Government cost cutting must not be borne by most vulnerable

Rising inflation and the pressure to significantly cut spending mean the Rudd Government is facing its first major challenge since taking office.

While it might be necessary for the nation to tighten its belt, spending cuts must not be made at the expense of the most vulnerable in the community - families who are already experiencing rising food, transport, health, education and housing costs. Their need for protection and support from the further disadvantage that will result from a loss of income and services has both economic and social justice implications.

The Labor Government swept to power on the back of a promised education revolution and greater protection for working families. If it can successfully implement these measures, Australia will gain a skilled, flexible and secure workforce able to participate in the knowledge economy. This will also provide an opportunity for low-skilled workers and the unemployed to move into stable employment and better provide for themselves and their families.

Just two months after the election, this vision is under threat as inflationary pressure is set to curtail government spending. Prime Minister Kevin Rudd must back his vision and make some tough and potentially unpopular decisions to deliver long-term stability to Australia. He must, for example, reconsider the wisdom of implementing the tax cuts promised to high earners, who have already been the recipients of government largesse.

Anglicare Victoria released a report last year that looked at social policy direction over the past 10 years. The results showed an alarming trend towards Federal Government subsidies for private market services such as health and education.

It is here the Government can make substantial savings. An uncapped 30 per cent private health rebate that is not means-tested was introduced in 1999 to encourage individuals to take out private health cover and ease the strain on the public system. The cost of this rebate is about $3 billion every year and mostly benefits middle to high-income earners.

In 2003, only 19 per cent of people with total household incomes below $20,000 a year had private health insurance, compared with 68 per cent with incomes over $100,000. In 2004, young single mothers were least likely to have private health insurance.

This raises significant questions. How much do we value our right to choose private cover rather than rely on the public health system?

As consumers, are we prepared to pay a more realistic price to use that service? More importantly, is the Rudd Government prepared to withdraw subsidies and force those of us who can afford the luxury of private health cover to spend more?

Education is another area in which the Federal Government has invested large amounts to subsidise a private alternative to the public system - again, largely to the benefit of middle and high-income earners.

Between 1999-2000 and 2004-05, total government funding per student in private schools increased at three times the rate of increase per student in government schools. According to the latest figures, total spending on each private school student (including government and private contributions) is nearly $2,000 more a year, on average, than that on public students.

Those living comfortable lives should remember that our national anthem commits us to "advance Australia fair". This should entail being prepared to pay the true cost of exercising our right to choose, rather than assuming entitlements to luxuries that too many in our society cannot even dream about.

Housing is another area in which the privileged are favoured. The First Home Owners Grant costs about $1 billion every year and does little more than inflate prices. Average loans for first home buyers more than doubled between 1996 and 2006 and the proportion of first home buyers in the market has decreased as investors have expanded their portfolios.

In the seven years from 1996, the proportion of average to low-income households that were able to afford a new house in Melbourne declined from 13.5 per cent to just 2 per cent. As for the proposed tax cuts, a 30 per cent marginal tax rate will apply to everyone earning between $37,000 and $180,000. The inequity of this is clear.

The same applies to the baby bonus, on which the Federal Government spends more than $1 billion a year without discriminating between those in need and the wealthy, who could well do without this extra money.

But tax cuts and subsidies are only part of the story of misspent public money. The Australian Government could make significant savings in the way it manages compliance and regulation in all sectors.

The cost of compliance is increasing but there is little evidence that much is achieved in the process. Teachers, nurses, social workers and many other professionals are spending valuable time filling out forms that could be better spent meeting the needs of patients, students and others in the community.

That said, it is unfair to burden our Federal Government alone with this challenge to cut spending and ease inflation. At Christmas, Australians managed to amass a record $36 billion in spending, much of it on credit. This has undoubtedly added to inflationary pressures and so every consumer must take some responsibility for this issue and cut back on personal spending. There is no avoiding the fact that debts will need to be repaid and, if delayed, the cost will be greater.

A government keen to see the economy continue to grow, but careful not to encourage inflation, walks a fine line. An "education revolution" will cost money. Tackling the skills shortage and lifting workforce participation will cost money. But the country will reap long-term benefits from these policies and so Rudd must pursue them.

Savings must be found elsewhere.

The Government has reached its first important milestone. How it negotiates spending cuts without undermining growth and opportunity may define Labor's time in government. It will undoubtedly set Australia's course for years to come. Consequently, Rudd and his cabinet must avoid the temptation of populism, especially in persisting with tax cuts and subsidies, and realise that they govern for all Australians, including those without power or influence.