Commission of Audit recommends cradle-to-grave cuts

By political correspondent Emma Griffiths

Video: Commission of Audit proves need for tough action, says Hockey (ABC News)

Photo: Joe Hockey says not all of the commission's recommendations will be popular. (AAP: Lukas Coch)

A raft of potentially explosive spending cuts to government services and payments have been recommended by the Federal Government's Commission of Audit.

Family payments, child care, health care, education, unemployment and pension payments, aged care and the National Disability Insurance Scheme are all among those areas in the firing line.

The audit also recommends swingeing cuts to industry assistance and the public service and a radical shake-up of the way all governments tax and do business.

Treasurer Joe Hockey has been quick to emphasise that the report is "not the budget" but has not ruled out adopting any of the proposals.

Since it was set up in October, the commission has focused on the 15 biggest Commonwealth spending areas and found the long-term outlook for the budget is "ominous".

Its 86 recommendations, detailed in more than 1,200 pages, address major structural changes that the commission says could save the budget tens of billions of dollars a year and achieve a surplus of 1 per cent by 2023-24.

Commission chief and former head of the Business Council of Australia Tony Shepherd says the best course of action for the Government is to "act now, act incrementally, act fairly".

He has advised against "sudden shocks" for people, but says the Government "must bring future spending commitments in line with our means".

"Let's spend the taxpayers' money as though it were our money," Mr Shepherd said.

"Let's spend it carefully and frugally."

Embed: Chart showing projected cost of large programs over next decade

The commission says in its report that it has "not undertaken detailed costings of these recommendations" and says portfolio-by-portfolio reviews should yield "significant additional savings".

The Treasurer says the report proves the Coalition "inherited a mess".

"The challenge now is to get on with the job of fixing the mess, and we will," he said.

Some key recommendations

• Raise age pension age to 70 by 2053
• Include family home in new means test from 2027
• Slow roll-out of National Disability Insurance Scheme
• Allow states to impose personal income tax surcharge, offset by reduction in federal rates
• Scrap Family Tax Benefit Part B and a new means test for Part A with maximum rate of payment reducing from at $48,837
• Lower paid parental leave scheme salary cap to average week earnings (currently $57,460) and use savings for expanded child care payments
• Privatise Australia Post, NBN Co, Defence Housing, Snowy Hydro among other government-owned enterprises

Read a more extensive list of recommendations here

 

He said the report is "to the Government, not of the Government", but would not lay out which recommendations the Coalition would adopt or reject.

"I want to lay down to you - this is not the budget," he said. "And we have carefully and methodically gone through the recommendations.

"There are a number of recommendations that would be described as courageous, to use a term familiar with some in Canberra.

"There are some recommendations that represent common sense. When you see our budget you'll understand that we are focused on responding to the challenge in a measured and methodical way."

Labor has leapt on the report as proof the Government plans to hit working families in this month's budget.

"It is a plan to cut the services that families rely on and to put greater pressure on cost of living," Opposition Leader Bill Shorten said.

"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 every-day struggle for working families."

Families

Commission's case for change

The Commission of Audit's recommendations fall roughly into three categories: the brave, the crazy brave and the politically suicidal, writes Chris Uhlmann

 

People with children would be hit with cuts to Family Tax Benefit payments, with FTB Part B abolished, and Part A subject to tighter eligibility tests.

Around 60 per cent of families, mostly single parent families or those with one parent staying at home, receive FTB Part B, which pays a maximum of $4,241 a year.

But the commission says it is "not well targeted" and is a "significant" disincentive for mothers to work.

The other payment, FTB Part A, costs the budget around $15 billion a year and is paid to around 70 per cent of families.

The commission says the income cut-off should be lowered to better help "those in need".

Childcare and parental leave

Childcare payments, currently the Childcare Benefit and Childcare Rebate, are proposed to be merged and means-tested.

However, the commission recommends the payment be available for types of child care not currently covered, including nannies.

That would be funded by savings made to the Prime Minister's signature wage-replacement paid parental leave scheme. The commission wants to lower the threshold and cap it at average weekly earnings – currently $57,460.

Yesterday, in a major backdown, Tony Abbott confirmed he had already decided to lower the cap from his preferred $150,000 annual wage to $100,000.

Health

Industry assistance in the crosshairs

Industry assistance and support for exporters and the tourism sector face the axe under proposals from the Commission of Audit.

 

The health system is currently "not well equipped" to deal with Australia's ageing population and rising costs, according to the commission.

It says high income earners should be forced to take out private health insurance to cover basic health needs, in place of Medicare, with no access to the private health insurance rebate.

The widely reported Medicare co-payment is also on the commission's wish-list, but at a higher rate than has been mooted: $15 per visit and $5 for concession card holders, instead of the $6 fee for high-income earners.

It wants cuts to the $19 billion Medicare Benefits Schedule, which includes hundreds of medical services, for example pathology.

Free medicines would also be a thing of the past, with broad changes recommended to the Pharmaceutical Benefits Scheme.

The commission says co-payments for medicines should be increased by $5 and for concession card holders a $2 fee should be imposed when the safety net limit has been reached.

Learn or earn

Schools spending from the Commonwealth should be capped at 2017 levels from 2018 and beyond, according to the commission, with all policy and funding responsibility handed to the states.

It wants university students to pay more for their education, calling for "increasing the average proportion of costs paid by students from 41 per cent to 55 per cent".

People between the ages of 22 and 30 with no children who have been on unemployment benefits for a year should be required to move to areas with more job opportunities or lose the payment, the commission argues.

Growth in the minimum wage should be contained by establishing a benchmark of 44 per cent of average weekly earnings, even though the minimum wage has little bearing on government spending.

Retirement

Photo: Commission of Audit chairman Tony Shepherd at Parliament House today (AAP: Lukas Coch)

Changes to pensions are central to the commission's proposals. It calls for the age pension – the budget's single biggest item at $40 billion – to be indexed to 28 per cent of average weekly earnings instead of the current link to the higher average weekly earnings of men.

The commission says the rationale is an "anachronism" given the major role women now play in the workforce. As previously reported, it wants the age pension eligibility age raised to 70, by 2053, and says the change would not affect anyone born before 1965.

The age at which someone could access their superannuation - currently set at 60 - should also be increased to five years before the age pension age, according to the commission.

It wants fewer people able to access the seniors health care card by including superannuation payments in the eligibility test for the first time.

The commission also argues the full value of the family home should be included in the means test for aged care support.

The disability support pension and carers payments would also be subject to tighter eligibility rules.

Acknowledging the "significant risks involved", the commission has also recommended the Government examine the option of outsourcing the government payment system currently administered by Centrelink.

NDIS

The National Disability Insurance Scheme (NDIS), which passed Parliament with bipartisan support and to wide acclaim a year ago, is also set to be wound back.

The commission says it must be introduced more slowly than the July 1, 2019 date set by the previous Labor government.

It also wants the scheme implemented by "exercising budget control to ensure long-term financial viability".

Public service targeted

A key theme running throughout the report is the need for cuts to the public service to avoid duplication and to allow the private sector to step in.

The commission says if all of its recommendations are adopted, 15,000 public servants will lose their jobs.

It wants wholesale changes to the number and role of government bodies, reducing the number of existing major government bodies from 73 by cutting seven, merging 35, consolidating 22 into departments and agencies and privatising nine, with a further 26 to be reassessed.

Taxes

One of the more startling recommendations from the commission is that the Commonwealth allow the states and territories to collect income tax to "make them more responsible in their own sphere".

It gives the example that the current rate of 32 per cent could be cut to 22 per cent, allowing the states to raise the gap or set their own level in a "state income tax surcharge".

If adopted, it would allow a United States-type scheme of tax competition between states with a guarantee that taxes would not rise overall.

