Fixing the budget black hole.
Less than two weeks before the Abbott Government’s first budget we have seen some major policy changes counted in and out. At a meeting at the Sydney Institute on Monday night, Prime Minister Tony Abbott confirmed that the Age Pension would not be altered in his first term of government. But such changes would be inevitable in any second term. On Tuesday the rumours of a levy on high-income earners – a so-called ‘deficit tax’ – began to circulate. On Wednesday the previously ‘set in concrete’ rolled-gold Paid Parental Leave (PPL) had been trimmed to exclude those on salaries of over $100,000 per year. And it now seems likely that previous Howard Government tax cuts are also likely to be removed.
The many cuts under contemplation are a response by Treasurer Joe Hockey to what he declares to be a budget emergency, the result of overspending by the previous Labor government. The extent of the purported budget emergency is the subject of some debate. An ABC ‘Fact Check’ of the degree by which Australian debt is rising notes Mr. Hockey is correct on two measures – change in real expenditure and change in net debt – but he omitted to quote a third important measure – Australia’s overall net debt – which is the second lowest in the OECD.
With regard to the ‘burden’ placed on the budget by older Australians, an opinion piece by author John Legge in Wednesday’s Age newspaper questions the statistics quoted by Treasurer Hockey, declaring that Mr. Hockey has exaggerated the number of working age Australians compared to retirees, with his estimate ‘over six times the best available estimate’.
And perhaps ever more importantly, the most recent indicators for our nation’s economy suggest it is doing better than the pre-budget rhetoric might have us believe – as demonstrated in a recent article on the Crikey website.
So does a crisis really exist – or are we being sold one to make massive budget cuts slightly more justifiable?
Does a crisis really exist – or are we being sold one to soften us up for massive budget cuts?
It is difficult to discern the true state of the nation’s finances with so many economists telling us different versions of what is happening and a plethora of government ministers warning us of the doom and gloom to come. When in doubt, it’s always useful to head to international benchmarks, so checking out Australia’s position in the OECD makes sense. And as the ABC Fact Check reveals, whilst our debt is growing quickly, overall we remain the country with the second lowest debt to GDP.
That said, it is obviously unwise for any individual, household, state or nation to continue to spend more than it earns, so reviewing income and expenditure makes a lot of sense.
And that is what the Commission of Audit is supposed to be doing. But note the suggestion we need to review income as well as expenditure. And that would mean considering ways of increasing revenue, including raising the level of the GST. To date this has been ruled out, despite the fact that most commentators have noted our GST is one of the lowest in the world.
So apart from looking at ways of increasing revenue, we should certainly be considering ways of trimming spending.
Note the careful use of the word ‘trimming’. Not massive cuts, but an intelligent appraisal of areas where costs can be decreased. And this does not mean saving money on the Age Pension. Why you would look at changing indexation measures on income which is lower than the poverty level beggars belief. And why you would deny Australians aged 67 and over a pension for another three years is also a false saving as it assumes all people in their 60s have the health and skills to remain in secure jobs. Many don’t, and secure jobs, or any jobs for older workers, remain scarce.
Our Treasurer seems almost surprised that so many of us are getting older. It’s a demographic fact that dates back to 1964 the year which marked the end of the baby boom. In reality, he is probably not surprised at all, but he does seem to have made a big deal out of the cost of our ageing population, which has been apparent to all and sundry for the past few decades. The sad fact is that, despite the inevitable rise in the cost of pensions as our population ages, with the exception of the introduction of the Superannuation Guarantee Charge (SGC) in 1992, no federal government has really done the hard work to prepare us for this significant shift. Training, jobs and workplace flexibility to encourage older Australians to work longer are still vague concepts. The increase to the SGC has stopped and started as Liberal and Labor governments come and go. And despite a real increase to the Age Pension in 2008, it remains too meagre to support anything approaching a modest lifestyle.
Australia does not have a budget black hole. It has a comparatively low level of debt. The hard questions for any treasurer are how to share what we have, most equitably. Beating up on older Australians is not the answer.
What do you think? Do we have a budget crisis? Or has this been fabricated by the Abbott-Hockey Government? Is it more a question of ideology and political point-scoring than economics?