Joe Hockey’s much-leaked first budget promised wholesale surgery to the Australian body politic.
It has delivered something very different: a modest and indeed timid path back to surplus, nine years hence. Instead of widespread slashing and burning, the knife has mainly been taken to the most vulnerable, with special nasties saved up for Coalition’s enemies.
Austerity? More like score-settling.
In his speech , Hockey waxed lyrical about the crucial decisions he has taken to repair the health of Australia’s public finances. “Our future depends on what we as a nation do today,” he intoned. “Prosperity is not a gift. It needs to be earned.”
And that’s this budget in a nutshell: long on rhetoric, short on the really tough decisions.
In last year’s budget, a demoralised Wayne Swan announced that no, he hadn’t returned the budget to surplus. But he had put it on the right path to getting back to surplus one day. No-one really cared.
For his whole time in Opposition, Hockey derided Swan and Labor for their profligacy. He regularly predicted that he would be able to deliver a surplus in the first year of a Coalition government.
On coming to office, Hockey got a look at the books. He soon realised that Swan hadn’t been lying after all. There was no pot of gold at the end of the election rainbow. The Coalition would find it no easier to return the budget to health than Labor. The tax revenues simply weren’t there.
Last year, Swan forecast that the 2014-15 budget – in other words, the one that Hockey is now delivering – would bring in $411 billion in revenue. In this year’s document, Hockey now has that figure at $391 billion. Swan forecast spending of $415 billion. Hockey’s budget forecasts spending of… $415 billion. In other words, revenue really was the problem. If Labor had a spending problem, then so does the Coalition.
This means we can ignore the Coalition’s talking points that “prosperity must be earned”. They are simply empty rhetoric.
If the government really wanted to slash spending, it could have cut and cut hard. Hockey acknowledged this in his media conference. “Yes, we could have gone much harder,” he admitted.
The truth is, he didn’t need to. Labor had already done much of the Coalition’s heavy lifting. No wonder high-income earners are only being asked to pay higher taxes temporarily. It turns out there isn’t really a budget emergency after all.
Far from ending the age of entitlement, the Coalition is relying on exactly the same mechanisms that Labor hoped for to bring the budget back into the black. Essentially, Hockey is holding spending steady as a share of the economy, and waiting for growth to boost tax revenues.
What Hockey has done is redistribute. He is has made big changes to spending priorities. Business is being rewarded. The poorest and sickest are being punished.
In part, this is to pay for the government’s own profligacy. On coming to office, Abbott and his team made a string of costly decisions that negatively impacted the budget’s bottom line. $2.9 billion in Labor-authored tax increases were abandoned. $8.8 billion was given, rather mysteriously, to the Reserve Bank. The carbon tax and mining tax have not yet been abolished, but the government expects they will be, so has written them out of the forward estimates.
All this extra spending has to be paid for somehow. Hockey has decided to find the money by cutting into health, education and social services. So far from reshaping Australia’s welfare state, Hockey has simply redistributed it. Significant holes have been torn in our already threadbare safety net. Meanwhile, corporations have emerged almost unscathed.
On one level, we can be thankful. Wholesale austerity like that implemented by David Cameron and George Osborne in the United Kingdom might have seriously damaged the economy. The much more modest budget cuts presented here will probably not do too much damage. But nor are they likely to spur growth in the way Hockey seems to think.
There is a special section in Budget Paper 1 about the importance of productivity growth. But nothing in this budget really addresses that. Indeed, some decisions will clearly harm productivity, such as the cuts to the science budget, and to research and development funding.
Nowhere is the disconnect between the government’s rhetoric on productivity and the reality of Australia’s long-term needs more obvious than in the plans presented for higher education reform.
HECS will be retained, but university fees will be completely deregulated, allowing universities to charge what they like for undergraduate degrees. At the same time, the government will slash the Commonwealth’s contribution to university places by 20 per cent per student.
As a result, courses that are in demand can expect sky-rocketing student fees. Universities that can’t attract enough students, however, will effectively get a big funding cut.
This change has massive implications for the sector. The already significant gulf between the sandstone universities and struggling regional and suburban campuses will be magnified.