The audit's key recommendations

• Raise age pension age to 70 by 2053
• Include family home in new means test from 2027
• Raise superannuation preservation age to 62 by 2027
• Slow roll-out of National Disability Insurance Scheme
• Up to $15 co-payment to visit doctor and access Medicare services
• Require wealthy Australians to have private health insurance and drop rebate
• Increase co-payments for taxpayer-funded PBS-covered medicines
• Open pharmacy sector to competition, such as from supermarkets
• Allow states to impose personal income tax surcharge, offset by reduction in federal rates
• Scrap Family Tax Benefit Part B and a new means test for Part A with maximum rate of payment reducing from at $48,837
• Lower paid parental leave scheme salary cap to average week earnings (currently $57,460) and use savings for expanded child care payments
• States to be responsible for all schools policy and allocating funding
• Uni students to pay more for degrees and lower HELP repayment threshold to minimum wage
• New benchmark to lower growth in minimum wage so it is equal to 44 per cent of average weekly earnings
• Force young single jobseekers to relocate or lose welfare benefit
• Reduce number of government bodies
• Privatise Australia Post, NBN Co, Defence Housing, Snowy Hydro among other government-owned enterprises
• Abolish the Australia Network

Commission of Audit recommends cradle-to-grave cuts in report released by Federal Government - ABC News (Australian Broadcasting Corporation)

$11,000 for breakfast with Tony Abbott

Gabrielle Chan theguardian.com, Wednesday 30 April 2014

Liberal fundraiser invitation goes out as Icac revelations ignite criticism of the party about influence peddling in NSW

The Liberal party's offer to business observers to have breakfast with the prime minister, Tony Abbott, and afternoon tea with his senior ministers.

The Liberal party federal director, Brian Loughnane, has offered “business observers” a breakfast with the prime minister, Tony Abbott, and access to his ministers’ chiefs of staff for $11,000, at the same time as New South Wales Liberal party members face scrutiny in the Independent Commission Against Corruption over influence peddling.

The $11,000 price tag – including GST – is pitched just below the $12,000 threshold at which political donations have to be disclosed to the Australian Electoral Commission.

An email from Loughnane went out to potential business observers on Tuesday afternoon, after two days of hearings in the Icac inquiry into the Eightbyfive slush fund, which, Icac has heard, took banned donations from property developers to fund specific Liberal party campaigns.

The Icac revelations have ignited criticism from inside and outside the Liberal party about influence peddling in NSW, after the former state Labor government was embroiled in controversy over its former ministers Eddie Obeid and Ian Macdonald and the granting of mine licences.

The federal breakfast offers business people access to senior levels of the Abbott government at the Liberal party’s federal council in June.

“Senior Ministers and party officials will take part in the briefing, which will also include a breakfast on Friday morning addressed by Prime Minister Tony Abbott,” Loughnane writes.

The invitation offers breakfast with the prime minister, a morning tea briefing on the state of the Senate, afternoon tea with ministerial chiefs of staff and a policy lunch, all for a “registration fee” of $11,000.

Former NSW premier Barry O’Farrell resigned in April after he failed to declare a $3,000 bottle of Grange Hermitage from lobbyist and businessman Nick Di Girolamo, then insisted he did not receive it.

Former NSW energy minister Chris Hartcher and MPs Chris Spence and Darren Webber – all allegedly involved in Eightbyfive – have voluntarily withdrawn from the Liberal party and are sitting on the crossbenches for the duration of the Icac hearings.

It has been common practice for both parties to raise funds using access to leaders as bait.

In 2010, the Labor party cancelled a $5,500-a-head business fundraiser with then prime minister Julia Gillard due to the possibility it would become a “media spectacle”.

$11,000 for breakfast with Tony Abbott, access to senior ministers' chiefs of staff | World news | theguardian.com

Pretending a debt levy is not a tax grossly insults voters' intelligence

Lenore Taylor, political editor

theguardian.com, Tuesday 29 April 2014

It’s not bringing the budget back to surplus that is the problem. It’s what we are learning about sharing the pain

Tony Abbott spent four years in a hi-vis vest telling us over and over about the hit on families from the carbon tax. Photograph: Alan Pottitt/AAP

Now that the prime minister has confirmed the government is considering a “debt levy” and Sydney’s Daily Telegraph is telling us it is likely to be 1% for those earning between $80,000 and $180,000 and 2% for those earning over $180,000 it is possible to calculate the extent to which Australian voters may have been duped.

Tony Abbott spent four years in a hi-vis vest telling us over and over about the “almost unimaginable” hit on families’ cost of living from the carbon tax and how the average household would be $550 a year better off when he “axed the tax”. He somehow forgot to mention another tax that for many families would take all, or most, of that money away again.

(And if a three-year fixed carbon price is a tax, prime minister, as you told us it was, and if the Gillard’s government one-year flood levy was a tax, as you told us it was, then it really beggars belief that you are now claiming a “temporary debt levy” wouldn’t really be a tax at all on the grounds that it won’t last forever.)

Let’s take a single income family with a couple of kids on $150,000 a year. Under the detailed calculations Labor provided with its carbon tax plan, they would have paid around $760 a year in extra bills as the tax flowed through at its original $23 price, and would have received $77 in compensation, leaving them $683 a year worse off.

If that family did their sums before they voted last year, and believed what Tony Abbott was telling them, they would have assumed they would be about $837 a year better off in real terms – because they’d keep their compensation but they would not be paying the tax any more. But according to the Tele they’ll now be hit with an $1,500 debt levy, eating away everything the coalition had promised them and another $700 besides. (If the $638 a year hit to their cost of living was unimaginable, it must be truly terrible to contemplate what a $700 impost might do).

Or take a dual income family with kids where both parents earn $100,000 a year. They didn’t get any compensation under the carbon tax and – according to the former government’s tables – wound up $1,000 a year worse off. Under the debt levy they’d be paying $2,000.

(And the coalition’s election refrain that the tax would go up and up doesn’t change these calculations because it was set to float, and on current projections that would mean it would go down from these levels for at least a decade.)

The prime minister is quite right that middle and high income earners should share the budget pain. He’s right that people like him should pay. I’d go so far as to say they should bear a higher proportion of the pain than the poor.

But if pensioners and lower income families bear permanent pain with tougher cut-offs and lower rates of indexation for their benefits and co-payments for going to the doctor, then surely the rich should bear permanent pain, too, not just a temporary tax.

As I pointed out on Monday, many think-tanks looking at the long term structural problems of the budget (basically that we aren’t raising enough tax to keep spending the way we are) conclude a much more effective way to include the wealthy in the national “heavy lifting” would be to reduce the generous tax concessions on superannuation contributions and/or the tax-free status of superannuation earnings for people over 60. Super tax concessions already cost the budget almost as much as the aged pension, and their cost is rising by 12% a year.

Both the Grattan Institute and the Australia Institute have pointed out that superannuation changes could deliver big savings over time, and the vast majority of their benefits flow to high income earners.

But the government has already announced it will not proceed with the previous Labor government’s policy to impose a tax of 15% on superannuation earnings of more than $100,000 a year.

Maybe the government will introduce superannuation changes to take effect after the next election. It’s kind of hard to tell.

So far we’ve been told they won’t introduce any new taxes, except for the new “debt levy” tax and they won’t change pensions, except – it would seem – for cuts that take effect in three years. They said there would be no changes to superannuation, but on current trends, who could tell?

The prime minister is now saying he promised “lower, simpler, fairer taxes” rather than “no new taxes” despite on the record quotes of him saying the latter.

It’s not the government’s aim of bringing the budget back to surplus that is the problem. It’s what we are learning about how they might share the pain – the ridiculous semantics of talking about a new tax while pretending it’s not a tax and of pretending they never promised not to raise taxes when they quite clearly did, and the gross insult to voters’ intelligence to think they might not notice.

Pretending a debt levy is not a tax grossly insults voters' intelligence | World news | theguardian.com

Tony Abbott reduces paid parental leave from $150,000 to $100,000

By political correspondent Emma Griffiths

Video: Lowering PPL threshold 'reasonable' says Abbott (ABC News)

Photo: The PM has been facing pressure from within his own ranks to dump the scheme. (AAP: Alan Porritt)

Related Story: PM facing internal dissent over 'crazy' debt levy proposal

The Prime Minister says he regrets the decision to pare back his signature paid parental leave scheme, blaming it on a "budget emergency" he says was created by the former Labor government.

