Published in The Weekend Australian on 8.03.14
Australia’s on-again, off-again Budget Emergency is on again. Not that you’d know it, with a $300 million drought package unveiled in late February lifting the net cost of post-election Coalition government policy commitments to $14 billion. Yet when Treasurer Hockey announced a forecast $47 billion deficit for this year in the December mid-year economic and fiscal outlook, he blamed it all on the previous government.
According to this argument, Labor, now in opposition, had forced the new government to give $8.8 billion to the Reserve Bank, spend $1.2 billion keeping its election promise on schools, dish out $342 million in community development grants and forego revenue of $1.8 billion by not proceeding with changes to the fringe benefits tax treatment of leased cars. It’s the prerogative of the new government to make these decisions, but blaming the previous government for them is pretty rich.
But worse, Labor was to blame for a $37 billion downgrade in revenue estimates for the next four years that had occurred between the pre-election economic and fiscal outlook released by the Treasury and Finance departments in August and the mid-year outlook released by the government in December. And it was Labor’s fault that the government assumed lower growth and higher unemployment in its December statement than Treasury and Finance had done in their August statement – adding a further $18 billion to estimated spending.
Labor had no influence over Treasury and Finance officials during the caretaker period when they prepared their pre-election forecasts, just as the Coalition had none.
Yet Labor spending is alleged to have created not only a $47 billion deficit in 2013-14 but also a massive deficit blowout over the four-year budget period. In criticising the May budget last year the Coalition claimed the Labor government didn’t have a revenue problem it had a spending problem. If there was no revenue problem, why has Treasury continually downgraded its revenue forecasts in the last several budget statements, including in the Coalition government’s own mid-year review?
Blaming the previous government for your own new spending and taxing decisions and claiming your predecessors cooked the books might be good politics but it’s no substitute for good fiscal policy.
So let’s put the spin aside and acknowledge the need for fiscal consolidation to deal with the aftermath of the end of the mining investment boom. Mining investment is in steep decline and other sectors of the economy are far from completely filling the gaping hole. And just as happened in the mid-1980s, when Paul Keating warned of the dangers of Australia becoming a banana republic, the world is paying us less for our commodity exports than it had done until recently.
Add the costs associated with an ageing population, including fewer working-age Australians earning the incomes and paying the taxes to support retirees and the expense of marvellous new life-extending medical technologies, and Australia is facing a big fiscal challenge. If we are to have a properly funded National Disability Insurance Scheme and a needs-based school funding system beyond the four-year budget period then long-term savings will need to be found.
A good start would be to take the Business Council of Australia’s advice and pare back family payments at the higher end of the income scale while maintaining a strong safety net for the vulnerable. Sending cheques to families earning $170,000 a year surely isn’t a priority in a tight budget. Reducing and freezing the upper income eligibility thresholds for family tax benefit part A would achieve substantial ongoing savings.
Reportedly the government’s commission of audit has recommended that the Coalition’s extravagant paid parental leave scheme not proceed. If that’s so, it’s excellent advice.
When the previous Labor government sought to reduce superannuation tax concessions for 16,000 of Australia’s highest income earners the Coalition protested it was unfair. Instead it chose to reinstate a 15 per cent tax on the superannuation contributions of Australia’s 3.6 million lowest income earners.
See a pattern here? The Coalition is reluctant to require its high-end supporters to make a contribution to fiscal consolidation but doesn’t seem to have such qualms about hitting the less fortunate. A Liberal government in the Menzies tradition would not see merit in sending cheques to the well off, but the Howard government prioritised the expansion of middle-class welfare out of the temporary proceeds of the first mining boom. The Abbott Liberals have gone further, opposing the previous Labor government’s efforts to scale back Howard’s middle-class welfare and describing family payments and the private health insurance rebate for high-income earners as ‘tax justice.’
If the Coalition government insists on protecting the wealthy while belting the vulnerable, the Labor opposition is justified in opposing such unfairness. Nor will the Australian people accept a blatantly unfair budget. But if the Abbott government were to emulate the approach of the Hawke government when confronted with similar circumstances and exercise restraint with equity, Labor would be under an obligation to support it. Over to you, Treasurer.