress every year, Goss concludes.

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Why we've never had 'Gonski funding'

It turns out Christopher Pyne was right: Julia Gillard's version of the Gonski school funding reform was indeed "C​onski".

The con was that the funding changes Gillard put into law in 2013 – which Labor and the teacher unions christened "Gonski" and have virtuously defended from Coalition attack ever since – bore only a vague resemblance to what leading company director David Gonski's panel recommended in its report to the government in 2011.

In a speech last week, Dr Ken Boston, a member of the panel and former NSW Education Department director-general, argued that much of what people think they know about "Gonski" is wrong. He listed four common beliefs that are mistaken.

First, many people believe the Gonski report said additional funding was the key to improving education.

Wrong. "The Gonski report did not see additional funding as the key to improving Australian education. It's most critical recommendations were about the redistribution of existing funding to individual schools on the basis of measured need," Boston said.

"The report envisaged the amount allocated to independent schools being based on the measured need of each individual school, and the amounts allocated to Catholic and government systems being determined by the sum of the measured needs of the individual schools within each system – a process of building funding up from the bottom."

This was in sharp contrast to the process of the last 40 years: top-down political negotiation by the federal government with state governments, independent school organisations, church leaders, teacher unions and others, he said.

The outcome had been that the funding allocations to the three sectors – independent, Catholic systemic and government – were arrived at without any agreed and common system of assessing real need at the level of each individual school.

School funding has been "essentially based on a political settlement, sector-based and largely needs-blind", whereas the Gonski report proposed that it be determined on an educational, not political basis, be sector-blind and entirely needs-based, as well as being bottom up, not top down.

But Gillard rejected Gonski's recommendations and stuck with the old, religion-based arrangements.

"We concluded that an additional $5 billion might be needed on top of the $39 billion being spent annually by the state and federal governments, because of the commitment given by the federal government [Gillard], after the review had started, that no school would lose a dollar as a result of the review.

"This was an albatross around our necks," Boston said.

The second common misunderstanding was that the Gillard and second Rudd governments, having adopted Gonski's approach, then reached "Gonski agreements" with the states, promising additional "Gonski funding" over six years.

Nothing Gonski about it. Gonski recommended that the loading for non-government schools as a proportion of "average government school recurrent costs" – a biased formula that meant public funding for new places for children in disadvantaged government schools automatically increased the federal government grants to non-government schools, without any consideration of disadvantage – should cease.

Gillard, supposedly that great champion of needs-based funding, kept the biased formula alive.

Gonski recommended that the basis for general recurrent funding for all students in all sectors be a "schooling resource standard" for each school, set at a level comparable with schools with minimal educational disadvantage.

To this should be added loadings for schools according to their social disadvantage – low socioeconomic status, English language proficiency, school size and location, and indigeneity​.

Calculation of the resource standard and the size of the loadings should be done by a "national schools resourcing body", similar to the former Schools Commission. Gillard wouldn't touch it.

"Like the Coalition government, Labor has ducked the fundamental issue of the relationship between aggregated​ social disadvantage and poor educational outcomes, and has turned its back on the development of an enduring funding system that is fair, transparent, financially sustainable and effective in promoting excellent outcomes for all Australian students," Boston said.

The third misunderstanding – which Boston labels "the Fairfax view" (not this time, Ken) – is that most of the problems facing Australian education would be solved if we got the last two years of "Gonski funding".

It's true that, so as to disguise the true cost of Labor's politically gutless, bastardised version of Gonski, it was to be phased in over six calendar years, with the bulk of the cost loaded into the last two years, 2018 and 2019.

This was $4.5 billion, which the Turnbull government has cut to $1.2 billion over the four years to 2021.

Even so, "providing the so-called 'last two years of Gonski funding' will not deal with the fundamental problem facing Australian education. Neither side of politics is talking about the strategic redistribution of available funding to the things that matter in the schools that need it, on the basis of measuring the need of each individual school," Boston said.