Tony Abbott has decided to drop the threshold for his wage replacement scheme from $150,000 to $100,000.

The backdown comes as Mr Abbott also considers bringing in a tax hike to help pay off debt, despite promising before the election that there would be no new taxes under a Coalition government.

Opposition Leader Bill Shorten, who has campaigned against the "Rolls-Royce" parental leave payments, says both decisions amount to broken promises.

But Mr Abbott says Labor's legacy of deficits amounting to $123 billion over the next four years has made drafting the Coalition's first budget on May 13 a "particularly difficult business".

"Everyone from the top down is going to be part of fixing Labor's debt and deficit mess, and yes that does include regrettably an adjustment to the paid parental leave scheme," he said.

"Under all the circumstances, I think that's fair. Obviously I regret that we find ourselves in very difficult fiscal circumstances.

"But under the circumstances, where everyone is going to have to share in bearing the burden in fixing this particular problem, I think it's reasonable."

Mr Abbott's "fair dinkum" parental leave scheme has been under fire from the business community and some of his colleagues, who argue it is too generous given the dire budget situation.

Under the scheme, a woman would be entitled to receive her full wage for six months, including superannuation.

Before the revision, women earning $150,000 or more would have been eligible for a maximum of $75,000, but it will now be capped at $50,000 for six months.

Mr Shorten says Mr Abbott has proven he is "not a man of his conviction".

"If Prime Minister Abbott can't even stick by his signature policy for 24 hours, how can Australians trust him on anything?" he said.

"In the last 24 hours, the Prime Minister has broken his promises. He has proven he is not a man of his conviction, and he certainly hasn't walked away from his dumb, crazy idea to tax millions of hard-working Australians.

Parental leave scheme changes

• The maximum payment for new mothers in the proposed scheme has been dropped from $75,000 to $50,000.
• The scheme will provide mothers with 26 weeks of paid parental leave at their actual wage or the national minimum wage (whichever is greater), plus superannuation.
• The Coalition went to the election saying a woman earning $150,000 or more would receive the maximum cap of $75,000 (Six months of actual wages for a woman on $150,000).
• Labor and some within the Coalition have been rallying against the cost of the scheme, saying it is unaffordable.
• Labor has also suggested that it is unfair that well-off mothers will receive considerably more money from the scheme than someone on the minimum wage.
• The current paid parental leave scheme, set up by Labor, pays all eligible mothers the minimum wage ($622.10) for a maximum of 18 weeks, totalling just over $11,000.

"You can't renovate a bad idea, you should just scrap a bad idea."

The Greens are withholding support for the revised scheme, despite calling on the Government to lower the threshold to $100,000.

"Firstly we need to hear from Tony Abbott: have you actually got a scheme that you're prepared to put to the Parliament?" deputy leader Adam Bandt said.

"At the moment it's been leaks and rumours and we are none the wiser about whether there's a ready-to-go, costed proposal to put to the Parliament."

Mr Abbott said he had been "thinking for some time" about how to adjust the policy, and, after consultation with Treasurer Joe Hockey last week, took the change to Cabinet's powerful Expenditure Review Committee on Sunday.

Sources close to the Prime Minister say the move is partly one of pragmatism - acknowledging that the scheme was unlikely to pass the Senate.

They say it is also a symbolic gesture to show Mr Abbott doing some of the "heavy lifting" in the budget, although the saving will not be "huge" because so few women earn above $100,000.

The scheme was to cost the budget $5.5 billion per year, partly funded by a 1.5 per cent tax increase for big companies.

Mr Abbott announced the policy while in Opposition after attending an International Women's Day lunch, without consulting his shadow cabinet or party room.

He later apologised, telling his colleagues it was sometimes better to seek forgiveness than ask permission.

The ABC understands a handful of Coalition senators had been willing to cross the floor and block the policy.

Nationals MP and Parliamentary Secretary for Defence Darren Chester, who had previously criticised the scheme, has denied this change is a humiliating backdown.

Singles sidelined by budget

Single people and couples without children are usually overlooked in the budget hype, writes Greg Jericho.

 

"I don't think it's embarrassing when a prime minister or a treasurer or any other minister considers public opinion, looks at the state of the Parliament and decides whether or not they can get a policy through," he told the ABC.

"I think that's pragmatic and it's a way of actually getting things done in our nation."

Nationals senator John Williams, who yesterday said the scheme should be "put on ice", still has reservations.

"We've really got to just get the budget back in order, and my concern is the expense of the program," he told ABC Local radio.

"Even to reduce it from $150,000 to $100,000 is not a big saving in the actual cost of the program, so I do have concerns about that."

He said he had "spoken to colleagues who have concerns about the cost of the program" but did not confirm if several of his colleagues would oppose it in the Parliament.

The Australian Chamber of Commerce and Industry, a pro-business lobby group, says the scheme should be scrapped.

Chief operating officer John Osborn says the changes will not make a significant difference to the cost of the scheme.

"The change announced by the Prime Minister today is not a material change," he said.

"The scheme does need to be much more significantly moderated."

Doubts on Coalition backbench about debt tax

There is also unrest on the Coalition backbench about mooted plans to introduce a debt tax.

The Government had been calling it a levy, but the ABC understands the Government is considering a temporary lift in the top two income tax brackets to help reduce the size of the deficit. It would affect people on incomes above $80,000 a year.

The Prime Minister yesterday denied a levy would be a broken promise because it would only be temporary, but Mr Shorten accused the Government of using "weasel words".

"Mr Abbott, if people are paying more tax, that doesn't feel temporary," he said.

"How on Earth can the Prime Minister justify increasing the income tax levels for all Australians who go to work, and yet have a paid parental leave scheme which will see tens of thousands of dollars for people who don't need paid parental leave?"

Mr Abbott has begun the hard sell of the measure, saying Australians "are all in this together".

"Given the budget emergency, a lot of things have to be adjusted ... and everyone is going to have to do his or her bit to deal with the problem that we have inherited," he said.

"But above all else we've got to do it in ways that are fair and that's what the Government will ensure in these final 10 days or so of budget preparation."

Details for the tax rise are yet to be confirmed by the Government.

Paid parental leave: Tony Abbott reduces threshold from $150,000 to $100,000 - ABC News (Australian Broadcasting Corporation)

Australia’s progressive tax system doesn’t need further tightening

 

Joe Hockey wants tougher means testing of welfare, but more targeted means testing will decrease people’s incentives to work

The treasurer is worrying about whether the right people are getting welfare. Photograph: Daniel Munoz/AAP Image

In the run-up to the May budget Joe Hockey has suggested we need tougher means testing of welfare to ensure it only goes to those who “need” it. He has also suggested we need to increase people’s incentives to work.

However, the solutions to these two problems actually conflict because tighter means testing can actually decrease people’s willingness to work, because the more you earn the less you receive from the government.

Australia, as I noted a couple weeks ago, already has arguably the most targeted means testing in the world.

This was further highlighted by the preliminary release of the OECD’s 2014 Taxing Wages report, which noted that Australia has one of the most progressive income taxation systems globally.

But the main reason it is so progressive is not because our tax rates increase sharply with our income but because, as the OECD noted, as our income increases there is a sharp “withdrawal of the generous benefits (e.g. in relation to children and/ or in-work benefits)”.

This is revealed by looking at the “tax wedge” across the OECD for couples with children. Tax wedges in essence measure the tax burden, as they take into account not just the taxes and social security payments paid by employees, but also the benefits received from the government.

On this score we can see how the tax burden in Australia significantly increases for a couple with two children as the second partner earns more money.

The tax wedge for a couple with only one partner earning the average wage is 16.9%; when the second partner earns 67% of the average wage as well, the tax wedge rises to 25.2%, one of the biggest jumps among the OECD.

And this brings us to the problem of Hockey wanting to tighten the means testing and also increase people’s incentive to work. The OECD notes that the highly progressive tax systems in countries like Australia “have to be designed with care in order to prevent too large work disincentives”.

