Treasurer Joe Hockey last night delivered a speech to the Sydney Institute, in which he vigorously defended last month’s Federal Budget and attacked opponents for engaging in 1970s-style “class warfare”. From The AFR:
Mr Hockey rejected claims that the budget signaled the demise of universal healthcare and free higher education, saying both these systems had ended decades ago.
He particularly targeted the welfare spend, which at 35 per cent of the federal budget is more than is spent on health, education and defence.
“Payments are too broadly available to too many people”, he said.
At the moment over half of Australian households receive a taxpayer-funded payment from the government, and one in 10 households rely entirely on the government for household income…
The Treasurer said the average working Australian, “be they a cleaner, a plumber or a teacher, is working over one month full time each year just to pay for the welfare of another Australian. Is this fair?”
“Whilst income tax is by far our largest form of revenue, just 10 per cent of the population pays nearly two-thirds of all income tax,” he said
These taxpayers may well argue that the tax system is already unfair, he said.
Let me state from the outset that I agree with the Coalition’s position that current Budget settings are unsustainable, given the ageing of the population and the structural decline in the terms-of-trade. I also broadly support the changes to indexation arrangements for the Aged Pension, which are essential to prevent payments ballooning as the proportion of workers supporting the aged shrinks.
That said, the lion’s share of the Budget measures are inequitable, and place an unnecessary burden of adjustment on poorer members of the community.
As noted in The Guardian today (here and here):
The Australian Council of Social Security found that more than $19bn of the $37bn in budget savings came from reductions in spending on programs that mainly assist low and middle income earners and only $5.7 billion came from tax increases or savings in programs mainly benefiting people on high incomes.
An analysis by the Crawford school at the Australian National University also found that lowest income workers would suffer the most pain from the budget…
The budget proposed in simple terms a cut of some 12% to 15% in the disposable income of the lower-income groups, single-income families, families with children, but only less than 1% cut in disposable incomes for those on higher incomes.
Even on the Aged Pension, it would have made even more sense to significantly reduce the assets/income test, so that wealthier retirees lose access, rather than targeting the rate per se – a point argued by former Liberal leader, John Hewson.
And then there is the issue of Australia’s world-beating and poorly targeted tax expenditures – including superannuation concessions, negative gearing, and tax breaks on company cars – which cost the Budget billions in foregone revenue and overwhelmingly benefit the wealthy. None of these items were tackled in the Budget, undermining Hockey’s claims about fairness.
On this point, John Hewson is scathing:
“Super concessions cost roughly the same as the aged pension, but are increasing faster than the cost of the aged pension. An example of the conspicuous benefit to the rich is the concessional tax on superannuation contributions, such that it costs a person on an annual income of about $20,000 about $118 to gain a $100 benefit, whereas somebody on an income of $250,000 only has to spend $62.50 to get the $100 benefit”…
It was “hard to defend” the government’s decision to maintain fringe tax benefits on cars, he said, and the paid parental leave scheme should be made “significantly less generous with the savings more effectively and equitably redirected to more means-tested child care”.
Ross Gittens agrees:
The intended effect of this bias against spending and in favour of tax breaks is to make the budget significantly less redistributive. That’s because, particularly with our tightly means-tested welfare system, government spending tends to benefit the less well-off, whereas tax expenditures go disproportionately to people at the top.
So it’s the ”end of entitlement” for people in the bottom half, but no change to the entitlements of the well-off, save for a small three-year tax levy.
Hewson also believes that the changes to university fees could have been far better implemented and made more equitable:
…the decision to let universities to set their own course fees would have been more defensible if the government had simultaneously shifted overall funding from the institutions to students by way of a voucher system, encouraging providers to compete on price and quality.
Finally, there is the Coalition’s abolishing of the mining tax, which have enabled its billionaire mining mates to continue collecting their unearned windfall in economic rent, as acknowledged by the Henry Tax Review:
The current charging arrangements distort investment and production decisions….. they fail to collect a sufficient return for the community because they are unresponsive to changes in profits.
Overall, it’s hard not to agree that the Budget is fundamentally unfair and poorly targeted, even if its overall goal of making the nation’s finances more sustainable over the longer-term is valid.
Until the Coalition tackles Australia’s egregious tax concessions head-on, whilst also ensuring that the tax base is broadened and based on more efficient and equitable sources, then its calls to ‘end the age of entitlement’ and for Australians to ‘share the burden of adjustment’ will fall on deaf ears.
