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Alternative 2015-16 budget

By David Leyonhjelm - posted Wednesday, 6 May 2015


In its first budget the Government dabbled with a theme of spending restraint and return to surplus. Then came Senate obstruction and backbench jitters. Now, as the Government prepares its second budget, it is dabbling with a theme of "nothing dramatic".

This is a mistake. Yes, the Government's second budget must be different from its first. But the case for spending restraint and a rapid return to surplus is as strong as ever.

This time last year I presented my version of what the budget should look like. Once again, I have a view as to what needs to be done.

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Looking back on last year

Last year I proposed an immediate return to surplus, achieved solely through spending cuts. These included: a 10% reduction in the salaries of public servants and politicians; abolishing Family Tax Benefit Part B and the Schoolkids Bonus; freezing other welfare payments; withdrawing the age pension for those with million-dollar-houses; means-testing Medicare; halving higher education subsidies (while retaining higher education loans); and abolishing corporate welfare including funding for the ABC and SBS.

I also proposed a freeze to the minimum wage to promote jobs and growth, which would boost the budget through additional taxation revenue and fewer dole payments.

As it happened, the Government's budget and my approach had some similarities. But the Government was far too tentative. It didn't propose an immediate return to surplus and it lacked a clear and simple story of why a surplus was important.

It squibbed on its election commitment to cut 12,000 public servants. It proposed a $5 cut to Medicare subsidies for GPs, but then tried to buy off voters by reserving the potential savings for medical research. It proposed a freeze on only some welfare payments, and meek cuts to higher education subsidies. And the Government merely sought to constrain, rather than abolish, corporate welfare including ABC and SBS funding, and Family Tax Benefit Part B. In short, it was half‑pregnant.

As a result, Commonwealth Government spending is set to grow rather than fall this financial year, both in real terms and as a share of GDP. Despite the Government seeking to blame falling commodity prices, this addiction to spending is the primary cause of our deficit of more than $40 billion this year and $30 billion next year.

Some may say the Government's timidity was justified because even its timid spending cuts were blocked in the Senate through the opposition of Labor, the Greens and various cross‑benchers (but not me, I hasten to add).

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But if your bills are going to be blocked, they may as well comprise coherent and consistent legislation that you can take to the next election. And if you're going to lose the votes of those who believe in the age of entitlement, you may as well take an axe to their entitlements rather than a butter knife.

In the end, most of the Government's timid spending cuts were passed via annual appropriation bills (the sort of bills that Malcolm Fraser blocked to precipitate Whitlam's dismissal). This suggests a means by which the budget can be balanced this time.

A new approach - targeting annual appropriations

The legacy of the Whitlam dismissal is that Labor will never block annual appropriation bills. As a consequence the Government could, and in my view should, use these to bring the budget back into surplus.

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About the Author

David Leyonhjelm is the Liberal Democrat Senator for NSW.

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