This is because tightening the means testing of welfare actually increases the disincentive to work. To understand why, we need to think about the effective marginal tax rates we pay at certain incomes. Effective marginal tax rates calculate not just the extra income tax you pay by earning an extra dollar, but also the amount of welfare you lose.

For example, the Family Tax Benefit A base payment for one child under 13 is $4,489.50 a year. But it is reduced by 20 cents for every dollar that the combined income of the parents goes over $48,837. This means the effective marginal tax rate they pay increases once they earn more than $48,837.

In essence, earning under $48,837 means they only have to pay income tax. Earning over it means they pay income tax and also lose welfare payments.

As Canberra blogger David Plunkett shows with some excellent effective marginal tax rate graphs on his blog, there are a number of situations where for people on Newstart or other benefits, where you are actually better off not earning any more money because while you might earn more money, you will lose a greater amount in welfare payment reductions.

And this is where the problem for the government arises.

If Hockey, for example, wanted to reduce the number of people receiving Family Tax Benefit A, he could do it by reducing the base payment of $4,489.50. At this amount and with the 20 cents per dollar reduction rate, the maximum you can earn and still get this payment is $64,350. But if the base amount was reduced to (for example) $3,500 it would cut out much earlier – at around $59,000.

But that would mean everyone on the payment would now get less money, not just the higher income earners.

Hockey could instead tighten the payment by increasing the rate at which it is reduced – say to make it reduce by 30 cents for every dollar you earn over $48,387.

This would again reduce the maximum income threshold, while still seeing the poorest getting the same amount, but it would also reduce people’s incentive to work.

Whereas before, earning over $48,837 saw you only lose 20 cents of welfare per extra dollar of income, now it would be 30 cents – meaning your incentive to work is reduced because you end up getting less money than you did before from doing the same amount of work.

The government is currently spending a lot of time worrying about whether the right people are getting welfare, and also about people being encouraged to work. Given our welfare system is already among the most targeted in the world, perhaps they should be less concerned about whether the right people are getting welfare, and more concerned about whether the right people are getting enough.

Australia’s already progressive tax system doesn’t need further tightening | Business | theguardian.com

Tony Abbott facing internal dissent over 'crazy' debt levy proposal

By political reporter Latika Bourke

Video: Prime Minister Tony Abbott speaks to 3AW's Neil Mitchell (ABC News)

Photo: Mr Abbott denied that a deficit levy would be a breach of his repeated promises before the election not to introduce any new taxes. (AAP: James Elsby)

Prime Minister Tony Abbott is facing dissent from within his own party over a proposal to introduce a debt levy, with one MP saying it would be "absolutely crazy" and amount to a broken election promise.

Mr Abbott says the Government is "mulling over" a range of ideas, but has confirmed he is considering a temporary levy to help repay the nation's debt.

"There's been speculation, as you know, about a deficit reduction levy," the Prime Minister told Fairfax Radio.

"Certainly it is my intention that people like myself, high-income earners, should bear a significant quantum of the burden when it comes to sorting out our problems.

"We do have a short-term problem and we do need to deal with it.

"Do I say that no charges will rise? No, I don't."

There are reports the deficit levy would kick in for people earning $80,000 per year, with workers on that salary paying up to $800 per year in extra tax.

The Prime Minister would not confirm specific details and later stressed that no final decisions had been made.

And he denied a deficit levy would be a breach of his repeated promises before the election not to introduce new taxes.

"I think if there was a permanent increase in taxation, that would certainly be inconsistent with the sort of things that were said before the election," he said.

But a federal Coalition MP, who did not want to be named, told the ABC the levy was a "crazy idea" and a "clear breach" of the Government's pre-election commitment.

"I will be raising this in the party room," the MP warned.

"This is absolutely crazy. This is an absolute breach of our election promise. This is the type of thing that makes people quit political parties.

"This is absolutely nuts. I for one won't be standing for this."

"I'm not in favour," said another Coalition MP. "We're just being inconsistent, quite frankly."

Another Coalition MP confided to the ABC that a deficit levy would be Mr Abbott's "no carbon tax political tombstone".

Queensland LNP senator Ian Macdonald says he knows Mr Abbott will stand by his commitment of "lower and fairer taxes".

Elevate tax talk above mere politics

If there is one thing to be salvaged from the talk of a tough budget, it is that tax is finally being elevated above politics to be restored as an instrument of economic policy, writes Ian Verrender.

 

"We did want to and we made the commitment to have lower and fairer taxes and I know that Tony Abbott will stand by that commitment," he said.

"But we have a horrendous debt situation."

The Senator said he was concerned that any levy on individuals would bypass business and put small business owners on the back foot.

"And a scheme where the butcher and the baker as individuals will have to pay a levy, but not Woolworths and Coles, who are competing with the local butcher and baker, I think that is unfair," Senator Macdonald said.

"I had that view consistently when Labor introduced the flood levy, and I maintain that position."

Opposition Leader Bill Shorten is predicting the Government will "fold" on the plan before the budget, but he is vowing to fight the "deceit tax" in Parliament if it does not.

"Today we have the remarkable spectacle of a desperate Prime Minister trying to pretend that a tax increase for a period of time is not really a tax increase," Mr Shorten told reporters in Bendigo.

"That's wrong Mr Abbott. A tax increase is a tax increase is a tax increase. We will fight a tax increase on ordinary Australians. Labor will have no part of it."

The Greens are vowing to block any deficit levy in the Senate, but the idea is being supported Australia Council of Social Services chief executive Cassandra Goldie.

"The levy would need to be done sensibly, it would need to carefully targeted, but the NDIS levy was right," she said.

Abbott facing paid parental leave scheme pressure

Mr Abbott is also facing renewed pressure from within his own ranks to dump his paid parental leave scheme, which would see new mothers paid their full wage for six months after the birth of their child.

It would cost the budget $5.5 billion per year, and the ABC understands a handful of Coalition senators are willing to cross the floor and block the Prime Minister's signature policy.

Nationals Senator John Williams, who previously told the ABC the scheme should only be introduced when the economy is strong, today said it should be "put on ice".

Pensions and super savings

Amid budget speculation, the Government has spoken of the need for "essential and unavoidable" reform to the pension. But how does financial assistance work after retirement?

 

"We need to get the books in order, stop the borrowing, and this is a scheme, I think, that needs to be put on ice or delayed until the economy is stronger," Senator Williams said.

He said he had "spoken to colleagues who have concerns about the cost of the program" but did not confirm if several of his colleagues would oppose it in the Parliament.

He said there was no need to tamper with Labor's paid parental leave scheme, which was introduced following a review by the Productivity Commission.

"The current scheme is working well - my daughter-in-law has had two children under that scheme and she's been very grateful for the benefits received from the minimum wage for 18 weeks," he said.

"My daughter is pregnant now; she's quite happy with the current scheme."

Mr Abbott is refusing to back down, saying he has taken the idea to two elections, and describing Senator Williams as an "internal dissident" on the issue.

"Because my own thinking on this has evolved, I'm confident other people's thinking can evolve," he said.

But Senator Macdonald says the scheme conflicts with the interests of his constituents in regional Queensland.

"I'm very keen to see northern Australia develop, but it doesn't get developed if we spend very limited resources on what many seem to think is an over-the-top and rather luxurious arrangement for a select group of people," Senator Macdonald told RN Breakfast.

The Greens say they are willing to negotiate with Mr Abbott to help him pass the scheme, but are pointing to what they describe as an "internal revolt" against the idea from within the Government.

Nationals deputy leader Barnaby Joyce admits the Government does not have the numbers to get the scheme through the Senate.

"So that's why I'm not losing sleep at nights talking about something that I can't see its passage through the Senate at this time," he said.

