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- By MARK KENNY
AN unprecedented $80 billion cut to health and education spending over a decade leads a list of tough measures hitting age pensioners, concession card holders, families and people on the disability support pension.
The budget document lived up to its dire pre-publicity, offering little good news other than a $20 billion medical research fund — to come from a $5 contribution by patients when visiting the doctor. Each visit will cost $7, with the other $2 going to the doctor.
The research fund is expected to reach $20 billion within six years and be the largest such fund in the world.
The government put its management credentials above meeting its election promise of no new or increased taxes, and no cuts to health and education.
It has gambled that Australians will reward it later for fixing the balance sheet.
Much of the pain has been delayed for a time when growth is likely to be stronger.
High earners are hit with a 2 per cent “temporary budget-repair levy” to raise $3.1 billion in three years from July 1.
But the real — and permanent — pain will be felt by those with the least to give.
Age pensioners and those on disability support pensions will have their meagre incomes indexed at a lower rate — the consumer price index rather than the higher rate of wage inflation.
Eligibility to a raft of payments will be tightened with indexation of income thresholds paused for two or three years.
Treasurer Joe Hockey argued lower indexation simply slowed the rate of growth, while maintaining purchasing power, and was not a cut.
He said the budget was a chance for “all of us to contribute and build”.
The budget sets a timeline for reducing the deficit from $49.9 billion to $17.1 billion next financial year and less $3 billion in the final year of the four-year budget cycle.
It represents a faster path to surplus and raises the possibility of reaching the psychologically — and politically — important balanced budget even earlier than 2018-19.
He said the age of entitlement had been replaced not with “an age of austerity, but with an age of opportunity”.
Mr Abbott’s signature paid parental leave scheme, while scaled back to a maximum half-year salary replacement on $100,000, stands out against a budget heavy on cuts and sacrifice especially among the poor.
Among big losers are public broadcasters, the ABC and SBS. Despite a promise of no cuts, they lose $43 million over four years.
“Soft diplomacy” efforts in the region via the Australia Network operated by the ABC will be closed from July 1 for a four-year saving of $198 million.
Development aid is slashed to save $601 million next year, climbing to more than $3.5 billion in 2017-18 – the largest single saving in the budget.
Yet even bigger savings will be booked longer term from winding in federal payments to the states for health and eduction — in direct breach of a Mr Abbott’s mantra when Opposition Leader of no cuts to health and education.
THIS budget isn’t as bad as Labor will claim and the Liberal heartland will privately think.
It’s is the toughest budget since John Howard’s post-election budget in 1996, but it’s hardly austerity economics.
I give Joe Hockey’s first budgetary exam a distinction on management of the macro economy, a credit on micro-economic reform and a fail on fairness.
Although Hockey has laboured hard to ensure few sections of the community escape unscathed, the truth is most of us have been let off lightly.
Only those people right at the bottom of the ladder have been hit hard – unemployed young people, the sick, poor and, eventually, aged and disabled pensioners – but who cares about them? We’ve been trained to worry only about ourselves, and to shout and scream over the slightest scratch.
Someone in the top 4 per cent of taxpayers on $200,000 a year will be wailing over the extra $7.70 a week they’ll be paying in tax. A single-income couple with kids will be losing a lot more than that, while someone under 30 denied the dole for the first six months will lose $255 a week.
And everyone will be angry about the resumption of the indexation of fuel excise, so worked up they forget it will raise the price of a litre of petrol by about one cent a year.
Anyone surprised and shocked by the budget can be excused only if this election was their first.
Any experienced voter who was persuaded that ‘’Ju-liar’’ Gillard was the first and last prime minister to break an election promise should pay their $7 and ask a GP to check for amnesia.
If you thought a man who could promise ‘’no surprises, no excuses’’ could be trusted to keep his word, more fool you.
Any experienced voter who didn’t foresee that changing the government would mean this year’s budget was a stinker isn’t paying enough attention.
Labor supporters want to believe that because Hockey and Tony Abbott are exaggerating about a ‘’budget emergency’’ and ‘’tsunami of government spending’’, we don’t really have a problem. They are refusing to face reality.
After running budget deficits for six years in a row, we faced the prospect of at least another decade of deficits unless Hockey took steps to bring government spending and revenue back together.
Failure to make tough decisions wouldn’t have turned us into Greece, but since when was that the most we aspired to?