The fourth common misconception is that the two sides of politics are poles apart. At one level, yes. What they have in common, however, is that neither is genuinely interested in moving to needs-based funding.

"The government and opposition are fluffing around the margins of the issue, and neither appears to understand the magnitude of the reform that is needed, or – if they do – to have the capacity to tackle it," Boston said.

"Equity and school outcomes have both deteriorated sharply since we wrote the Gonski report. Some stark realities now shape the context in which governments – state and federal – must make decisions two months from now about how Australian education might recover from its long-term continuing decline.

"The present quasi-market system of schooling, the contours of which were shaped by the Hawke and Howard governments, has comprehensively failed.

"We are on a path to nowhere. The issue is profoundly deeper than argument about the last two years of 'Gonski funding'," he concluded.

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Education efficiency should start with Grattan compromise

If Treasury wants to start acting more like economists than accountants, a good place to start would be to urge its political masters to seize on the opportunity presented by the school funding "compact" proposed by the Grattan Institute.

Treasury advice would be much improved if it switched its approach to the budget from helping the politicians cook up some quick cuts to government spending to a more medium-term focus on achieving better value for the taxpayers' dollar through greater efficiency and effectiveness.

A more medium-term approach allows greater scope for micro-economic considerations to be incorporated into decision making.

The policy quagmire of school education is crying out for Treasury's guiding hand. It's hard to believe that school funding is still dogged by century-old sectarian rivalry between the public, Catholic systemic and independent school systems.

Thanks to this unending rivalry, the nation spends almost all its time arguing over how public funding is shared between the three systems, leaving little time to debate how well the money's being spent and how it could be better spent.

Meanwhile, domestic performance measures (NAPLAN) show, at best, no improvement in our performance over time, and international measures (PISA) show other countries improving while we mark time.

Our results show a wide gap between our best and worst performing students, which hasn't changed much, neither because our best have got better nor because our worst have got less worse.

Is this something Treasury is happy to see roll on? One unlikely to have much adverse effect on either the budget balance or national productivity?

Well, if we keep putting most of our energy into public versus Catholic versus independent, rest assured it will.

The Gonski funding review came up with a breakthrough proposal to rise above sectarian squabbling by moving to the division of combined federal and state funding on the basis of student need, regardless of which silo a disadvantaged student was in.

The Gillard government belatedly introduced a bastardised and far more expensive version of "Gonski", which the Abbott government pretended to support but disavowed immediately on winning office.

So the sectarian standoff remains. The Coalition isn't prepared to implement Labor's version of Gonski because it's too expensive, but it's too expensive because of Labor's promise to help the poor schools (those with many disadvantaged students) at no cost to the rich schools (those with few disadvantaged students).

Trouble is, until we direct more funds to the disadvantaged students, we don't stand much hope of improving our schooling outcomes.

Of course, a more efficient allocation of funds is just the first step towards improving the outcomes of disadvantaged students –  which is why it's so important to move the debate on from how the money's divided to how effectively it's being spent.

Clearly, moving to needs-based funding is as much about efficiency as about equity (fairness).

It makes zero economic sense to continue overfunding some students while those you underfund become an underclass of poorly educated workers who spend a lifetime in and out of employment, making a weak contribution to national productivity (not to mention being a recurring drag on the budget).

The 2014 budget did nothing to correct the maldistribution of federal funding to public and private schools, it just cut the basis of annual indexation from a high rate set by the Gillard legislation to just the consumer price index (much less than the rise in teachers' wages). It was about cost shifting, not reform.

This was always unsustainable politically. In the end, Malcolm Turnbull relented and promised to keep the original funding arrangement going for another three years to 2020.

Turns out grants are set to grow by 3.6 per cent a year, whereas teachers' salaries are more likely to grow by 2.5 per cent.

The genius of the "circuit-breaking new compact" proposed by Peter Goss and Julie Sonnemann of the Grattan Institute is that it seizes this rare chance to propose a deal that would get all schools up to 95 per cent of needs-based funding (the "schooling resources standard") by 2023, much earlier even than Gillard's plan.

