Column in the Financial Review

Published in the Australian Financial Review on June 4, 2014

Budgets are about choices. Yet the Government would have you believe it has no choice but eventually to deny the age pension to everyone under the age of 70 years, apply a $7 charge for visiting a doctor and having a blood test, cut funding for public hospitals and schools and hike university fees to whatever the market will bear.

There are alternatives and there is a better way. Before going to these, it should be acknowledged that the Budget contains a raft of sensible measures that the Senate should support. They include the Coalition’s very own carbon tax – the resumption of fuel excise indexation that the Howard Government abandoned. Political parties that agree with carbon pricing should feel comfortable supporting fuel excise indexation.

After an indulgent period of ramping up middle-class welfare when last in office and opposing most Labor Government efforts to pare it back, the Coalition has finally acted responsibly and tightened the income tests for family payments and other benefits. These include the Private Health Insurance Rebate whose means testing the Coalition had promised to reverse when the Budget permitted. Also courtesy of the Howard Government, most of the one-fifth of retirees not receiving a part-pension have been eligible for the Commonwealth Seniors Health Card, but the Abbott Government is tightening it for new entrants.

In justifying an increase in the age of pension eligibility to 70 years, the Government asserts that Australians are living longer.  But it is not necessarily true of the poor. The life expectancy of poor Americans has barely improved over two decades, leaving Nobel Laureate Paul Krugman to ask why the poor should lose benefits as a consequence of better-off Americans living longer. Australia can afford an age pension system for the genuinely needy. Yet, as the Treasurer pointed out in his Budget speech, a couple with a home and almost $1.1 million in assets qualifies for the pension. That’s the problem that needs fixing, rather than expecting labourers and nurses to work till they reach 70 years of age.

In an earlier speech the Treasurer lamented that costly superannuation tax concessions were meant to prevent the present situation of four-fifths of retirees receiving the age pension. Yet the Government refuses to consider reducing the generosity of those tax concessions at the top end, instead scrapping Labor’s savings measure for the top 16,000 superannuants and leaving the top 5 per cent of superannuants to scoop up more than 20 per cent of the value of concessions.

As for the $7 Medicare co-payment, this is a policy explicitly designed to discourage people from going to a doctor and having pathology tests. Early detection gives people with chronic diseases the best chance of survival. No analysis of increased hospitalisation rates, or their cost, has been done.

The Government claims it is not cutting back on funding to the states for hospitals and schools, since the Labor Government never included funding increases its Budgets. If that were true, the Budget Papers should not be counting savings on public hospital funding totalling $1.8 billion over the coming four years. The needs-based school-funding model proposed by David Gonski is effectively gutted at the end the four-year Budget period.

Full deregulation of university fees has unknown economic and equity consequences. Vice Chancellors can only guess at the impacts on courses such as engineering and science.

An alternative to political head butting is available. Labor would wave through most of the structural Budget savings measures, including fuel excise indexation and the tightening of income tests on family payments, age pensions and entitlements. While opposing an increase in the pensionable age to 70 years, Labor would offer to work with the Government on further tightening means tests for new entrants so that the pension is a genuine safety net. Putting retirement incomes policy on a sustainable footing must include reviewing the generosity of superannuation tax concessions, but only at the top end, where it is both unfair and unsustainable.

Since the Medicare co-payment does not affect the Budget bottom line, it can be deferred with no fiscal consequences. The uncommitted funds in the existing Health and Hospitals Fund will be tipped into the new Medical Research Fund anyway. An independent inquiry would be established into the sustainability of health funding.

Similarly, an independent inquiry would be conducted into the sustainability of the higher education system, with the major parties seeking to agree on the terms of reference.

For those who believe a delay in any savings measure is unconscionable, the impact on the Budget bottom line in 2014-15 of all decisions taken by the Coalition Government since coming to office is an improvement of just $1 billion. If the controversial health and education measures did not proceed at this stage, and the Government suspended new spending on Direct Action and regional pork barrelling, there would be no change to the bottom line in 2014-15 and a negligible effect the following year.

Structural improvements in the Federal Budget are in the nation’s interest and, incidentally, in the interests of the major political parties. It is open to the Coalition and Labor to pass most of them and to work together to achieve further savings that are fair to the vulnerable and truly end the age of entitlement for the better off.

Source: http://www.afr.com/p/opinion/budget_measur...