This budget is Abbott’s admission his claim to be able to balance the budget without increasing taxes was wishful thinking.
The Liberal heartland, however, schooled for years to give its selfishness free rein, is having trouble facing this reality.
Hockey’s problem was that, with the economy weak and big declines in spending on mining construction still to come, sharp cuts in government spending or big rises in taxes could have slowed the economy to a crawl.
This is why some of the biggest savings announced – particularly on the age pension – have been timed not to take effect until 2017.
It’s also why he put so much emphasis on raising infrastructure spending.
The economy is expected to be a lot stronger by the time last night’s measures take full effect.
This is what wins Hockey high marks for macro-economic management.
He claims his reforms will improve the economy’s performance.
His best measures are increased competition bet-
ween universities, the concessional loans to TAFE students, and the grants to encourage youngsters to complete apprenticeships and employment of people over 50.
But some measures are likely to make things worse rather than better.
The $7 patient co-payment for GP visits and tests is likely to discourage visits — more by the poor than the rest of us — but if it dissuades people from seeking help until their medical problems are acute it may cost more than it saves.
The tighter means-testing and less generous indexation of pensions will be defensible only if the planned review of the tax system leads to big reductions in superannuation tax concessions going to retirees far too well off to get the pension.
- By JAMES MASSOLA
Labor has slammed Joe Hockey’s first budget, labelling it a document of “broken promises, cruel cuts and unfair increases in the cost of living”.
Treasury spokesman Chris Bowen singled out the $80 billion in cuts to education and health for criticism as he warned every family would be hit by new taxes and charges, while pensioners would feel betrayed.
“This is the deceitful, voodoo economics of Tony Abbott and Joe Hockey from before the election catching up with them,” Mr Bowen said.
He said the government’s infrastructure growth package was an “amateur con” and pointed out the small number of new road projects that would be funded by cuts to public transport projects, while families would feel the pain of higher petrol and health costs.
The federal budget had been built on “the destruction of Medicare, and the end of fair and affordable higher education.
It is a budget built on Tony Abbott’s act of mass deceit at the last election”.
“Tony Abbott said there would be no new taxes and no increase to taxes ... he has broken his promises and now Australians will pay the price,” he said.
“Labor does under-stand that in challenging times, budgets need tough choices.
“But these are the wrong choices for our future.”
Mr Bowen said the opposition would consider individual budget measures over the coming days, leaving open the prospect of individual measures being supported, but said that unlike the Coalition, Labor would be “guided by what is fair and what is economically responsible”.
Greens leader Christine Milne labelled the budget divisive, brutal and backward-looking and suggested it had been “written in the boardrooms of Australia”.
“Big business is quarantined completely as the community pays,’’ she said.
“There is no vision for the future of the country. Suggesting that you are looking after the next generation, when you are ignoring climate change, when you’re directing infrastructure funding into roads instead of public transport, instead of the NBN, instead of the renewable energy sector.”
Senator Milne said her party would attempt to redirect money that had been allocated to roads to public transport funding when it came to the Senate.
JOE Hockey gets a 10 for courage, an eight for fiscal responsibility and a three for keeping commitments.
This high-risk budget tests the discipline, cohesion and salesmanship of the entire government.
Whether Prime Minister Tony Abbott gets to implement his program across two terms — or more — will depend on how voters forgive the multiple breaches of faith and reward courage over the infidelity?
Also critical will be whether Treasurer Joe Hockey is right in asserting that the cuts will not further weaken a sluggish economy, where the jobless rate is tipped to edge higher to 6.25 per cent.
Mr Hockey has minimised this risk by going for real structural reform that will build over time.
He deserves credit for securing almost 80 per cent of the improvement in the bottom line the hard way — spending cuts, rather than short-term fixes such as efficiency dividends — and for being candid in declaring this is only the start of the budget repair project.
The rationale is that the savings will kick in when they are most needed to help the budget, from 2017, and the infrastructure spending will be a catalyst for more spending by states and the private sector.
The political cleverness is that much of the tough medicine, such as tougher indexation of pensions, doesn’t begin until after the next election.
By then, there will be plans for a tax, federation and workplace reform table and a compelling case for lifting the GST to help the states pay for hospitals and schools.
There may also be the lure of tax cuts.
The rub is that pensioners and benefit recipients will feel the pinch at a time when the “temporary budget repair levy” on high earners disappears.
