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An alternative budget

By David Leyonhjelm - posted Thursday, 28 April 2016


This year’s budget provides an opportunity to return Australia to a path of fiscal responsibility.  Rather than promising everyone some candy, the government needs to win back its credibility by demonstrating a clear plan to return the budget to surplus and pay down its debt.  Credibility was lost when the Government went to the last election promising no cuts, only to propose cuts in the 2014 budget, and by promising responsible budgeting while presiding over a worsening budget deficit. 

With Australia’s taxes already internationally uncompetitive, the plan must be based on spending cuts. However, the only way to make cuts politically palatable is to share the load. The government must convince the community that if everyone takes a small haircut now, larger and more painful cuts will not be required in future. 

Such a plan would set the agenda for the election, leaving Labor with the task of proving it is not irresponsible. An economic narrative based on curing the deficit disease before it becomes life threatening would be compelling. And unlike with the 2014 budget, obstructionist crossbench Senators would be irrelevant — the key vote would be at the ballot box, not in the Senate.

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The government will never win the vote of those who care nothing for responsible budgeting, demand ever more government spending, and subscribe to tax-the-rich rhetoric. But if it can gain the support of the remainder, there are more than enough votes to win the election.

The responsible thing to do

In his budget speech, Treasurer Morrison should commit to paying off the Government’s credit card, starting with a balanced budget in 2016-17.  Our economy is growing at a healthy 3 per cent and unemployment at 5.7 per cent is as low as can be expected given our labour laws. And while commodity prices are lower than what we enjoyed over the last decade, they are higher than they were at any time between 1983 – when the Australian dollar was floated – and 2006. 

An increasing debt burden does a disservice to the next generation.  And a rising debt to GDP ratio, if not reversed, is a recipe for eventual Greek-style default and disaster.

A big job

Commonwealth Government revenue per person this year is around $16,500, while its spending per person is $17,900.  Hence, we have a significant budget deficit. 

Spending has been increasing relentlessly for decades and there has also been no let‑up in taxation.  We now tax smokers, drinkers, high income individuals, corporations, capital gains and retirement savings more than most other countries in the developed world.   As a result our overall tax burden is high by international standards, even ignoring the tax-like nature of Australia’s compulsory superannuation contributions.

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If we do nothing, bracket creep will boost revenue per person over the next three years to around $17,400, while spending will remain at around $17,900.  Thus we would still have a sizeable budget deficit, spending would remain bloated, and our tax burden would be even heavier. This cannot continue. We need wholesale change, beginning with balancing the budget in 2016-17.

Spending cuts will be noticed

To balance the budget in 2016-17, the Commonwealth Government needs to cut spending by $1,400 per person.  This amount could not be taken from you without you noticing.  Everyone needs to take a haircut.

However, the cuts required should be put in context; real spending per person only needs to return to the levels of 2007-08, which represented the height of the big spending  Howard era.  2007 was hardly a year when Australians starved in the streets. 

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This article was first published in the Australian Financial Review.



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About the Author

David Leyonhjelm is the Liberal Democrat Senator for NSW.

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