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Budget based on a lie

By Harold Levien - posted Thursday, 29 May 2014

The Coalition's budget is akin to a crime against the Australian people. Like most crimes the budget was justified on a giant falsehood: "the debt and deficit mess inherited from the previous government". This was repeated countless times by all Coalition leaders following the election of the new government.

Treasury officials briefed the Opposition's leaders on the state of the economy and the budget when the elections were called last August. This was in accordance with a decision of the last Howard Government. This briefing ensured that Abbott and Hockey were abreast of the critical Treasury statistics (as set out in the current Budget Paper No.1--Section 10 page 13) listing the Government's expenditure as a proportion of GDP each year and each year's deficit or surplus. Thus there would have been no budget surprises on coming to Office.

The budget statistics reveal that during the Howard Government's last seven years expenditure averaged just under 24.9% of GDP. And this was during boom years when taxes from mining industry profits were at their peak and unemployment was low. During the seven years of the succeeding Labor Governments--omitting the two years of the Global Financial Crisis, when Treasury advised the Government to substantially increase spending to avoid the massive unemployment impacting Europe and America-- Labor's expenditure averaged 25.1% of GDP. And this was during a period of higher than normal unemployment (a carry-over from the GFC) and a large reduction in tax revenue from mining industry profits due to write-downs of development expenses. That's a difference of 0.2 of 1%.


Following the above meeting, presumably aware of the true state of the economy, the Coalition made the series of campaign promises with which we are now all familiar: we will not cut education, health, the ABC, SBS or increase taxes etc. Shortly after the elections the Coalition began preparing the electorate for their intention to break all these promises and reduce the role of Government in accordance with current Coalition policy. Thus began the new slogan of "the debt and deficit mess inherited from the previous government" which was completely at odds with the true state of the economy.

On the ABC's Insiders program on May 18, shortly after the budget, Abbott continued this falsehood "explaining" the budgetary actions were necessary because Labor "spent like a drunken sailor". In fact many economists had criticised the then Government for not increasing spending to further reduce unemployment.

OECD statistics confirm the relatively favourable condition of the Australian economy listing our budget deficit as a percentage of GDP last financial year as 2.8% and our net government debt as under12%. This compares with Canada's debt of 40%, the UK 65%, France73%, Germany 49%, Japan 137% and the US 81%. The average figure for all OECD countries was 69%. Norway, Denmark, Finland, NZ and some other small economies had a much lower debt.

The Coalition's budget cuts are an unnecessary, incoherent mess that hurt the most vulnerable groups in the community, such as low income families and the young unemployed, increase inequality, contribute to reducing the health of the population which will enlarge future health budgets, reduce future employment opportunities, hurt our most precious resource--the universities, and diminish the capacity to pursue tax avoiders which will further embed these problems.

The current campaign to justify the cuts on the basis of the rising interest cost of the "growing deficit" is a smokescreen for an ignorant public and an insult to those better informed. As explained later in this article there are several obvious measures to eliminate the deficit if the Government were to remove its ideological goggles.

The reduction of 16,500 public service employees includes a 3,000 reduction in Tax Office staff. This must impact the ATO's capacity to chase up tax avoidance especially by those individuals and large corporations employing clever tax accountants to transfer funds to offshore tax havens. This is an immense drain on tax revenue. The Financial Review recently stated that Apple alone is estimated to have transferred $9 billion from its Australian profits to a tax haven. This would deprive Commonwealth revenue of $2.7 billion!


A clear and transparent example of immense budget short-sightedness is the closing at the end of the year of a very successful organisation established by the previous government, Youth Connections. It was designed primarily to educate and psychologically assist students who had slipped through the educational net because they are either from broken homes, have mental health or other social problems. It is currently dealing with 30,000 students with an annual budget of $80 million. The future economic cost to society, quite apart from the inhumanity of the decision, is certain to be a multiple of the "savings". At the same time the Government has provided an additional $245 million over 5 years for the National School Chaplaincy Program which will now forbid secular chaplains.

Instances of counter-productive budget decisions in the health portfolio are glaring. The Government will spend nearly $67 billion in its health budget this year. Yet it is scrapping the $368 million four-year National Partnership Agreement on Preventative Health with the States despite its strong support from many public health authorities. And it's ceasing to fund the $201 million National Partnership Agreement (with the States) on Improving Public Hospital Services. These decisions appear consistent with the Assistant Minister for Health's recent decision to take down a website, established by the previous government after two years of work, which provided star ratings on packaged foods to improve dietary information. The website had been opposed by the food industry.

There are great opportunities to reduce health spending through campaigns to improve public health through better diet and other lifestyle campaigns but this appears to be in conflict with the Coalition's DNA.

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About the Author

Harold Levien, in the 1950s immediately after graduating in economics, founded and edited VOICE, The Australian Independent Monthly. It lasted for five years. As a journal of comment its contributors included many of the most respected authorities on economic and political issues of the time. He wrote Vietnam, Myth and Reality in 1967. It went into several printings. Harold has written many articles which have appeared in the Herald, Bulletin, Quadrant, National Times, Australian Options, the Journal of Australian Political Economy and others. Before retiring he taught economics for 27 years.

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