A year ago, when Labor’s Treasurer, Wayne Swan, delivered the last Labor Budget, he forecast that the 2013-4 deficit would be $18 billion, a figure dismissed at the time as unrealistic and excessively optimistic. By the time of the 2013 election, the deficit had grown to $30 billion. In his recent budget, Liberal Treasurer Joe Hockey put the actual figure at $49.9 billion.
Federal Treasurer Joe Hockey.
Clearly, the incoming government had to address the rise in government debt, and Mr Abbott has said repeatedly that his first priority was to balance the budget — which is code for increasing government income and cutting expenditure. This had to be done in a way which would not cause a collapse of business confidence, adding to unemployment.
In his Budget speech, Mr Hockey focussed on the government’s macro-economic challenge. But the devil is in the detail.
Broadly, the government has decided to cut the deficit by taking more money from individuals and families, while most businesses will get the benefit of a cut in the company tax rate.
Where the government is open to strong criticism is that the burden of government cuts will fall most heavily on families and the unemployed. The Budget will increase taxes and levies on families in a number of areas, while reducing eligibility for government support, and reducing the size of the Commonwealth bureaucracy.
The Budget contains a string of measures to increase government income: from the additional two per cent deficit levy paid by high-income earners, a $7 fee for every visit to a GP, and an increase of $5 on each prescription under the Pharmaceutical Benefits Scheme.
Additionally, petrol prices will rise with the reintroduction of indexation of the fuel excise levy, and many families will be adversely affected by cuts to Family Tax Benefit B. This was introduced by the Howard government to compensate single-income families for the fact that they are treated worse than families which enjoy two full-time incomes and two tax-free thresholds.
Budget “leaks” suggested that Family Tax Benefit B would be abolished. In the event, it was maintained, but with a lower threshold, and cuts out when the youngest child turns six.
It is significant that at a time when the federal Coalition government is cutting support for single-income two-parent families by cutting Family Tax Benefit B and increasing costs of medical treatment and pharmaceuticals, it is increasing spending on institutionalised child care (primarily used by two-income families), on top of its paid parental leave scheme which is also a subsidy for two-income families.
There are a range of areas where the impacts of the government’s announced measures are difficult to determine.
For example, it has lifted the restrictions on what universities can charge in fees; expanded the government’s work-for-the-dole scheme; introduced a six-month waiting list before young unemployed people can claim benefits; introduced a form of student loans for apprentices; and offered a large financial incentive to employers to engage older workers.
The uncertainty now is whether the government is able to get its Budget through the Parliament.
Predictably, Labor attacked the dismantling of many of its cherished programs, while the Greens attacks planned cuts to government spending and some of the previous government’s costly environmental schemes, including the Solar Energy rebate, the Australian Renewable Energy Authority, and the carbon capture-and-storage project.
Within the Commonwealth public service, there is deep anxiety at proposed cuts and amalgamations of government services. The government is also proposing small cuts to its subsidies for the public broadcastesrs, the ABC and SBS, as well as axing the ABC’s contract to run the Australia Network, a television network which is transmitted into Asia.
Interestingly, Queensland businessman Clive Palmer, whose party will have the balance of power in the incoming Senate, strongly criticised a number of the Budget measures. Speaking on ABC radio’s AM program, he denounced the budget as based on “lies”, and said his party would certainly block the Medicare co-payment and the high-income debt levy.
In another interview, he attacked the planned increase in the petroleum excise, and said the budget was “heartless and cruel”.
The significance of this is that the Coalition may find that some of its key budget policies are defeated in the Senate.
A further complication is that some of these measures — such as the Medicare co-payment — are linked to new government-funded programs such as the Medical Research Future Fund, so the future of these programs is uncertain.
Despite its massive majority in the House of Representatives, the Coalition does not have control of the Senate, and will face a nervous wait on the Budget legislation — as well as on its promise to repeal the carbon tax and the mining tax.
If parts of the government’s legislative program are defeated, but other parts accepted, Treasurer Hockey may well soldier on, in the hope that measures defeated in this year’s Budget may be reintroduced in a year’s time.