This would involve schools below the 95 per cent benchmark having their funds raised by 3.6 per cent a year, while those between 95 and 100 per cent of the standard would rise by 2.5 per cent and those already above the standard would mark time.

This last element is the compact's point of political vulnerability, of course, and already Labor has found it.

Put the Labor opposition's personal ambitions ahead of the interests of disadvantaged students? Why not, says Labor's spokeswoman, the not so lovely Tanya Plibersek.

Let's hope Treasury has higher principles than Labor.

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If the economy’s acting dumb, don’t blame the econocrats

Has it occurred to you that, with the Reserve Bank now run by Dr Philip Lowe and his deputy Dr Guy Debelle, Glenn Stevens may have been the last governor we'll see without a PhD?

All Stevens and his predecessor, Ian Macfarlane, could manage was a master's degree.

Of course, nothing is certain. After Dr Ken Henry was succeeded as Treasury secretary by Dr Martin Parkinson, I convinced myself the era of PhD-only secretaries had arrived at Treasury.

Wrong. It didn't occur to me that Tony Abbott would intervene, sacking Parkinson and replacing him with John Fraser (honours degree), a throwback to Treasury's (John) Stone Age.

My point is to remind you that the nation's top econocrats get ever-better educated. And take my word for it – they're not just highly qualified, they're whip smart.

When you spend as much time talking to them as I do – mainly before they make it to their top slots – you have to keep reminding yourself how exceptionally bright they are to stop you underrating your own brainpower.

They're the kind of people who – while you were at uni chasing the opposite sex, playing at politics or just goofing off – were swatting flat out, preparing for every lecture and starting early on every essay. You skimmed the texts; they read every word.

While chatting about other people's academic qualifications I suppose I should disclose my own: scraped through a bachelor of commerce, pass level.

Had to repeat several subjects, and the last pass I got, for international economics, was conceded. I couldn't see the point of economics until long after I left uni.

If by now I do know a bit about the topic, it's thanks mainly to long telephone tutorials from the aforementioned and their predecessors.

As citizens we should find it reassuring that our politicians are being advised by such smart people.

For the most part they're more intelligent (and better qualified) than their political masters – and than the politically ambitious young punks in the minister's office who stand between them and the boss.

We'd be better governed if more of the people in ministers' offices came from the department, if there was a less adversarial relationship between the office and the department, and if ministers and their private advisers were more conscious of their need for policy advice from the more expert.

After Scott Morrison's major speech about "the taxed and the taxed-not" I stopped myself saying it was clear Treasury hadn't written it because of all the bad grammar in it.

The broader point is that, although the nation may not be doing as well as we should be in increasing the human capital of the workforce, there's no doubt our workforce is getting better qualified.

Over just the 10 years to 2015, the proportion of our population aged 20 to 64 with a bachelor degree or above rose by 7.5 percentage points to 29.3 per cent.

This would include a lot of our brighter young people getting double degrees – the benefits of which I'm yet to be persuaded of. (Whether too many of our workers have actually become overqualified is a worry for another day.)

So rest assured, the economic bureaucracy is at least keeping up with the trend to better qualified workers, and probably exceeding it. Of course, people with doctorates are popping up throughout the workforce, not just the bureaucracy.

Most of the Reserve's PhDs are home grown. As you may remember from Peter Martin's fascinating biography of its new leadership, Lowe joined straight from school, meaning the Reserve funded his education all the way from undergrad university medal to doctorate from MIT in Cambridge, Massachusetts.

Since the Reserve earns a fortune each year by printing bank notes for less than 10¢ a pop and selling them to the banks at face value (only most of which it eventually passes on to the government), it's well able to afford to ensure its troops are well educated.

It's harder for Treasury, whose bright young things compete against the rest of the public service for a limited number of scholarships (one of which was endowed by the will of a former Treasury secretary).

