Editorial Issue 77 The 2014 Budget; how to be cruel to be unkind
The first budget of the Abbott-led Coalition will be remembered for its politics and not its economics. Despite very loud rhetoric about debt and deficit, the macroeconomic settings left by Labor are little changed. The last Swan budget of 2013 forecast a budget deficit of A$18 billion in 2013-14, moving to a surplus in 2015-16. The Hockey budget of 2014 shows a deficit $29.8 billion for this year with the move to surplus being put back to 2018-19.
Deficits and surpluses are small balancing items between much larger flows of income and expenditure Treasury estimates government receipts for 2014-15 will be $385.8 billion (23.6 per cent of GDP) and government expenditures will be $412.5 billion (25.3 per cent of GDP). The Coalition, like Labor in government, is basically relying on expenditure cuts to balance the budget.
The Coalition, again like Labor, is not giving serious attention to the revenue side of the budget. Serious tax reform is being shirked and instead company tax is cut and and the mining and carbon taxes abolished. The temporary ‘deficit levy’, an increase of 2 percentage points on the income tax of those with annual incomes over $180,000, is the only progressive element albeit it small and short-term. It amounts to an increase of $7 per week for someone on $3,460 per week. Perhaps it is only coincidental that this is same amount as the co-payment from poor and rich alike who visit a doctor.
Social services and public infrastructure in Australia are strained because public revenues are too low. Yet generating the needed revenue is straightforward; close the rorts and distortions associated with family trusts and negative gearing; remove the advantages in superannuation given to high income earners and close the gaping loopholes by which the largest mining business in Australia paid no company tax for the last three years.
The Abbott government is using the deficit as cover for a combination of ideological warfare and plain meanness. The five largest areas of expenditure cuts over the four years of budget estimates are $8.5 billion from welfare, $7.6 billion from foreign aid; $6.6 billion from education; $6.4 billion from Medicare and $3.5b from pensions. 16,500 jobs are to be cut from the public service, including 4,500 from the Taxation Office.
Some of these savings will go not to reducing the deficit. S10.1b will go to building roads and helping the States privatise. $1.1b is allocated to pay for the ‘direct action’ policy on carbon emissions. The revenue from the proposed GP co-payment is to go to a Medical Research Future Fund though it is unclear whether this is actually additional to existing medical research funding.
The report of the National Commission of Audit that preceded the budget mapped out the ideological agenda. Chaired by Tony Shepherd from the Business Council of Australia, it predictably emphasised policies for ‘smaller government’ and more private rather than public provision of services. It recommended that single people between 22 to 30 unemployed for more than a year should be required, at the penalty of losing benefit, to relocate to a high employment area. It also recommended that the minimum wage be brought down from the current 56 per cent of average weekly earnings to 41 per cent and that the uniform national minimum wage be replaced by one that varies between States.
The Commission recommended co-payments, increased incentives for private health insurance, tightening eligibility for all welfare benefits and increasing the share of university fees paid by students. Significantly though, the Audit Commission thought the deregulation of university fees was a step too far and it warned that deregulation could lead to higher costs for the Government as well reducing equity of access. This has not got in the way of Minister Pyne’s crusade for a US-style higher education system that is also being embraced by the Vice-Chancellors of the Group of Eight universities some of whom were progressives in previous lives.
The Audit Commission looked for a return to Australian federalism of the early twentieth century based on what it terms the two principles of subsidiarity and sovereignty. The former is that everything should be done at the 'lowest' level of government, while the latter is that each level should stick to their knitting. The States would need more of the total public revenue and the Commission argued for the States to get a share of the personal income tax collected by the Commonwealth.. However, the ‘realpolitik’ of the 2014 budget seems to be to manoeuvre the States into accepting broadening the GST and increasing its rate. A yet more regressive tax system beckons.
Public rallies and opinion polls show a wholesale rejection of the Budget. It is a very strong reaction so early in the Government's term and hopefully is more than the personal 'hip-pocket' nerve. If so, it might be a basis to build awareness that taxes are not a 'cost' but the means to fairness, a sane society and good environmental protection.
There is a high probability that the budget will be mangled in the Senate by combinations of Labor, Greens, Palmer and the rest. It is hard to see any coherent outcome. Meanwhile, it is refreshing to know that Rupert Murdoch is happy and optimistic. He has been reported as saying 'Tony Abbott is an admirable, honest and principled man', and that Australians 'should not be building windmills and "all that rubbish"'. The solution to climate change according to Rupert is to adapt -
"If the sea level rises six inches, that's a big deal in the world, the Maldives might disappear or something, but OK, we can't mitigate that, we can't stop it, we have to stop building vast houses on seashores.
Oh well, with insight like this, who needs universities or even government?