More stories

• Reform to age pension 'essential, unavoidable': Abbott
• Business criticises debt levy, but backs ditching parental leave plan
• Peter Dutton fuels speculation of Medicare co-payment
• Treasurer sets scene for budget pain, but not all this year
• Veterans warn any change to pension would be 'act of bastardry'

Federal budget: Tony Abbott facing internal dissent over 'crazy' debt levy proposal - ABC News (Australian Broadcasting Corporation)

Pension plans won't win many fans

By Peter Lewis and Jackie Woods

Updated Thu 24 Apr 2014

Photo: We are living longer - which is a good thing. But that is putting pressure on pensions as well as health care - which is a bad thing. (AAP)

With big spending planned on fighter jets and a generous new paid parental leave scheme, changes to the pension could turn voters off, write Peter Lewis and Jackie Woods.

Tony Abbott is a very black and white sort of leader. He stops the boats. He ends the waste. He cuts the taxes.

But outside the election cycle, our Prime Minister is discovering government is less black and white and more grey, not least when it comes to the budgetary challenge of managing our ageing population.

As three-word slogans go, Stop the Pensions doesn't really cut it.

As the Government prepares for its tough love "age of entitlement"-ending budget, Treasurer Joe Hockey has put the sustainability of the aged pension front and centre of public debate. But while the demographic forecasts might be straightforward, paying for our ageing population comes with a whole set of complicated policy challenges.

We are living longer - which is a good thing. But that is putting pressure on pensions as well as health care - which is a bad thing if you are fighting a war on debt.

Many are working in jobs that could see us remain in the workforce longer. Others work in manual jobs where their bodies have had enough by their mid-60s.

Compulsory superannuation means that many people have at least some money set aside for retirement. But the nature of income-based contributions plus tax concessions brought in during the Howard era means super schemes disproportionately benefit high earners.

For generations, Australians have invested their financial security in the family home; and booming capital city property prices mean many people have considerable assets on retirement. Yet the Government doesn't look at that wealth when calculating an individual's eligibility for a pension.

And to muddy the waters further, older Australians disproportionately vote for the Coalition and are easily upset.

With these grey areas in mind, this week's Essential Report suggests Hockey's attempt to transfer his war on the age of entitlement to the aged pension arena is looking decidedly brave.

Australians reject the proposition that people should wait until 70 before being entitled to retire on an age pension.

Embed: Raising pension age

The opposition crosses party lines and age demographics, as does resistance to stricter asset tests to include the value of the family home.

Embed: Pension assets test

In the public mind, aged pensioners are considered the most worthy in the hierarchy of welfare recipients.

Australians hold a firm view that after a lifetime of work and paying tax, it's only fair that seniors get some public support. Plus, we'll all be old one day (if we're lucky) - negotiating the financial challenges of old age isn't just something that happens to other people.

And while the demographic challenges might be irrefutable, there are still choices about where and how to find the money to fund our ageing population - and whose retirements public money should be directed towards.

After all, the Abbott Government has delayed Labor's planned increase in compulsory superannuation by two years, taking billions out of the national savings pool.

And while preparing to tighten the screws on pensions it has scrapped a tax on superannuation for the 16,000 highest income earners announced by Labor.

As the Australia Institute points out in its report this week on superannuation the skyrocketing costs of superannuation tax concessions are leaving the increasing cost of pensions for dead, with most of the benefits going to the top income brackets.

Hockey inadvertently touched on the ineffectiveness of superannuation tax concessions in reducing reliance on the pension in a keynote speech this week, saying that despite spending billions on tax concessions the number of Australians receiving a full or part pension in 2050 will still be about four out of five.

Heading towards the budget, the Government is ramping up its entitlement-busting talk.

But while the public may be convinced there are some unworthy recipients of taxpayers' support, aged pensioners aren't among them.

And with big spending planned on fighter jets and a generous new paid parental leave scheme, cuts to the pension could leave voters decidedly grey around the gills.

The survey was conducted online from April 18-21, 2014 and is based on 1004 respondents.

Peter Lewis is a director of Essential Media Communications. View his full profile here. Jackie Woods is a communications consultant at Essential Media Communications. View her full profile here.

Pension plans won't win many fans - The Drum (Australian Broadcasting Corporation)

Joe Hockey signals big changes will come after next election

Katharine Murphy, deputy political editor

theguardian.com, Thursday 24 April 2014

As Labor builds its 'broken promises' critique, treasurer says Australians will have opportunity to make judgment at next poll

Hockey: 'We all have to make contribution because nothing is for free. Nothing can remain for free.' Photograph: Rod Lamkey Jr/AFP/Getty Images

Joe Hockey is continuing his efforts to soften up voters for unpopular budget cuts next month – but he’s signalled many of the controversial changes will be positioned on the other side of an election.

The treasurer has been giving industrial-sized hints that the government will move to increase the pension age to 70, and introduce co-payments for some services, including doctor’s visits, in an effort to make federal finances more sustainable over the longer term.

But given that Tony Abbott promised without qualification during the election campaign not to touch pensions or reduce health and education spending, Labor has been building up its “broken promises” critique in response to the Coalition’s pre-budget positioning.

The ALP has released a new advertisement reminding voters of the prime minister’s various pre-election statements on the aged pension.

Hockey on Thursday signalled that some of the big changes would not take effect in this electoral cycle, but after the next federal poll. “We are honouring our commitments and in relation to many of the structural changes that we have to make, the Australian people have the opportunity to make decisions at the next election,” the treasurer told the ABC.

Seniors groups have soundly rebuffed the government’s attempts to inoculate itself from an electoral backlash – warning the government they will regard any change to the aged pension as a broken promise, regardless of when it takes effect.

On Wednesday evening Hockey used a major speech to confirm the long-anticipated Commission of Audit would be released next Thursday – and to point to efforts by the Coalition over time to restore budget sustainability with measures including increased co-payments and means testing for transfer payments.

Hockey all but confirmed the government would apply a co-payment to GP’s visits. “Well, that is certainly something that is in the mix – the fact is that Medicare is growing at twice the speed of the economy,” he said.

“We all have to make contribution because nothing is for free. Nothing can remain for free.”

On aged pensions, he said: “Well, there is an inevitability that at some point we have to increase the age pension age, but it is well into the future.

“We should celebrate the fact that we are living longer. We should celebrate the fact that effectively one in every three children born today are going to live to 100. We should also not see someone's life ending when they turn 65 or 70.”

The shadow finance minister, Tony Burke, rejected the government’s qualifications. “The day before the election Tony Abbott made, in no uncertain terms, a commitment that there would be no changes to pensions, no changes to pensions,” he said.

“There is no way of reading what Joe Hockey said last night other than by recognising that they are gearing up to break that promise.”

Joe Hockey signals big changes will come after next election | World news | theguardian.com

There’s zero public demand for fighter planes ...

 

Jeff Sparrow theguardian.com, Thursday 24 April 2014

Ordinary Australians might not care about the F-35 Joint Strike Fighter acquisition, but the Very Important People do – and that’s what matters

Prime minister Tony Abbott tries out the cockpit of the F-35 fighter plane in Canberra. Photograph: Alan Porritt/AAP

Yesterday, the Australian federal government committed an additional $12bn fighting climate change. "In view of the scientific consensus, we’d be remiss to do anything else," said Tony Abbott.

Oh, wait. No, that money went on 58 new fighter planes, in the most expensive defense commitment in Australian history. The F-35 Joint Strike Fighter acquisition would allow Australia to participate in future military coalitions alongside the US – the main basis, one would guess, for this extraordinary expenditure.

It’s common today to attack politicians as entirely poll-driven, devoid of principles and taking their direction from the latest focus group results. But that’s not quite an accurate description of how the polity functions, for there’s zero public demand for more fighter planes. "I want Australia to spend billions, ensuring we're in the front rank of wars like Iraq and Afghanistan" … said no normal person ever.

A pledge of an additional $12bn to health or education or infrastructure would have been wildly popular, yet that didn’t happen. On the contrary, those areas are all slated for cuts in Joe Hockey’s coming austerity budget – and, rather than condemn the defense spending, Shorten’s Labor party has thrown itself behind the Joint Strike Fighter.

