Still taxing and spending

Do not believe the Government's rhetoric about cutting tax and stopping waste, at least not yet. The budget update, released a week before Christmas, includes worrying indications of rising taxation and more wasteful spending.

Tax receipts are estimated to increase by $1.6 billion this financial year as a result of the Government's policy decisions. Since it came to power in September, tax hikes amount to around $23 million a day. And that's not counting the tobacco tax increase, a parting gift from Labor that the new government gratefully pocketed.

Perhaps Tony Abbott and Joe Hockey are taking to heart the 4th century prayer of the philanderer-turned-puritan Saint Augustine: 'Grant me chastity and continence, but not yet!'

The main driver is the expected repeal of the business and superannuation tax cuts that Labor tied to the mining tax. The tax hikes on everyday businesses and individuals far outweigh the tax cut for miners, with the overall effect being a $2.3 billion tax windfall for Joe Hockey by mid 2017. That's around $100 of extra tax to be paid by each and every Australian.

Government spending is also estimated to increase by nearly $12 billion this financial year as a result of the Coalition's policy decisions. The main driver of this is a multi-billion dollar payment to the Reserve Bank.

This payment is politically convenient for the Government - it increases the chance of the Reserve Bank delivering dividends to the Government in future years. But it is far from clear that the payment is necessary or prudent.

The Reserve Bank doesn't need it to set interest rates, service its clients or run the clearing house for interbank payments. The floating dollar means it also doesn't need a stockpile of foreign currency to manipulate the value of the Australian dollar.

The Reserve Bank shouldn't be in a position to independently bail out a financial institution – such a momentous decision should rest with an elected Government. And the Reserve Bank is not set up as an investment manager to maximise returns for taxpayers over the long term.

The Government's vague statements on the matter suggest it has no idea what the payment is really for. It is hard to avoid the conclusion this is wasteful spending on a massive scale.

Further disappointment on the spending side comes from the Government's decision to 'review' its commitment to reduce the head count of the Commonwealth public service by 12,000. This is a core promise that swayed thousands of Australians outside Canberra to vote for the Coalition.

It's also a responsible promise. The Commonwealth employs around 167,000 people, not counting the permanent Defence forces. Around 25,000 are employed to take our money at the Tax Office while around 35,000 are employed to give some back at the Department of Human Services (an Orwellian title for the agency that processes transfer payments).

Over the last decade the public service has expanded much faster than the rest of the economy, despite no change in what the Commonwealth Government is good at or is better carried out by the States, NGOs and private sector. And cutting 12,000 employees would only take the public service back to its 2007 level, when Kevin Rudd declared that John Howard's reckless spending must stop.

The tentative start to repairing the Budget is concerning given the soft targets the Government is setting itself. To date, the Government has only said it aims to build sustainable surpluses of at least 1 per cent of GDP by 2023-24. That is a decade away, giving the Government generous wriggle room for years of debt and deficits.

The state of the economy offers no justification for ongoing debt and deficits. Real GDP is forecast to grow at 2.5 per cent this year and next. This is a respectable rate of growth that could well be the norm for the period ahead. And debt and deficits to fund current spending represent a cruel burden for future Australians.

Hopefully the Government will impress us with its Budget in May. But its recent update suggests we shouldn't get our hopes up.