CANBERRA OBSERVED: by national correspondentNews Weekly
Joe Hockey's two-phase plan to cut budget deficit
, May 10, 2014
The report of the National Commission of Audit, released just after this column went to press, was designed to give the Coalition government the blueprint for returning the Budget — currently running a deficit of about $47 billion a year — to surplus within 10 years.
The government intends to achieve this by two means. One is to cut the growth in public expenditure by means-testing government benefits. The other is to introduce a new tax on high-income earners, commencing with those earning $80,000 a year or more, and at a higher rate for those earning above $160,000.
Federal Treasurer Joe Hockey.
Unlike the 2008 review of Australia’s taxation system, the Henry Review, commissioned by Kevin Rudd when he was Labor Prime Minister, the Commission of Audit’s mandate was to recommend cuts to government expenditure, rather than increase it.
The federal Treasurer, Joe Hockey, in announcing the commission last December, said its functions were to:
• ensure taxpayers are receiving value-for-money from each dollar spent;
• eliminate wasteful spending;
• identify areas of unnecessary duplication between the activities of the Commonwealth and other levels of government;
• identify areas or programs where Commonwealth involvement is inappropriate, no longer needed, or blurs lines of accountability; and
• improve the overall efficiency and effectiveness with which government services and policy advice are delivered.
The Commission of Audit has been headed by the president of the Business Council of Australia, Tony Shepherd, three senior serving or former public servants, and Amanda Vanstone, who served for nine years as a minister in the Howard Coalition government until its defeat in 2007.
Although the report was not to be released until May 1, the broad outlines of its content were revealed, obliquely, by Treasurer Joe Hockey in his address to an Australian Spectator magazine function in Sydney on April 23.
In his address, Mr Hockey referred to a speech he had delivered a fortnight previously at an international conference, held in Washington DC, entitled The Global Age of Responsibility: Reinventing Bretton Woods. In his Washington speech, entitled “The Case for Change”, he had outlined “the need for greater self-reliance, and a preparedness for all players, including individuals, businesses, governments and supranational organisations, to share the burden of budget and economic reform”.
Mr Hockey, no doubt reflecting the findings of the Commission of Audit, said that neither low interest rates nor an expansion of government spending could drive future growth.
“One sobering observation is that Australia is not doing as well on the task of repairing its budget as many other developed countries,” Mr Hockey said.
He added that for the six years from 2012 to 2018, Australia is forecast to have the third largest increase in net debt (as a percentage of GDP) among 17 advanced economies. Mr Hockey explained: “That means our debt is growing more quickly than the likes of the United States and Canada.”
The Treasurer reiterated that the commission’s role was to examine the scope for efficiency and productivity improvements across all areas of Commonwealth expenditure. He reported that it is making 86 recommendations for “improving the efficiency of the government sector in Australia and for restoring budget integrity”.
The commission has looked at current expenditure, and identified 15 areas in which government expenditure was growing fastest, including welfare, health, education and defence. “They are, in almost all cases, projected to grow faster than average growth in total government expenditure. Most are also expected to grow considerably faster than the economy,” he said.
“This goes to the heart of the spending problem. Clearly this is unsustainable.”
Mr Hockey focussed on the growth of the aged pension — the largest single item — which alone accounts for 10 per cent of federal government expenditure.
While the government cannot cut pensions, it is clearly determined to cut their future growth, which will be done by lifting the pension age and extending means-testing.
Another area on which the government will focus is the growth of the aged care budget. Again, government expenditure in this area will not be cut, but access to services will be limited through means-testing. Elderly Australians will have to fund a greater level of expenditure from their own financial resources.
Another area the Treasurer identified for review was the Pharmaceutical Benefits Scheme, which, again, is used by both the elderly and families.
The problem for the Abbott government is that any expenditure cuts in these areas will fall heavily on people who voted for the Coalition in the 2013 election. Unless the burden of financial austerity falls on other areas of government expenditure, these voters will desert the Coalition for either Labor or the protest parties, which include Clive Palmer’s party and the Greens.
Many areas of government spending demand attention, including the Rudd-Gillard Labor government’s extravagant expansion of the public sector in areas concerned with climate change, immigration and the environment, not to mention in health and primary and secondary education, which are the primary responsibility of the states.
The Coalition faces a further problem in restricting, via increased means-testing, access to government services — including pensions, health care, family support, unemployment benefits and other services. The introduction of means-testing will require more public servants to administer it.