The bipartisan commitment for the F-35 illustrates how political priorities are shaped by a narrow elite consensus at odds with public sentiment. Ordinary Australians might not care about the F-35, but the Very Important People do – and that’s what matters.

This morning, The Australian’s influential foreign policy editor Greg Sheridan announced a desire to be, um, reincarnated as a Joint Strike Fighter ("lean, sinuous, sleek, intimidating, the best in my class.") Yet even as Sheridan was running around the editorial offices with his arms outstretched, shouting, "I’m a F-35!" and making pew pew pew noises at Chris Kenny, the Oz enthused about what it called "the tough Hockey budget our nation has to demand". It declared:

Rules for receiving income support must be tightened; spending that people have come to take for granted, such as family payments, must be pruned.

Money for guns, none for butter: how to explain a combination that will palpably make life harder for most Australians?

Simply, among the elite, the commitment to the US alliance remains sacrosanct, despite Iraq and despite Afghanistan. The first president of the American Economic Association, Francis Amasa Walker, once wrote that a commitment to laissez-faire was not so much the measure of economic orthodoxy as the test "used to decide whether a man were an economist at all".

Likewise with Australian foreign policy. It’s permissible to argue the nation should have bought a cheaper fighter plane; it’s not permissible (and never will be permissible, even after Iraq), to suggest that we’d be a lot better off with no capacity for what Sheridan calls "interoperability with the Americans".

But perhaps the Very Serious People possess great strategic vision, allowing them to operate according to a longterm perspective not visible to the rest of us?

Well, let’s think about climate change.

Despite the fractious exchanges between the Bolt-driven denialists and their opponents, there’s an elite consensus there, too. Unlike scientists, the Very Serious People might be divided as to whether climate change is real – but they’re united in a determination that we shouldn’t make any fundamental changes because of it.

Had a reforming government pledged $12bn to, say, environmental research in the midst of a supposed budget emergency, it would have faced not only a rejuvenated Tea party-style opposition, but also a proliferation of broadsheet columns decrying its reckless extravagance.

The entire scientific establishment warns that we’re rapidly approaching global tipping points. But, alas, scientists have been demoted from the ranks of the Very Serious People, now that they’re saying things the elite doesn’t want to hear.

As Naomi Klein argues: "climate change is a collective problem demanding collective action the likes of which humanity has never actually accomplished."

In other words, it’s increasingly apparent that genuine action on climate will necessarily have an anti-capitalist edge – and no Serious Person wants even to discuss that.

The Iraq war killed thousands of people, and reduced that country to an authoritarian ruin. But spending billions preparing for the next pre-emptive invasion or overseas adventure is Very Serious in a way that preventing the ruination of the planet is not, simply because the latter threatens profits, and the former does not.

There’s zero public demand for fighter planes ... but we'll spend $12bn anyway | Jeff Sparrow | Comment is free | theguardian.com

Reserve Bank unlikely to shift from neutral stance

By business reporter Michael Janda

Updated Wed 23 Apr 2014

Photo: Economists say the Reserve will be left unmoved both by today's inflation numbers and the Treasurer's apparent entreaty. (Will Burgess, file photo: Reuters)

Today's lower-than-expected inflation reading is not low enough to force the Reserve Bank to change tack on rates, even if that is what the Treasurer would like it to do.

Yesterday, the Financial Review reported that the Commonwealth Treasurer has expressed displeasure to the RBA about its February shift to a so-called "neutral bias" - where the bank is leaving interest rates on hold with a view that the next move is equally likely to be up or down.

Coming off the what had been a long-term "easing bias" - where the bank flags that future rate moves are likely to be down - the move to a neutral bias has been widely interpreted by rate watchers as all but a declaration that the next move will be up, with the remaining question being when that move will occur.

This has been one factor that has seen the Australian dollar rebound against the US currency from a low around 86.7 US cents in late January, back to a recent high above 94 US cents.

It is this move in the currency that the Fairfax press says displeasured the Treasurer, because of the extra challenge it poses for Australia's economy in its transition away from mining investment-led growth to expansion in the dollar-sensitive manufacturing, tourism, education and agricultural industries, amongst others.

Whatever Mr Hockey thinks of this shift in the central bank's stance - and his office has not challenged the accuracy of the AFR report - BT Financial Group's chief economist Chris Caton says it is unlikely to change the RBA's position.

"Maybe these sort of things happen more often than we know," he said.

"My suspicion is the Reserve Bank may well say, 'Well thank you for your opinion', and go on and do exactly what it was going to do anyway - that's what it should do."

In Mr Caton's view, what the Reserve Bank should do, given today's lower-than-expected March quarter inflation figures, is to maintain its neutral stance and look at other economic and financial indicators, such as unemployment, home prices and the exchange rate.

He hopes the Government will resist the temptation to offer further advice to the bank, to avoid damaging even the perception of its independence.

"The view around the world is that monetary policy is best administered by a politically neutral, independent authority," Mr Caton added.

While today's Australian Bureau of Statistics inflation data for the year to the end of March came in well below analyst forecasts of 3.2 per cent, the 2.9 per cent reading is only a whisker below the Reserve Bank's 2-3 per cent target band.

The bank's preferred measures were a bit lower, at 2.6 and 2.7 per cent for the year to March, but still in the top half of its target range, and at the highest levels in just over two years.

Combined with soaring home prices - which are mostly uncaptured in the consumer price index - and strong employment growth over the first few months of the year, most economists agree that the RBA returning to an easing bias is highly unlikely barring a major domestic or international economic shock.

In other words, the next rate move will almost certainly be up but, if these sort of inflation readings continue, it may not be until well into next year.

Reserve Bank unlikely to shift from neutral stance despite the Treasurer's displeasure - ABC News (Australian Broadcasting Corporation)

Inflation within target takes pressure off Reserve Bank

By business reporter Michael Janda

Updated Wed 23 Apr 2014

Photo: Petrol price rises were one of the biggest contributors to inflation. (ABC Radio)

Inflation has remained within the Reserve Bank's 2-3 per cent target, taking pressure off the RBA to consider early rate rises.

Economist forecasts had centred on a consumer price rise of 3.2 per cent in the year to the end of March, but the Bureau of Statistics figures show inflation was 2.9 per cent over that period.

Prices rose just 0.6 per cent in the quarter, below an expected 0.8 per cent, with much of the increase due to seasonal factors and volatile price movements.

Tobacco prices jumped 6.7 per cent in the March quarter, with an increase in excise.

Fuel prices rose 4.1 per cent as a short-lived dip in the Australian dollar combined with rising international petroleum prices to push the pump price higher.

Secondary (6 per cent) and tertiary (4.3 per cent) education both recorded strong seasonal rises, with fees lifted for the start of the new academic year.

Medical and hospital products rose 1.9 per cent and pharmaceutical goods increased 6.1 per cent, with the hike in drug prices largely due to seasonal factors related to the Federal Government's Pharmaceutical Benefits Scheme.

These price gains were partly offset by a 4.3 per cent fall in furniture prices, a 3.3 per cent decline in the cost of maintaining and repairing vehicles and 2.4 per cent falls in the cost of both domestic and international travel and accommodation.

That left the Reserve Bank's preferred measures of underlying inflation at 0.5 and 0.6 per cent for the quarter, or 2.6 or 2.7 per cent for the year to March, well within the 2-3 per cent target.

CommSec economist Savanth Sebastian says the data show that domestic prices (0.6 per cent) rose faster than the price of imported goods, despite a dip in the Australian dollar for much of the period.

"Policymakers would be more comforted by the deflationary aspect of prices for market-determined services, with prices falling 0.1 per cent in the quarter," he observed in a note on the figures.

"It seems to suggest that the slower and weaker wage growth (which has been part of the economic landscape for the past year) is finally filtering through to a fall in prices for services."

AMP Capital Investors chief economist Shane Oliver says this is likely to give the Reserve Bank breathing room to stay on the sidelines for many months.

"The bottom line is that inflation remains benign, there's no pressure on the Reserve Bank here to quickly raise interest rates," he told Reuters.