In the medium term, it is a recipe for one or more regional universities to go broke.
Spending measures are concentrated in infrastructure, especially roads. It is almost as though the government is penalizing the poor and the sick to reward big construction companies with big contracts for new highways.
As always, the big increases in expenditures in this budget weren’t mentioned by Hockey in his speech. These are the huge tax expenditures that accrue mainly to Australia’s wealthiest, like capital gains tax exemptions and superannuation tax breaks. At the back of Budget Paper 1, a handy table allows us to compare some of them.
As you can see, when it comes to tax breaks for things like superannuation and property speculation, the age of entitlement continues.
The decision to squib the hard reforms on tax breaks is merely the most obvious example in a general theme. Rather than ask more of its corporate backers, the government has decided to take from the powerless, the voiceless, and those that the Coalition dislikes.
If you look carefully through Budget Paper 2, you can see that the government has worked hard to quarantine the corporate sector from the bulk of the cuts. The pain will instead be felt by parts of the community that the government sees as peripheral to its political survival. For instance, despite all the talk of everyone making a contribution, the deficit levy for high-income earners is temporary. In contrast, the $7 co-payment to see a GP or get a blood test is permanent.
The government has been true to its word in at least one area: cutting back on so-called middle class welfare. Many government payments have had their eligibilities tightened, or their rates frozen for several years. By tightening and limiting Family Tax Benefit B in particular, and by freezing payment rates for two full years, the government will save $7.3 billion over the forward estimates.
In certain cases, it’s worse than this. It looks as though certain programs have been specifically targeted. Perceived enemies have been attacked. Some very pointed decisions have been made to cut spending that the Coalition appears to take ideological issue with.
Thus, we see a special 1 per cent efficiency dividend applied to the ABC and SBS. There are $87 million of funding cuts to George Brandis’ tiny arts portfolio.
There are miniscule but nasty cuts to legal aid: just $15 million saved, but tremendous disadvantage multiplied.
There are cuts to Indigenous health and Indigenous affairs, cuts to affordable housing, and to environmental programs. The Australian Renewable Energy Agency will be abolished. There are cuts to apprenticeships and industry skills training too.
Bizarrely, the extra revenue from the $7 payments will flow to a new medical research fund. As Hockey explained, “the Medical Research Future Fund will receive all the savings from the introduction of a $7 Medicare co-contribution, modest changes to the Pharmaceutical Benefits Scheme and other responsible changes in this Health Budget, until the Fund reaches $20 billion”.
It’s a strange thing to hypothecate a health payment to. In effect, our nation’s poorest and sickest are being asked to pay for basic medical research. If you think $7 isn’t much, the Treasury clearly does: it estimates that the new payment will raise $3.6 billion by 2018.
In his media conference, Hockey said that “Australians have always been a generous people.” But how generous is this government?
The cuts to foreign aid announced tonight can only be described as miserly: a whopping $7.6 billion ripped out. Any pretense that Australia would attempt to meet its Millennium Development goals has been abandoned.
This is bad news for the poor nations in Australia’s region. On the other hand, foreigners don’t vote.
The changes to Newstart seem especially punitive. Not only is the age at which you can get the dole increased (to 24) but from 2015, anyone claiming the dole will be forced to endure six months of mutual obligation before receiving any payment. Exactly how someone in this position is meant to feed and shelter themselves is not spelt out.
Hockey was asked about the Newstart changes at the press conference. He chose to focus on the hypothetical example of someone with children, who could then receive Family Tax Benefit. But anyone can see that this ignores large swathes of the unemployed, such as those who happen to be childless or single.
For the young and unemployed in Tony Abbott’s Australia, the dole is increasingly a thing of the past.
The Newstart changes sum up one of the saddest aspects of this budget: its nasty streak. There is a punitive tint to much of Hockey’s rhetoric about “earning or learning” and “paying it forward”.
Those unlucky enough to rely on government benefits will be portrayed as spongers or bludgers, while corporations are celebrated as the true source of our nation’s worth.
The government has not implemented the most draconian recommendations from the Commission of Audit, for which we can be thankful. But it has entirely internalized the Audit’s neoliberal world view.