Budget: Is everyone ready to ‘do their bit’?
WHEN Joe Hockey gave his Budget reply speech last June, he did so to a packed Great Hall at Parliament House.
It was standing-room only as the press, politicians, members of industry and the general public hung on the shadow Treasurer's every word. The LNP was expected to storm to victory and Hockey's view on everything from the budget to banks to tax and social welfare was worth knowing.
Hockey has been involved in Federal politics for two decades. Amenable and intelligent, he is admired for his integrity, humility and humanity.
The man is innovative and easy-going. He was successful as a lawyer before becoming a minister in the Howard government.
He is the son of a Palestinian orphan who arrived in Darwin in 1948 with nothing and set about building a successful business. Hockey knows the benefits of hard work and determination as a bedfellow.
But above all, the Federal Treasurer is well liked and trusted, by peers across the political divide and the public, who have warmed to his serious but jolly nature and honest approach.
On Tuesday when Joe Hockey walks into the room with the Budget papers in his hand, soft murmurs will still into an expectant silence. His speech is unlikely to elicit the same thunderous applause he received almost a year ago.
Now, on the other side of the fence, announcing what are expected to be austere measures, Mr Hockey will garner little favour despite his calls for sharing "the burden of heavy lifting".
For the first time, Mr Hockey will be unpopular.
The Government has walked the usual pre-budget line. The dance was so well orchestrated that I feel it should be applauded.
First came the Commission of Audit findings filled with recommendations, which, while credible, have served to lower people's expectations. Any bone we are thrown in the Budget will seem like a gourmet meal.
Then Mr Abbott used the Commission's report to stress his case for belt-tightening and he used every opportunity to paint a picture of disaster if we don't get rid of the deficit as soon as possible.
This was followed by leaking the news of the debt levy, to gauge public reaction before Budget day and keep inquiring minds off other areas of concern like child care, health, education, pensioners and the disabled.
And finally, on Wednesday came the "good news" story - an expected additional $10 billion to improve infrastructure.
It is a hypnotic dance, and it would be easy to become dizzy with rhetoric and swayed by the political speak. It is a time-old tradition, not unique to this Government but they have managed to add a step or two of their own.
So as May 13 approaches, we look at what we really know…
A tax by any other name is still, well … a tax and the Government's acknowledgement that they were considering a $10 billion boost in revenue by asking those Australians earning more than $80,000 to bear more of the load caused a furore.
Of course, not increasing taxes was one of Tony Abbott's fundamental election tenets but not a core promise with the Prime Minister, when pushed, insisting that getting the budget back into surplus was more important than campaign pledges.
A drop in the opinion polls and negative public reaction apparently caused Mr Abbott to re-examine his stance but not change it entirely.
It appears almost certain that the levy will be in the guise of an increased 2% tax on incomes in excess of $150,000.
"That's what the Australian people elected us to do," Mr Abbott said after the Cabinet meeting on Wednesday. "They elected us to take tough but necessary decisions to address the debt and deficit disaster Labor left us, but they want us to do it in ways that are fair."
The levy has found little favour with economists and political commentators, including former Federal Treasurer Peter Costello, who believe it would make little impact on the debt and have a negative effect on a still-soft economy.
"The argument for increasing income taxes through some kind of levy is all about the politics," Mr Costello wrote in his regular New Corp column.
"The proposed tax levy has no economic benefit; it will detract from growth by reducing consumption. It will produce no interest rate reduction and, if it lasts four years and raises $10 billion, the most it could save would be $400 million in annual interest - hardly enough to touch the sides of the annual $12 billion Government financing requirement."
The Commission of Audit did not recommend a levy, looking instead at funding Government services by cutting spending. But levies are not unique to this Government. John Howard increased the Medicare levy in 1996 to compensate firearms owners who handed in their guns following the Port Arthur Massacre and in 2000 imposed a tax levy on those with incomes over $50,000 to pay for defence expenses in East Timor.
In 2011 the former Labor government introduced a flood levy, following devastating Queensland floods, while Julia Gillard raised the
Medicare Levy from July this year to fund the National Disability Insurance Scheme roll-out.
Health and Medicare
The Commission of Audit offered up some of its biggest changes here and odds are Mr Hockey will adopt a fair few of them.
The Commission recommended a $15 co-payment ($5 for pensioners) to visit the doctor and access Medicare services, an increase in co-payments for tax-funded medicines while those earning over $88,000 would be denied Medicare and be forced to join private health funds.