"I certainly don't think there's enough in this to see the Reserve Bank reinstate an easing bias. The Reserve Bank can sit quite comfortably on its neutral bias."

The Australian dollar slipped from 93.8 US cents to 93.03 by 11:52am (AEST), as currency traders agreed that inflation was well under control for now, and there would be no pressure on the Reserve Bank to lift interest rates for many months to come.

Inflation within target takes pressure off Reserve Bank - ABC News (Australian Broadcasting Corporation)

Medicare co-payment: Peter Dutton fuels speculation ahead of budget

By political correspondent Emma Griffiths

Updated Wed 23 Apr 2014

Related Story: PM's chief business adviser backs Medicare co-payments

Related Story: AMA criticises proposal for up-front GP fee

Health Minister Peter Dutton has fuelled speculation the Federal Government is poised to introduce a new payment for GP visits by indicating high income earners should not expect to see a doctor for free.

There have been reports the Abbott Government will announce a $6 co-payment for bulk-billed GP appointments in the May 13 budget.

The measure is reported to be worth $725 million over four years.

Mr Dutton has refused to confirm the charge will be in the budget but told a press conference "there's a lot of reform that needs to take place in health".

When asked if he could reassure people on low incomes, the Minister said there would always be a "safety net" in place for people who could not afford to pay.

"We will take care of those that can't take care of themselves," he said.

"But at the same time people on incomes like mine, or a reporter on $300,000 or $400,000 a year - should we expect to go to the doctor for free? That's a reasonable question to ask.

"I want to make sure that we can strengthen Medicare, but we're not going to do that by giving free services in the hundreds of millions each year in a country like ours.

"If we want to provide for people with no means into the future, then we're going to have to have an honest conversation about how we build and strengthen our system."

The Federal Opposition says it will fight the co-payment.

"A GP tax is the thin edge of the wedge," Opposition Leader Bill Shorten said.

"We will see people on fixed incomes, self-funded retirees, people over 55, poorer people will be unfairly hit."

Opposition health spokeswoman Catherine King said there were concerns the measure would push people to go to hospital emergency departments instead.

"If you're trying to reform the health system, this is not the way to go about it," she said.

Medicare co-payment: Peter Dutton fuels speculation ahead of budget of $6 fees - ABC News (Australian Broadcasting Corporation)

Coalition banks on blind faith in budget 'fix'

By Greg Jericho Posted Wed 23 Apr 2014

Photo: The need for budget repair is regurgitated by any LNP politician within sight of a microphone. (Dean Lewins: AAP)

Joe Hockey and Tony Abbott would prefer you just assume that "fixing the budget" will improve the economy without them actually having to demonstrate how, writes Greg Jericho.

Among all the talk in the run-up to the budget, the overriding narrative has been that "fixing" the budget is required to fix the economy. It's a narrative the Government hopes you take on faith rather than on evidence.

The budget emergency first related to the present situation of the budget. When this didn't fly with reality, the Government turned to the period beyond the budget estimates. This is where the ALP had apparently hidden all the blowouts in expenditure (even though expenditure in these years for programs like the NDIS and Gonski were well known).

Embed: Australian Government Budget

With budget deficits supposedly for the next decade and government debt growing, the need for budget repair is regurgitated by any LNP politician within sight of a microphone.

Certainly the ageing population and associated increases in expenditure and declining revenue base is in need of discussion. But the Government has gone beyond this to actually arguing that moving to a surplus will improve the economy.

Tony Abbott has articulated this view many times - such as when he told Parliament that "if you want to fix the economy, you have got to fix the budget first". Joe Hockey similarly claimed that "the bottom line here is that if we are to maintain our standard of living as a nation we have to fix the budget."

Behind such talk is the implicit belief that ongoing deficits are bad for our economy, and the debt is a drag on our growth.

And yet the link between government debt and economic growth is pretty skint. There is a plethora of evidence showing a correlation between the two - that increased government debt occurs at the same time as poor economic growth. But proving that debt causes lower economic growth is rather more tricky.

Economists Carmen Reinhart and Kenneth Rogoff in 2010 tried, but after much trumpeting by austerity supporters around the world, it was discovered their conclusions were based on an error in their Excel spreadsheet. Indeed, one of the reasons the budget is projected to be in deficit is because GDP growth is not expected to be high like it was in the 1990s when the recovery from the recession powered the return to surplus.

Saying that fixing the budget will fix the economy is again confusing correlation with causation.

We are also told ratings agencies like budget surpluses. It seems we think more of ratings agencies than they think of themselves. Standard & Poor's lawyer told a court last year that "Triple A does not mean anything hanging out there as a concept," and that it was akin to Top Gear giving a car a good rating.

While it may be nice to have a AAA rating, the reality is our bond rates are driven by numerous factors and presently the difference between Australian and USA's government 10-year bonds yields (or interest rate) is just below the 10-year average: 

Embed: Differential between Australian & US 10-year Govt Bond Yields

Moreover, Australia is one of only eight who have a stable outlook AAA rating from all three credit agencies. So clearly the ratings agencies are not too worried about our budget emergency.

But even if they were, a AAA rating is a hell of a thing to put before the performance of your economy. And looking across the 14 nations that have a AAA rating from at least one of the agencies, there is a pretty wide scope of performance according to GDP growth, employment and budget balances.

Embed: AAA Rated Countries

So if it's not debt, then what? Abbott has suggested it is because of the ability to lower taxes. He noted that "you cannot fix the economy unless you fix the budget, and a stronger budget means lower taxes and more jobs."

And surely lower taxes do mean higher growth and more jobs? Well, yes. A study in the USA by economists Christina and David Romer looked at the impact of cutting taxes on growth by taking into account the context within which such tax cuts occurred. They found that a tax cut of 1 per cent of GDP could improve GDP growth by 2-3 per cent within three years.

Except they were talking about stimulating the economy by increasing the budget deficit through tax cuts. They also noted that government spending increases would likely have a bigger impact. Even worse for Abbott, they also found that in the USA, tax cuts did nothing to reduce government spending - and certainly this was the experience in Australia during the early-mid 2000s. They also concluded that "unemployment typically rose and output fell following austerity programs".

Moreover, a major reason why we currently have any sort of budget emergency is because of tax cuts already given. The Parliamentary Budget Office noted that:

"Over two thirds of the 5 percentage points of GDP decline in structural receipts over the period 2002-03 to 2011-12 was due to the cumulative effect of the successive personal income tax cuts granted between 2003-04 and 2008-09."

And the OECD data on the tax wedge (or burden) since 2004 shows that the people who benefited most from those tax cuts were high-income earners rather than those on average incomes:

Embed: Change in income tax burden since 2004 by earnings

Of course, some argue that tax cuts can occur so long as wasteful spending is cut by more. Except "wasteful" generally means "spending we don't like", or "spending the people who pay us to lobby/think tank for them don't like". Also government spending tends to worry more about inequality than does the supposedly more efficient private spending, which is not much of a concern to those for whom inequality is something that happens to other people.

A couple weeks ago the Secretary of the Treasury, Dr Martin Parkinson, delivered a speech in which he talked of our living standards and fiscal sustainability.

However, his focus on living standards was "weak productivity growth, a falling terms of trade, and an ageing population". When he attempted to link our standard of living with the budget he referred to the need to build up our reserves so that should another global recession hit, we could respond similar to how we did in 2008-09.

When he mentioned taxation he talked about the desirability of shifting the dependence from income tax to indirect taxes such as the GST more than about reducing our taxes overall.

In the past, the talk was of budget surpluses over the cycle - that when our economy was performing at trend or above, the government should shift to a surplus. Now the Government has moved to suggesting that shifting to a surplus will see the economy grow above trend.

At present Hockey and Abbott would prefer you just assume their "fixing the budget" will improve the economy without actually having to demonstrate how. Perhaps this is because it removes their need to talk about things like the GST and your blind faith will also make it easier for them to break their election promises.

Greg Jericho writes weekly for The Drum. View his full profile here.