After being less than candid before last year’s election, Mr Abbott and Mr Hockey appear determined to be up front now.
For that, they deserve credit. Predictably, they say they are keeping their key election commitment — fixing the budget.
Whether university students, struggling families, the jobless, motorists and pensioners agree is another thing.
After repeatedly promising tax cuts without new taxes, no increases to existing taxes, and no cuts to health, education, the ABC or spending on indigenous programs, Mr Abbott declared at his campaign launch: “The worst deficit is not the budget deficit, but the trust deficit”.
Now the trust deficit continues to blow out.
The electorate has already made its feelings plain on the fuel excise increase, the Medicare co-payment and the deficit levy for the wealthy.
Mr Abbott aims to repair the trust deficit by wielding a big stick and a modest carrot.
Motorists are being told fuel excise will be spent on roads. The sick told paying to visit the doctor will help create the world’s biggest medical research centre.
Those asked to work longer are told employers will be paid up to $10,000 to hire them if they are over 50 and on the dole.
There are many unknowns, including whether freeing up universities, so they can compete “with the best in the world”, will put them out of reach of many students.
The bigger question is whether voters will buy the budget narrative.
Will they accept this is not austerity but opportunity and a well-calibrated plan to make the welfare system sustainable?
Will we buy the line of Mr Abbott to his troops that “this is a watershed moment that sets the nation on a better course”?
The case for action is compelling, and summed up the statistic that without change, spending on the pension would rise 70 per cent in a decade.
But the challenge is mighty. For all the waste and duplication in indigenous programs, can $500 million be saved over five years without compromising the goal of closing the gap?
Can 230 programs be abolished and 70 bodies shut without discarding valuable services?
Having been less than frank before the election, Mr Abbott is promising nothing will be hidden.
TREASURER Joe Hockey has announced the 2013-14 budget is running at a deficit of almost $50 billion and the argument for repairing the budget has some merit.
Budget repairs are difficult and the Treasurer’s comment that the “age of entitlement is over” and it is time to “contribute and build” may win some support.
There is a forecast deficit of about $30 billion for 2014-15.
The budget is forecast to reduce the deficit to about $3 billion by 2017-18.
The government has linked some of its revenue measures to specific projects.
They have announced they will secure funding for additional road infrastructure by reintroducing bi-annual indexation of fuel to CPI from August 1.
Mr Hockey said off-road users would not be required to pay this increase in excise, which means no extra cost for farmers as the fuel tax credit system remains unchanged.
The government has announced major, and what may prove to be unpopular, changes to the Medicare system, with the savings directed to a Medical Research Future Fund.
It has committed to its election promise to cut the company tax rate by 1.5 per cent to 28.5 per cent for small to medium businesses, which will not be subject to the proposed 1.5 per cent Paid Parental Levy.
"Budget repairs are difficult and the Treasurer’s comment that the “age of entitlement is over” and it is time to “contribute and build” may win some support."
The three-year temporary Budget Repair Levy of 2 per cent combined with the increase in the Medicare Levy to 2 per cent from July 1 will increase the top marginal tax rate to 49 per cent for individuals with taxable incomes over $180,000.
The fringe benefits tax rate is increased to 49 per cent from April 1, next year and this will have an impact on salary packaging.
The government has followed through on its commitment to largely leave superannuation alone.
Given the significant reduction in family payments, changes to Medicare and other unpopular announcements, it will be over to the Senate where a number of the budget measures are likely to face outright opposition, and it remains to be seen what changes are ultimately made to the budget.
PAIN is the buzzword of this budget.
A first-term Coalition budget after an election year is often draconian with the purse strings relaxed as elections approach.
The hard decisions are being made now with the government rightfully trying to put our fiscal position on a sustainable footing.
Changes to social security for older people and middle-income families, the debt levy and the petrol tax will hurt small business.
Some changes were overdue, as we have become a nation of entitlement, and clearly we cannot pay for all the goodies we have voted for ourselves.
This budget is about “sharing the pain” with the idea that the camaraderie of tightening our belts will help us through this tough period.
But the “share the pain” approach misses two important points.
Small and medium sized enterprises, the nation’s largest employer, have not shared the spoils for some time with direct assistance lagging behind other sectors.
And debt and deficits aside, the economy and jobs are equally important. With strong GDP growth, debt is less of an issue.
