We are not yet there on budget repair

Amid more dark warnings from former central bankers and treasury secretaries about the need to rein in the budget deficit, Canberra’s spring session enjoyed a little ray of sunshine when parliament passed an omnibus savings bill on September 16. As suggested in these pages (“Budget bilateralism is the only way”, August 1), the Coalition and Labor got together and negotiated a set of measures to achieve savings of more than $6 billion over the four-year budget period. It’s an encouraging start but in the context of projected accumulated deficits of $84 billion, much more needs to be done. Whether the government likes it or not, further progress will require a combination of savings and revenue measures.

Australia’s government spending as a proportion of GDP is the second lowest in the OECD. It cannot be argued credibly that all those countries with greater spending – including Germany, the US, Britain, Norway, Austria and Denmark – are economic basket cases. Health is a rapidly growing area of government expenditure in the developed world, a consequence of ageing populations and marvelous new medical technologies and medicines.

As agreed by parties to last year’s National Reform Summit, efficiencies in the delivery of health services are well worth pursuing where they do not result in reductions in quality. But at best any efficiency improvements would slow the rate of increase in health spending as a proportion of GDP.

Education minister Simon Birmingham wants to negotiate with the states on the needs-based funding formula for schools legislated by the Gillard government. He will have a tough time convincing even the states run by conservative governments – especially NSW – that they should forego the legislated funding for their most disadvantaged schools. Labor states and the federal Labor opposition will never agree to the effective dismantling of the needs-based funding model. Nor should they. Legislated funding increases for wealthy schools might be a different story, but the Coalition is likely to insist they constitute an untouchable part of its political base.

By far the biggest area of federal spending is in the category of social security and welfare. Using data to inform policy approaches to help households break the cycle of welfare dependency sounds worthy, but it cannot be a ruse for targeting our most needy citizens for cuts in support. As has been demonstrated time and time again, Australians actually want a strong social safety net.

Savings can be achieved in the area of eligibility for the age pension, a fast-growing area of expenditure. But the Coalition considers relatively well-off people drawing a part-pension in order to achieve eligibility for the coveted Commonwealth seniors health card to be another part of its political support base and therefore also untouchable.

Wherever the Turnbull government searches for new savings measures, it is unlikely to find common ground with Labor if it maintains its purely ideological opposition to any further revenue measures. Labor is legitimately asking why it should agree to major new savings when the government insists on maintaining what treasurer Morrison described in February as “the excesses” of negative gearing and which Malcolm Turnbull in 2005 described as a “sheltering tax haven” and “tax avoidance”, arguing that it is “skewing national investment away from wealth-creating pursuits, towards housing.” Their observations were right then and they are right now.

Sure the Coalition promised no changes to negative gearing during the election campaign as it launched its failed three-word slogan scare campaign against “Labor’s housing tax.” But it also promised no changes to its superannuation measures but changed them in recognition of post-election parliamentary realities.

In 2013 the Coalition ran a successful campaign against the Labor government’s efforts to close down rorts in car leasing arrangements. The tax shelter is still wide open.

The prime minister rightly claimed the negotiated omnibus bill and the amended superannuation savings package as much-needed personal successes in the recent parliamentary sittings. The passage of the omnibus bill was as much a credit to Bill Shorten and his economic ministers Chris Bowen, Jim Chalmers and Andrew Leigh, who had its most odious measures removed and replaced with fairer measures such as the abolition of the baby bonus that constituted broken Coalition promises.

In the interests of the nation the search for more common fiscal ground should continue, protecting the vulnerable from cuts and free of Coalition dogma of no new revenue measures when it knows tax shelters are being used to divert investment away from the productive economy. 

Published in the Australian Financial Review on 27 September, 2016.