Government cost cutting must not be borne by most vulnerable

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.