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The budget impasse reflects an indulgent electorate and an undemocratically elected senate

By Brendan O'Reilly - posted Tuesday, 16 September 2014


Australian politics has become an "embarrassment on the world stage" according to Dow Chemical Company chairman and chief executive Andrew Liveris. This view, said to be not uncommon in business circles, is a reaction to the minor parties in our Senate blocking the Government's Budget and legislative agenda. The Budget deadlock is also believed to be affecting consumer confidence, with the Melbourne Institute and Westpac Bank Index of Consumer Sentiment falling a seasonally adjusted 4.6 per cent in September

The deadlock in the Senate over the Budget (in my opinion) reflects two underlying causes.

The first is an Australian electorate that is addicted to its handouts, having lost sight of the need to raise taxes or increase public debts to pay for them.

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The second cause relates to the composition of the Australian Senate, which is now (with a large number of Senators from minor parties) more a reflection of the decisions of party machines than the knowing choice of the electorate.

The present Senate has indulged almost every call from interest groups to retain their individual "pork-barrel", despite the end-result meaning either a massive budget blow-out or a future mini-budget to raise needed revenue. The recent repeal of the Mining Tax by the Senate might appear to be progress. This repeal, however, is estimated to likely cost the Budget $6.5 billion over the forward estimates because the Senate cross-bench has insisted on retaining a number of spending programmes as a condition of their support.

The 2014 Australian Budget has been widely criticised and has cost the Government support in the polls. I might be alone in my opinion but I regard the 2014 Budget as as one of the better budgets of recent years. It certainly was a far more honest and responsible budget than the one that preceded it.

The underlying reason for the unpopularity of the 2014 Budget is that it was the first budget for some time that sought to genuinely rein in the deficit, particularly through cutbacks in spending. Interest groups have squealed loudly at the prospect of losing some of their handouts, and there have also been accusations that the poor have been targeted more than the rich.

The problem is that you can't cut tens of billions off government spending without a good deal of widely-spread pain. Despite the extent of cuts, Hockey's Budget is still unable to produce anything near the Budget surpluses promised (and presumably thought appropriate) by the outgoing Labor Government.

Wayne Swan had promised in his 2013 Budget Speechthat "This Budget delivers a surplus this coming year, on time, as promised, and surpluses each year after that, strengthening over time". We now know from the 2014 Budget Papersthat the 2013-14 budget outcome was not a surplus but rather a whopping deficit of $49.9bn. The 2014 Hockey Budget plans for the deficit to fall to $29.8bn in 2014-15 and $2.8bn by 2017-18, Senate permitting.

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Comparing the pair (as they say) one has to conclude that the 2013 Budget was either dishonest, or incompetent or both. Sure, the revenue outlook did deteriorate throughout 2013-14. It did not, however, deteriorate to the tune of $50 billion. The commentators were correct in saying that a surplus in 2013-14 was never a realistic prospect under Swan's Budget, which was always going to leave any incoming administration with revenue shortfalls.

An even worse aspect of the 2013-14 Budget was its lavish commitment to new programmes such as Gonski education spending and the National Disability Insurance Scheme (NDIS) without adequately funding either programme into the future through tax measures. (This was an attempt to buy popularity with further handouts, while leaving much of the necessary but unpopular tax raising to a later administration.)

There is now every prospect that the NDIS will be a repeat of Medibank/Medicare insofar as the half percentage point NDIS levy is likely to prove woefully inadequate for funding the scheme, when it gets fully operational. The Coalition in the lead-up to the last election should have opposed these under-funded schemes (desirable if we had the money and if the Budget outlook was not deteriorating) but the Coalition did not have the courage to take such a position into the election.

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About the Author

Brendan O’Reilly is a retired commonwealth public servant with a background in economics and accounting. He is currently pursuing private business interests.

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