At 2 o’clock in the afternoon on Thursday, May 1, the National Commission of Audit’s long-awaited report was finally released and the floodgates were opened. The government, which has been sitting on the report since February, decided to make the findings public just two weeks away from the Abbott government’s first budget.
Hard. Ruthless. Unforgiving. The Commission’s report flags major cuts and structural change to welfare, education, health care, paid parental leave and the age pension in an attempt to drastically curb government expenditure and fix the so-called “budget crisis”.
A key promise made by the Coalition in the lead up to the 2013 election was to have a National Commission of Audit to address Australia’s worsening “budget crisis”.
Tasked with identifying areas of spending in the budget that needed to fixed in order for it to be returned to a surplus, the Commission was given very wide terms of reference to look hard and deep into government expenditure and point out possible cuts.
The panel, handpicked by Prime Minister Tony Abbott and Treasurer Joe Hockey, was made up by the following:
– Tony Shepherd AO, appointed chairman of the Commission, current president of the Business Council of Australia and former chairman of Transfield Services;
– Dr. Peter Boxall AO, chairman of the NSW Independent Pricing and Regulatory Tribunal and a Howard-era policymaker;
– Tony Cole AO, a former Treasury secretary to Paul Keating;
– Robert Fisher AM, former Director-General of Western Australian Departments of Industrial and Regional Development, of Trade, and of Family and Children’s Services;
– The Hon. Amanda Vanstone, a minister in John Howard’s cabinet for over seven years.
Back in the days of the Gillard-led minority government, the Labor Party were haunted by its failure to fulfill its promise to deliver surpluses, with budget after budget showing the Commonwealth debt and deficit that was slowly spiraling out of control.
The Australian economy was the envy of the world following the global financial crisis of 2007-08, and remains one of only a handful of countries to have a ‘triple A’ credit rating by the top three credit agencies. But the ALP’s fiscal credentials were severely tarnished by then Treasurer Wayne Swan’s inability to control the country’s financial problems, which some economists believe to have begun long ago in the Howard years.
Joe Hockey and the Coalition were quick to grab onto the failed delivery of surpluses and began driving home the message to voters of a “budget crisis” that was only expected to get worse before it got better; the election quickly became a referendum on who was best qualified to revive Australia’s economy.
“The age of entitlement is over,” Hockey, the man now in charge of the government’s chequebook, has warned the Australian public. His carefully-worded speeches over recent months have been attempting to soften up the Australian public for what is certainly likely to be a tough budget for all.
The Commission’s report identified the 15 fastest growing programmes that accounted for about 70 per cent of spending growth. These include the age pension, health care, paid parental leave, welfare, education, defence, and foreign aid.
The report makes 86 recommendations that it hopes can address the “substantial budgetary challenge” we as a nation now face, and return to the budget to a surplus of one per cent of GDP within the decade.
As of June 2013, Australia had a budget deficit of $18.8 billion, or 1.2 per cent of GDP; this is expected to rise to $47 billion (3 per cent of GDP) by 2023-24 if no major structural changes are made to government expenditure. Net debt is also expected to $440 billion in the same period.