Coalition banks on blind faith in budget 'fix' - The Drum (Australian Broadcasting Corporation)

Treasurer Joe Hockey warns of tougher means testing

By political correspondent Emma Griffiths

Video: Hockey warns of tough budget measures (Lateline)

Photo: Mr Hockey says the commission's report makes it clear the nation has "a serious spending problem". (AAP: Alan Porritt)

Treasurer Joe Hockey has warned next month's federal budget will introduce tougher means testing of support payments and more upfront costs for government services.

In a speech made in Sydney entitled The Case for Change, Mr Hockey began to unveil the findings and recommendations of the Government's much-anticipated Commission of Audit, which the Coalition is using to frame the May 13 budget.

The commission handed its final report to the Government late last month and the Treasurer will release it publicly next week.

Mr Hockey says the report makes it clear the nation has "a serious spending problem" and recommends "substantial spending restraint".

"Budget repair is going to require some difficult decisions, including winding back some spending that people have come to take for granted," he said.

"Means testing must become an even more important part of Australia's transfer system to ensure the sustainability of our income support payments. Support must be targeted to those in most need.

So if Australians ask themselves of the budget in May, 'What's in it for me?', my response will be, 'A better future'.

Joe Hockey

"More use of co-payments should be made to encourage some moderation in demand for government-provided goods and services. Nothing is free. Someone always pays.

"It is appropriate that those who use government services should contribute towards their cost."

There have been widespread reports the Government is poised to introduce a $6 co-payment for bulk-billed GP appointments, raise the age of the pension from 67 to 70 and address the growth in Family Tax Benefit B.

Mr Hockey says there will be numerous instances where budget decisions will be implemented over time, but has warned that "every sector of the community - households, corporates and the public sector alike - will be expected to contribute".

"So if Australians ask themselves of the budget in May, 'What's in it for me?', my response will be, 'A better future'," he said.

"I ask Australians not to judge this budget on what they get or lose today. This budget is about our quality of life for the years ahead."

Commission of Audit made 86 recommendations

Mr Hockey says the Commission of Audit has made 86 recommendations, some of which can be "actioned in the short term".

"Others will require further consideration, and some will be rejected outright," he said.

The report has focused on the 15 largest government programs and found they are also the nation's fastest growing.

The age pension tops the list with a cost this financial year of $39.5 billion.

Video: Economist Saul Eslake talks to 7.30 host Sarah Ferguson (7.30)

In a further signal the pension is set for changes in the budget, Mr Hockey emphasised that is "much more than we spend on defence, or hospitals, or schools each year".

"It is our single biggest spending program," he said. "So the policies must be changed, either now or more dramatically in the future."

He says the Government will continue to support the "most vulnerable" people, but says there will be an "ongoing and relentless focus on fiscal discipline".

Mr Hockey has highlighted the Government's plans to introduce a wage-replacement paid parental leave scheme and infrastructure spending as key measures to boost productivity and economic growth.

Child care and paid parental leave are listed by the commission among the top spending programs, at number 12, and it is the second-fastest growing with average annual growth slated to be 11.5 per cent.

The Coalition's new scheme is due to begin in 2015 at a cost of $5.5 billion a year, partly paid for by a 1.5 per cent levy on big business.

But the Opposition has slammed the scheme - which pays mothers who earn up to $150,000 a year their full wage for six months - and says it should be dumped.

"If the Prime Minister is so desperate to cut, he should leave pensioners alone and start with his extravagant paid parental leave scheme," Opposition Leader Bill Shorten said in a statement.

Treasurer Joe Hockey warns of tougher means testing ahead of Commission of Audit's release - ABC News (Australian Broadcasting Corporation)

Joe Hockey warns aged pension is in the sights of budget razor gang

Lenore Taylor political editor

theguardian.com, Wednesday 23 April 2014

Bill Shorten accuses the government of 'cynically trying to soften the ground for massive cuts to pensions'

Treasurer Joe Hockey says the aged pension is in the sights of budget cutters. Photograph: Alan Porritt/AAP

Joe Hockey is warning Australians to brace themselves for a new era in which government services they have taken for granted will require a co-payment or be means-tested or provided by the private sector.

In a speech ahead of next week’s release of the commission of audit’s 86 recommendations for reining in government expenditure, the treasurer has made it clear that the $40bn a year the government spends on the aged pension is squarely in the budget razor gang’s sights.

The government has already flagged raising the pension age, over time, to 70, but in the speech to the Spectator magazine in Sydney on Wednesday night, Hockey signalled the changes might be broader, possibly targeting the large number of people on part-pensions or receiving government health concession cards.

“The $40bn we spend on income support through the age pension is much more than we spend on defence, or hospitals or schools each year. It is our single biggest spending program,” he said, pointing out that between 2010 and 2050 the number of people age 65 to 84 is expected to quadruple.

And the vast majority of over-65s receive some form of government payment.

“Of Australians over the age of 65, four out of five receive a full or part pension. If we also take into account the concessionary health card, then only 14% of older Australians receive no government payments,” Hockey said.

“And the pharmaceutical benefits scheme is the tenth largest category of spending. Nearly 80% of the scheme’s expenditure is attributable to concessional recipients.”

The seniors health card is available to pensioner couples with an income $80,000 a year or singles with an income of $50,000 but has no assets test.

But prime minister Tony Abbott is also insisting that the government will keep its election promises, one of which was “no changes to pensions”.

“We will keep our commitments, because the point I keep making, if there is one thing that we learnt from the fate of the former government, you cannot say one thing before an election and do the opposite immediately afterwards,” Abbott said when asked about mooted budget cuts Wednesday.

The government appears intent on resolving the apparent contradiction between Hockey’s signals and Abbott’s promises by phasing in the budget cuts over time.

“There will be numerous cases where our policy principles can only be implemented over time,” Hockey said in his speech.

The opposition leader, Bill Shorten, accused the government of “cynically trying to soften the ground for massive cuts to pensions” but predicted “pensioners will see through their weasel words”.

“The Abbott government created their own budget emergency, and now they are telling pensioners to pay for it. If the prime minister is so desperate to cut, he should leave pensioners alone and start with his extravagant paid parental leave scheme,” Shorten said.

Hockey also suggested the long term changes could be significant and would be spread across households, the public service – where sweeping cuts are planned – and the private sector.

“Means testing must become an even more important part of Australia’s transfer system to ensure the sustainability of our income support payments. Support must be targeted to those in most need,” he said.

“More use of co-payments should be made to encourage some moderation in demand for government-provided goods and services. Nothing is free. Someone always pays. It is appropriate that those who use government services should contribute towards their cost.

“On unemployment benefits, government should provide assistance that helps the jobless move into employment, rather than a system that traps them.

“The difficult decisions that will underpin our movement to a new age of responsibility must also include the corporate sector. Too many taxpayers' dollars have been spent on corporate welfare and too often previous governments have been drawn into areas that are better left to the private sector,” he said.

But he insisted that the government would not be cutting back on its generous and much-criticised paid parental leave scheme, offering women six months leave on up to $75,000, and the budget will contain an increase in infrastructure spending, with the government saying both measures are important to increasing productivity and economic growth.

Assuming personal income tax cuts to return “bracket creep” as taxpayers enter higher tax brackets, the commission of audit says that without a major shift in government spending Australia will still have a deficit of around 1.5% of GDP by 2024.

The government announced the commission of audit last October, headed by the president of the Business Council of Australia, Tony Shepherd, with the broad brief of “assessing the role and scope of government, as well as ensuring taxpayers’ money is spent wisely and in an efficient manner”. Also on the commission were former Liberal adviser and departmental head Peter Boxall, former public servants Tony Cole and Robert Fisher and former Howard government minister Amanda Vanstone.

The Labor party says the commission’s make-up means the government has effectively “outsourced the responsibilities of government to big business”.

Among budget savings widely discussed are a $6 co-payment for bulk-billed visits to the doctor, reducing or abolishing the Medicare Locals system, raising over time the eligibility age for the pension to 70 and changing its indexation to a less generous formula.

Joe Hockey warns aged pension is in the sights of budget razor gang | World news | theguardian.com