The recommendations could mean $70 in out-of-pocket expenses for someone who went to a GP, had a blood test and got a prescription. Doctors' groups warn that for some people it may be an expense too far and we risk moving away from a system of universal access to health care to the US-style system where money dictates treatment. There is concern for patients with multiple health conditions as well as those in remote areas and indigenous communities.
"If we put barriers in front of primary care we may see patients not attend for serious matters that get worse and divert them into more expensive care, which could be ambulance or hospital, or they could get much sicker," said federal AMA president Dr Steve Hambleton.
The pension, at $40 billion, is the single biggest expense and Treasurer Joe Hockey said this budget would lift the retirement age to 70 by 2035 meaning that Australians born after 1965 would have to work longer before being eligible for an aged pension.
The pension is means tested with singles on a full pension receiving $842.80 per fortnight and couples $1270.60 for the same period.
The Commission of Audit recommended the pension be indexed to 28% of average weekly earnings and that the family home should be included in the means test for aged-care support.
Aside from lifting eligibility age, Prime Minister Abbott has said he will not tinker with pension entitlements now but did not rule them out in the future.
"To keep our commitments, there will be no changes to the pension during this term but there should be changes to indexation arrangements and eligibility thresholds for the long term," Mr Abbott said.
Based on the Commission's recommendations, families should brace for tough Budget revelations.
Speaking at the Sydney Institute, Mr Abbott signalled there would be fewer benefits for families with tougher income thresholds. When Labor tried to do the same when in office, Mr Abbott called it "class warfare".
"I know families are doing it tough, including many with above-average incomes but heavy commitments. Not for a second would I label families as rich because they're earning $100,000 a year but the best way, the best way to help families on $100,000 a year is long-term tax relief and more business and job opportunities, not social security," he said.
Indications are the Government will do without Family Tax Benefit Part B for single-parent families and families where one parent works. The threshold is $150,000 with the maximum payment $4172 per family annually.
Paid Parental Leave
This controversial scheme was the jewel in Mr Abbott's election crown and he has been steadfast in defending it despite criticism from many sources including his own party faithful.
This week the prime minister conceded that the PPL would feel the effects of the Budget and announced the salary cap would drop from $150,000 to $100,000. So women who earn more than $100,000 will be entitled to $50,000 over 26 weeks and not the $75,000 promised at the past two elections.
Improving infrastructure was one of the pillars of the Government's campaign and it seems they intend to stick to it. The Budget is expected to reflect a $10 billion infrastructure package Some $5 billion will allegedly be used to boost projects under way including the East West link in Melbourne, infrastructure surrounding the second Sydney airport at Badgerys Creek as well as the second range crossing in Toowoomba and Adelaide's South Road project. There has been no word on where the money will come from.
The National Disability Insurance Scheme could feel some pain. The Commission recommended it be introduced slower than Labor's July 2019 time frame. While Mr Hockey refused to be drawn on details he did say the NDIS, like all welfare payments, would have to stand up to scrutiny.
"If we don't get on top of the proper management of the NDIS, it could end up as big a farce as the pink batts program," Mr Hockey said.
The Government has commitment to a $4 billion tax cut for companies as part of a "growth agenda".
The policy to cut the tax rate to 28.5% will lose the Government money but Mr Abbott wants to keep the business sector on side. The Prime Minister will be charging 3000 big employers 1.5%, to fund the Paid Parental Leave Scheme.
Reports indicate the Government will close six immigration detention centres saving $280 million.
The Northern Immigration Detention Centre and Darwin Airport Lodge will close by mid 2014 with Inverbrackie Detention Centre in the Adelaide Hills and two sites on Christmas Island shutting their doors by Christmas. Curtin in Western Australia is expected to close by mid-2015.
The Government is also likely to stop the family reunion program for boat arrivals saving another $260 million.
Degree of pain
Mr Abbott has left little doubt that Tuesday's Budget will be harsh, but the degree of pain remains to be seen.
Last week the Organisation for Economic Co-operation and Development warned our economy was too fragile to absorb the impacts of a harsh Budget.
The OECD said that by moving too fast too soon Mr Abbott risked stifling an economy.
"Given the near-term uncertainties in the rebalancing of the economy away from investment in the resource sector, heavy front loading of fiscal consolidation should be avoided," the OECD report said.
The report also pointed out that the Government giving $8 billion to the Reserve Bank to top up its funds had added to the budget deficit.
The OECD is not a lone voice with top economists and commentators insisting the picture is not as dire as the government claims. While experts don't question the need to get the Budget under control in the long term, immediate drastic action could be detrimental.