The Commission estimates that, if all recommendations are implemented, a saving of $20-30 billion can be achieved by 2017-18, and a saving of $60-70 billion by 2023-24. The recommendations are as follows:
– Abolish Family Tax Benefit B, which currently benefits 1.6 million Australian families; expected saving of $5 billion a year
– Tighten the eligibility for Family Tax Benefit A, received by 1.9 million Australian families, by lowering the wage cap from $110,000 per year to $100,000 and reducing benefits for families (including single parent families) with more than one child; currently costs $15 billion a year
– Lower the Paid Parental Leave wage replacement cap to average weekly earnings, which currently sits at $57,460 a year, with savings to be re-directed to offset the cost of child care assistance
– Increase the Age Pension eligibility age to 70 by 2053
– Change indexation to 28 per cent of average weekly earnings
– Replace income and assets test with a single means test that would also include the value of principal residence from 2027-28 onwards
– Increase the superannuation preservation age to five years below the Age Pension age
– Slow the introduction of the National Disability Insurance Scheme (NDIS) and renegotiate current bilateral agreements with states
– Introduction of GP co-payments
o $15 co-payment per GP visit up to the safety net threshold of 15 GP visits per year, to be halved to $7.50 once the threshold is passed
o $5 co-payment per GP visit for concession card holders, to be halved to $2.50 once the threshold is passed
o Co-payments for public hospital emergency departments for less urgent conditions
– Require higher income earners to take out private health insurance and prevent them from making claims for private health insurance rebates
– Introduction of PBS co-payments
o $5 for medicines, dropping to $2 once a safety net threshold has been reached
o $2 for medicines for concession card holders only when the safety net has been passed.
– Scrap Gonski education reforms and transfer all funding and policy responsibilities to the states
– Increase student contribution to bachelor degree tuition fee payments from 41 per cent to 55 per cent, with government contributions to drop from 59 per cent to 45 per cent
– Introduce partial or full deregulation of tuition fees to open up competition between universities
– Abolish SA-HELP (Student Amenities Higher Education Loan Programme), which subsidises student amenities fees for up $273
– Reduce the HECS-HELP repayment threshold from the average graduate income of $51,309 a year to the minimum wage of $32,354 a year
Other recommendations include:
– Set a minimum wage benchmark at 44 per cent of average weekly earnings ($488.90 a week) from the current 56 per cent ($622.20 a week)
– Force those aged 22 to 30 years to relocate to areas with higher employment opportunities or risk losing access to unemployment benefits after 12 months (of being on unemployment payments)
– Reduce and limit foreign aid to countries that are of strategic value
– Privatisation of Australia Post, Snowy Hydro Limited, Royal Australian Mint, and NBN Co Limited (among others)
– 15,000 public service jobs cut
The Commission’s report has been labeled by some as the “austerity report” and has caused fears over the looming budget to escalate to worrying levels.
Opposition leader Bill Shorten described the report as being “written exclusively by special powerful interests.”
“This is a report written by big business for big business that will hurt hard-working families,” said Shorten.
“If he gets his way, Tony Abbott will turn the most basic things in life – education, health care, support for older Australians – into a massive everyday struggle for working families.”
The Greens have also condemned the report, with party leader Senator Christine Milne labeling the report “a call to arms that we begin the process of kicking this mob out.”
Shorten and Milne are justified in attacking the Commission and accusing Abbott and Hockey of playing ‘class warfare’– the report specifies that cuts should be felt by all Australians and not just those on low incomes, but it then makes recommendations that unfairly target the poor and disadvantaged while leaving those on higher incomes relatively unscathed.
The suggestion of reducing the minimum wage is alarming and would only further widen the income gap between low and medium-income earners. A drop in wages could also negatively impact on consumer confidence, which would eventually lead to less tax revenue for the government
Tax revenue has been a major criticism of the Commission, as that it was tasked with focusing only on government expenditure. The tax system needs to be carefully examined in order to close up revenue gaps and loopholes that are preventing the government from getting the optimal amount of money from all places.
There is also the matter of privatisation – selling off public assets is seen by many economists as being only a short-term solution to fiscal problems. Privatisation could also cause the cost of some services to increase and negatively impact on ordinary Australians.
If the government is serious about tackling the budget deficit, then it needs to rethink its position on a matter of policies. The carbon tax (possibly as an emissions trading scheme in the future), along with the profitable Clean Energy Finance Corporation, must be kept intact and the Direct Action policy must be shelved – it makes no economic or environmental sense to pay, instead of tax, big polluters. The Minerals Resource Rent Tax must be strengthened, not scrapped, in order to capitalise on whatever is left of the mining boom. And a levy on the big banks must also be considered in order to secure money as a buffer in case of another financial crisis.