The more of the budget's fine print I get through, the less impressed I am. It's not a budget so much as a flick-pass.
On
its main goal of returning to surplus, you can accept the plausibility
of its projections that budget balance will achieved by 2018-19 without
being terribly impressed by the quality of its claimed "structural"
savings.
The policy changes proposed yield savings over the four
years to 2017-18 totalling $38 billion (on an accruals basis). Contrary
to all the government's rhetoric, almost a quarter of these savings come
from increased tax collections.
But get this: fully 46 per cent
of the total savings come in the fourth year. Until then, net savings
are quite modest. There are various reasons for this delay. One is
political: Tony Abbott is keeping some core promises by not breaking
them until after the 2016 election.
Another is macro-economic: Joe
Hockey is delaying the big cuts until he's confident the economy will
be strong enough to absorb them. Yet another is that the Labor
government's back-end loading of its new spending programs meant some
very big bills fell due in the year beyond last year's forward estimates
(where they were harder to see).
But there's one more reason:
2018 is the first year when the expiry of various agreements allows the
feds to really start screwing the states on grants for public schools
and public hospitals. From then on, grants will be adjusted only in line
with inflation and population growth.
This means almost all of
Hockey's cumulative savings of more than $80 billion on payments to the
states for schools and hospitals over the decade to 2024-25 occur beyond
the forward estimates.
Before the election, Abbott and Hockey
claimed repeatedly to be able to return the budget to surplus by
eliminating waste. In truth, they've identified and eliminated little or
no genuine waste.
Rather, they've defunded worthy causes (grants
to charities and cultural activities, overseas aid), imposed new user
charges (Medicare benefits, the real interest rate on HECS), whacked up
existing user charges (pharmaceutical benefits, university fees) and
tightened up means-testing (family tax benefit B).
But a lot of
the longer-term savings come from lowering the indexation of payments
from a wage-related index to the consumer price index. In the case of
pensions, this will cause the relative value of pensions to fall
continuously over time, pushing the aged and disabled below the poverty
line.
In the case of payments to the states for schools and
hospitals - whose main cost is wages - it leaves an ever-widening gap
the states wouldn't have a hope of covering by increased efficiency,
only from other revenue sources. (The cost of medical supplies grows
much faster than the CPI.)
As well as meaner indexation, there's a
lot of two or three-year pauses in indexing thresholds or payments
(family tax benefit, some medical benefits schedule fees, the Medicare
levy surcharge, the private health insurance rebate, grants to local
governments).
Note, these are largely temporary savings to the
budget, though there's some ongoing saving because of the lower base (in
real terms) established before indexation is resumed.
And note
this. Hockey justified his exclusion of the cost of superannuation tax
concessions from his efforts to curb the allegedly unsustainable growth
in the cost of population ageing by saying tax expenditures would be
considered as part of the coming review of taxation. In truth, he did
fiddle with tax expenditures when it suited him (the mature age worker
tax offset and the dependent spouse tax offset).
See what this
means? If the Coalition ever does get around to reforming the
concessional tax treatment of super, capital gains and negative gearing -
each benefiting mainly high income-earners - it will do so not as part
of the effort to balance the budget, but as part of a revenue-neutral
tax reform package where the savings are used to (I bet) cut the top tax
rate, with increased collections from the GST shared between the
premiers and a lower rate of company tax.
The budget was a giant
attempt to get back to surplus solely by cutting spending and not
increasing taxes. It failed. Not so much because of the temporary
deficit levy or the resumption of indexing the fuel excise, but because
the cumulative $80 billion saving from short-changing the states on
schools and hospitals - almost a quarter of the total saving - will have
to be covered by increased state taxation.
A tax increase
flick-passed to the states is a tax increase avoided? Any serious
increase in state tax revenue would have to be made possible by the
feds, in any event.
