The media today is chockablock full of articles claiming that Australian’s response to the Federal Budget is not justified, and suggesting that we should just stop complaining.
The Australian has gone full-out in what appears to be a synchronised attack on Australian’s sense of entitlement and blindness on the very real pressures facing the Budget.
First up is Judith Sloan, who argues that the Budget measures were necessary in light of Australia’s falling terms-of-trade and rising old-aged dependency, and that the poor were not unnecessarily targeted:
…we have been living in something of a fool’s paradise by believing the party could last.
…higher-income earners get very little in the way of government benefits (the top 20 per cent of income earners receive only 3 per cent of government benefits) but the top income earners pay the vast bulk of the income tax revenue. The top 25 per cent of income earners pay more than two-thirds of all income tax revenue; the top 10 per cent pay 45 per cent.
With the introduction of the Temporary Budget Repair Levy, many of these top income earners will pay an additional 2 per cent on their income tax at the margin…
And as for the slower growth in spending on schools and hospitals, the budget is simply revealing the hoax that was left by the Labor government…
The fact that many middle-income earners, in particular, will receive less by way of government transfers is part of the budget adjustment that is required to ensure that surpluses can be achieved in the future and the debt can begin to be paid off.
And here’s Adam Creighton, who argues that Australia’s health, education and welfare system is overly generous when compared against our cousins across the pond:
The culmination of almost two decades of mainly populist budgets, the Abbott government will spend $6200 a person on cash welfare next year, over 25 per cent more than New Zealand’s government will on each of its citizens (converting all amounts to Australian dollars)…
Education spending, at $2900 a person, is 10 per cent more generous in Australia but health expenditure is torrential by comparison: Australian state and federal governments will lavish more than $4600 a person to keep Australians alive and healthy, almost 50 per cent more than is spent in New Zealand. No methodological quibble could bridge such stark differences…
If the federal government overnight reduced welfare, health and education spending to New Zealand levels it would be rolling in a $40 billion budget surplus next year rather than wallowing in deficit until 2018 or even later.
Creighton also notes that Australia has 8.4 times as many public servants as New Zealand, when adjusted for population.
Finally, here’s Michael Bennett quoting David Hisco, the chief of ANZ NZ, who argues that Australians need to take some “tough” Budget medicine:
David Hisco, the chief of ANZ NZ, the biggest bank across the Tasman, said that more than 20 years of growth and “plenty of money for handouts” had perhaps lulled people into believing the country could not “end up in a really bad position”.
“NZ has taken some tough medicine … Australia has got to take the same medicine we took to get ourselves in a better position. But it will get better”…
“Kiwis actually knew they needed something. I’m not sure Australians realise that they need to do something different or they’re going to get the same outcome.”
Similar articles have appeared over at Fairfax.
Here’s John Roskam, executive director of the Institute of Public Affairs, arguing in The AFR that the poor “are not carrying the Budget”, and that the Coalition’s cuts were entirely appropriate:
…two decades of prosperity have made the public accustomed to their entitlements and have made politicians accustomed to handing out those entitlements. It could be years before the expectations of the public catch up and correspond to fiscal reality. Based on the reaction to the budget so far, that transition could be quite traumatic.
Mr Hockey’s first budget made only about a quarter of the changes necessary to secure the country’s fiscal sustainability. Last week’s budget was the start of a process that will continue for years…
There’s a world of difference between the government giving you less of something that isn’t yours to begin with, and the government taking something from you that is yours in the first place…
No one talks about whether it’s equitable for the government to take close to half of what some people earn.
Head of the Commission of Audit, Tony Shepherd, also calls on Australians to stop complaining and embrace ‘sharing the burden’ of adjustment. From The Canberra Times:
”I think it’s a sad reflection on the modern Australian attitude that they can’t see that all areas have to make a contribution and they look at it as a narrow, sectional issue’…
”People will protect their sectional interest, that’s understandable, but I wish people could also stand back, look at the overall picture of the Commonwealth budget and rather than say ‘don’t touch me’, say ‘what can be our contribution to a sustainable surplus’.”
I have some sympathy with the above views, but also recognise that some measures in the Budget were overly harsh and regressive, including tougher requirements on unemployed under-30s and the disabled, as well as changes to university fees and funding. Some measures were also downright unnecessary, such as Abbott’s highly spurious paid parental leave scheme and the the $20 billion medical research fund.
However, to its credit, the Budget did at least acknowledge that the nation’s finances are unsustainable in their current form and need fixing – a point stressed by Judith Sloan in her article above. And with it, the Budget provided a reality check to an electorate that has been spoilt over the past decade or so, and whom has yet to come to terms with the fact that the rivers of gold from the commodity price boom and favourable demographics have dried up.
In particular, the ageing of Australia’s population and the large scale retirement of the baby boomer generation means that there will be a shrinking pool of workers supporting a growing army of retired and aged people, causing the tax take to shrink just as aged-related spending is rising.
The Coalition’s targeting of the Aged Pension was, therefore, especially commendable, even if it has opened itself up to attack. Instead of taking the easy way out and appeasing the large and vocal grey vote, which also happens to be a key pillar of its electoral base, the Coalition took the bold move of unwinding generous indexing arrangements, tightening means testing of the Commonwealth Seniors Health Card, and even abolishing the $850 a year Seniors Supplement. After all, how can anyone credibly justify increasing the real value of pensions for the bulging cohort of retiring baby boomers, when there will be relatively fewer taxpaying workers to support them?
The fuel excise re-indexation was also a great move, and reverses one of the biggest blunders of the Howard Government, who in 2001 froze excise – a move that now costs the Budget some $5 billion per year in lost revenue, with this figure growing over time with inflation.
The fact is, this was merely the beginning of tough Budgets. Commodity prices and the terms-of-trade are trending down, crimping the tax take from profits, and workforce participation is entering a structural decline, brought about by the large scale retirement of the baby boomer generation, just as outlays to the aged are increasing.
Politicians and the Australian public more generally must confront the reality of a Budget facing intense long-term structural headwinds, and recognise the need for expenditure cuts and/or tax increases – there can be no more free lunches.
Viewed in this light, the above articles make some worthy points.
That said, budgetary reform should be as equitable as possible, and not overly burdensome on the weakest members of society. Certainly, the the attack on young unemployed and the disabled fails this test, along with the Government’s stance on university fees and funding.
Looking ahead, the next targets of budgetary reform must be Australia’s more egregious tax expenditures – including overly generous superannuation concessions (which mostly benefit the wealthy), quarantining negative gearing so that losses from an asset can only be claimed against income from that same asset, removing the capital gains discount on investments, and removing tax concessions on company cars. Abbott’s paid parental leave scheme should also be abolished.
Reforms to these areas alone would save many billions of dollars and improve equity in the process.
All parties should also be championing broad-based tax reform, with a focus on both broadening the tax base and shifting it towards more efficient sources – namely away from productive enterprise and onto consumption, land and resources.
These are the areas where future budgetary reform must focus, in the name of achieving long-term budget sustainability, greater equity, and spuring productivity.
