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Budget based on a lie

By Harold Levien - posted Thursday, 29 May 2014


According to an increasing number of health professionals the $7 co-payments for doctors' visits are likely to increase health costs through dissuading many low-income earners from consultations before their medical problems require expensive hospitalisation.

The budget's abandonment of the 50/50 Agreement on sharing of hospital costs between the Commonwealth and State Governments is part of the $8 billion annual cut to State health/education spending causing such consternation to the States.

One of the decisions most at cross-purposes with the economy's future needs was the $147 million cut to science research programs including $111million from the CSIRO. This will involve staff cuts of 500 this year and 500 next year on top of 300 last year-over 20% of the staff. According to Dr Borgas of the CSIRO this will do lasting harm to the organisation and drive many scientists overseas. Yet at a time when our motor vehicle industry is in its final years Australia will become ever more dependent on clever developments in science to assist the creation of new industry pathways. There was also an $80 million reduction in funding for the Cooperative Research Centres which support industry led research.

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In a further attack on our science future the budget will abolish the government authority, the Australian Renewable Energy Agency (Arena), over 5 years from 2017-18 saving $1.3 billion. This has caused dismay throughout the renewable energy industry. Arena says "the funds would have helped build a $7.7 billion fleet of projects to develop solar, wave and geothermal technologies". Andrew Want from Vast Solar, an Australian company developing low-cost high-efficiency solar-thermal technology, says "we would have no option (now) but to go offshore". Mark Twidell, executive director of the Australian Solar Institute (established by the Labor Government in 2009 "to keep Australia at the forefront of solar innovation" supporting over 350 solar researchers across 120 projects), says "Arena was supporting Australian universities, researchers, enterprises…so they could compete in a global marketplace." A Bloomberg report claims this will massively cut Australia's investment in green energy and reduce employment opportunities. Here is another example of how the budget subverts Australia's medium and long-term interests. Yet the expansion and deepening of the economy which Arena was fostering would, of course, increase tax revenue.

The Government recently reinstated the motor vehicle fringe benefits tax arrangement, dropped by the previous government as a well-known tax rort. This will deprive Government revenue of nearly $2 billion over four years which could have funded all the above science cuts with $470 million left over.

Cuts to the ABC can only be regarded as political, vindictive and extremely short-sighted. Although hurting the ABC they will have negligible impact on the budget's bottom -line. While the ABC and SBS have been cut $43.5 million over four years, with a promise of more to come, the ABC's Australia Network, costing a mere $223 million over a ten year contract, has been cancelled. This is Australia's international television service beaming to 46 countries across Asia, the Pacific and India. The ABC's CEO, Mark Scott, says it will make it much more difficult to staff several important Asian bureaus. However we can't know the consequences on our future tourism, trade and even foreign relations of such a decision.

The 20% cuts to university funding together with removing the cap on university fees will substantially raise students' HECS repayments. This is likely to hit hardest students from low income families and especially those pursuing courses that don't lead to generous salaries such as teaching. This will surely further reduce the attractiveness of one of the most important yet one of the poorest paid professions in Australia with potentially serious impacts on the quality of education and therefore, later, on society in general. The budget decision to abandon the final two years of implementing the Gonski report will ensure the demise of its implementation since the bulk of its funding occurs in these years. Thus will end the projected needs basis of the Australian Government's school funding.

With all the expenditure cuts allegedly to reduce the deficit there is a giant elephant in the room which would solve all the Government's contrived concern over the deficit. The inequitable, generous tax concessions on superannuation contributions, which predominantly go to higher income groups and can be accessed at age 55 (and then enable superannuants to access the pension), will cost government revenue $32 billion this year and $45 billion next year. And the indefensible negative gearing on housing costs revenue over $5 billion annually.

To drop or substantially reduce these tax concessions would cover all the budget cuts including the $80 billion 10-year reduction in grants to the States for education and health. It would permit the full implementation of the Gonski school recommendations, avoid the $87 million cuts to the arts, removing the $390 million dental program, reducing foreign aid and numerous other worthy programs. And it would still leave substantial funds for greatly expanding and reducing the cost of pre-school education and child care-- an area which needs urgent attention.

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The decision to remove the carbon tax (if it can get it through the Senate) would reduce revenue $7.2 billion this year and likely to rise for several years; and the removal of the culled mining tax is estimated to further reduce revenue $3 billion over four years. Both taxes, which the Government is determined to surrender, would fund most of the above cuts.

However there is one budget decision which above all others underlines the Government's hypocrisy in stating its reason for the budget cuts as necessary to get the budget in balance. This is the decision for a 1.5% cut in company tax estimated to deprive the Government of between $5 billion and $10 billion (according to the profitability of the private sector) over four years from July next year. At the lowest estimate this would, for example, cover 70% of the Government's reduction in university funding; at the highest estimate it would cover this and the harshest cuts to social services.

I haven't discussed the new $24.8 billion defence contracts to buy and service the Joint-Strike fighters, destined never to fire a shot in anger, which will soak up a lot of revenue which could have helped to fund all the above cuts in their later years.

The opportunities for improvements to the economy and society through wiser, less hypocritical and less ideological budgetary policies are immense; and by implication the opportunity costs of this Government's policies are huge and tragic. Joe Hockey says "we have to do what is right…we have to fix the budget". It is hard to disagree with that now.

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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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