If small businesses and its customers are taxed more heavily, the government may reduce employment and economic activity, ironically making the debt burden heavier.
The budget wins for small businesses involve some focus on encouraging people to re-enter the workforce:
• A Centrelink approach of “earning or learning”.
• $10,000 incentive to hire unemployed workers over 50.
• There is also a cut in the company tax rate to 28.5 per cent for those with taxable income below $5 million. A cut in red tape of about $1 billion a year is also welcome.
But the following will not be so helpful.
• The fuel excise rising with twice yearly indexation to the CPI.
• A FBT increase to 49 per cent in line with the debt levy tax.
• An increase in the superannuation guarantee rate from 9.25 per cent to 9.5 per cent from 1 July
• Reduced instant asset write-offs for SMEs.
• Scratching of the instant initial $5000 write-off for cars.
The era of entitlement is over from that perspective, Australia’s 2.3 million SMEs may face a more even playing field.
But with the lion’s share of government largesse only indirectly benefiting small business, which carries most of employment growth and cost of doing business, to ask SMEs to “share the pain” is a tough ask.
LAST night Treasurer Joe Hockey introduced the Coalition government’s first federal budget, which held little in the way of surprises.
As has become the norm for budgets of recent years, much has been announced in the past couple of weeks prior to the announcement, including temporary debt levy for high-income earners, changes to the pension age and loss of public sector jobs.
The key aim of the budget was to reduce the budget deficit from $49.9 billion to “just” $2.8 billion in 2017-18.
However, much of the “heavy lifting” required to fix the deficit is being borne by middle-income earners and those less fortunate, who are receiving disability, unemployment or other such social security benefits.
This will hurt our region.
Not only will there be less in the weekly pay packet, but the cost of living is set to rise.
Petrol prices will go up, as will the cost of seeing the GP, having blood tests or X-rays, and buying prescription drugs. All of which takes cash out of our local economy.
It would seem Mr Hockey is hoping business will be the engine room of the economy in the next few years as he has left it relatively unscathed.
Local small and medium businesses will benefit from a 1.5 per cent reduction in the company tax rate. However those local businesses that are sole traders, partnerships or trusts will receive no tax relief.
Businesses will also be eligible for a $10,000 wage subsidy for the employment of older Australians.
"This will hurt our region. Not only will there be less in the weekly pay packet, but the cost of living is set to rise. "
As with most budgets, there are winners and losers.
Just whether our region ends up being a winner or loser, only time will tell.
JOE Hockey’s first budget confirmed what we all knew but were afraid to acknowledge — that Australia can’t fund future age pensions and healthcare costs at present levels.
At least not without some serious pain to the taxpayers who will be required to fund those costs.
The budget has short-term measures and tax grabs such as the deficit levy and fuel excise increases aimed at starting the challenge of getting back to surplus.
However, there were some announcements with a longer timeframe. Without change, the superannuation and retirement framework would not be sustainable.
As announced prior to budget night, the pension age will gradually rise to 70, becoming fully effective in 2035.
There is also tightening of eligibility criteria and changes to indexation.
Some people have confused the pension age with the age their superannuation can be accessed, known as preservation age.
The preservation age is actually 55 for those born before July 1960, and rising to age 60 for those born after June 1964.
Fortunately, Mr Hockey made no announcement regarding increasing the preservation age in line with the pension age.
This effectively means that, given an adequate level of superannuation and retirement savings, we won’t be forced to work until 70 before retiring.
As promised, there were no detrimental unexpected changes to superannuation.
Reducing the reliance on aged pensions must be supported by continued support of the superannuation system.
Last night Joe Hockey removed the government contribution for those earning $37,000 or less.
As legislated previously, the superannuation guarantee rate will rise to 9.5 per cent in July.
However, it will stay at that rate for four years.
Contribution caps will also rise to a general limit of $30,000 a year, and $35,000 for older workers from July.
Excess personal, non-taxed contributions made after June last year can now be refunded, rather than aggressively taxed.
Unfortunately, self-funded retirees will face tougher access criteria to Commonwealth Seniors Health Cards.
So the message is clear — don’t plan to rely on the aged pension for a comfortable retirement. That’s what superannuation is for.
Superannuation dodged a Joe Hockey budget bullet, thus maintaining the government’s retirement incomes policy integrity.