You could be forgiven for wondering whether having our top econocrats so well-qualified academically is such a wonderful idea. Fortunately, there's a big difference between an econocrat with a PhD and a university lecturer with one.

Too many trainee academic economists are just learning to do mathematical tricks that will impress their peers. A post-grad from the bureaucracy knows they're learning how to prescribe better economic policy.

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Our youth jobs report card: what's up with you people?

It's surprising how many of our politicians, economists and business people fail to see that our preference for looking after high-achieving young people and not worrying too much about the stragglers is a recipe for much more than social injustice and unfulfilled lives.

The earlier we identify and help kids at risk of doing poorly in education, training and employment, the more we help the community as well as the kids.

It's a social and economic investment. Neglect it and we lose much more later, as people spend more of their life on benefits and add little to the productivity of our workforce.

On the face of it, a report card on our performance, Investing in Youth: Australia – to be released by the Organisation for Economic Co-operation and Development at a forum hosted by the Brotherhood of St Laurence in Melbourne on Monday – gives us a pass.

Our education system "performs well overall, and school completion rates have been rising in recent years".

The labour market situation of youth in Australia is "quite favourable by international standards". Our youth unemployment rate is [a bit] "below the OECD average".

But this is not so terrific when you remember that "Australia was hit much less heavily by the Great Recession than most other countries".

"After continuous decline in youth unemployment rates since the early 1990s, rates have started rising again, while youth employment has fallen."

But the report focuses not on youth unemployment, but on NEETs – the share of youth (people aged 15 to 29) who are "not in employment, education or training". And, at 11.8 per cent, the share of NEETs was higher in 2015 than it was before the global financial crisis in 2008.

That's well over half a million young Australians out of education and work. About a third of those are looking for work, but the other two-thirds aren't.

The first factor driving the high proportion of NEETs is low educational attainment. Quelle surprise.

Youth with, at best, a year 10 certificate, account for more than a third of the NEETs. And their risk of being in that state is three times as high as for those with tertiary education.

Worse, "many NEETs lack foundational skills (numeracy and literacy) and non-cognitive skills, which are important prerequisites for labour market success," the report finds.

But there's hope if we bother helping. "Recent research demonstrates, however, that non-cognitive skills, like cognitive skills, remain malleable for young people through special interventions."

Get this: the risk of being NEET is 50 per cent higher for women, and women account for 60 per cent of all NEETs.

So the biggest single explanation of why so many NEETs aren't looking for work is that many of them are young mothers with a child below the age of four. And don't assume they're all sole parents on welfare.

The report adds that NEET rates are substantially higher among Indigenous youth, who represent 3 per cent of the youth population, but 10 per cent of all NEETs.

And the likelihood of being NEET is substantially higher for youth with disabilities.

In case you're tempted by visions of all those lazy loafers out surfing, or with their feet up watching daytime television, the report says NEETs "tend to exhibit higher rates of psychological stress and lower levels of life satisfaction" than other youth.

In its own ever-so-polite way, the report notes our less-than-stellar performance. The completion rate for vocational and educational training certificates and apprenticeships "remains low by international standards".

That's one way to acknowledge the awful stuff-up we've made of VET.

Australia has a wonderful, very flexible, market-based network of employment service providers that "cover, however, only about 60 per cent of NEETs, leaving around 200,000 youth unserviced". Oh.

"Young jobseekers' participation in training programs increased over the last years, but this trend came to a halt with the recent expansion of Work for the Dole", we're told.

"Given strong evidence on positive employment effects of training, including for disadvantaged jobseekers, Australia should continue promoting training program participation as an effective way of moving young jobseekers into stable employment."

Translation: what's up with you people?

The report praises our Youth Connections program and its effectiveness in improving educational attainment for youth at risk of dropping out of school – before noting it was phased out in 2014.

"The recent tightening of eligibility criteria for unemployment benefits may create additional incentives to actively look for work, but it also bears the risk of pushing the most disadvantaged youth into inactivity and possibly poverty," we're told.

Translation: you mean Aussie bastards.

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