To save the Coalition ship from the electoral shoals, the government has moderated its hard-line neoliberal rhetoric, but has added to the pain inflicted on low-income groups.
Faced with plunging opinion polls and likely defeat at the next election, the Abbott government has abandoned the debt-crisis rationale of its first budget and tried to win back political support by some mildly stimulatory measures, notably $5.5 billion in tax breaks to small businesses. This has given the Coalition a bounce in the polls, and saved Mr Abbott’s leadership for the time being.
As Laura Tingle commented in the Australian Financial Review of 16-17 May, the Coalition’s austerity rhetoric about the urgent need to tackle the crisis in debt and deficits has ‘miraculously’ been transformed into gentle claims of steady progress with light at the end of the tunnel.
We were told earlier that the government needed to fix the debt burden incurred by Labor of 13 percent to GDP ratio. Now we are told that a nett debt burden of 60 percent is no problem. “So we enter a new parallel universe in politics where the Coalition, with barely a blink of the eye, now stands for almost everything it previously opposed.” As Phillip Coorey wrote (AFR 23-24 May), the government has moved from regarding a budget deficit of $20 billion as ‘an end of days’ emergency, to seeing a $35 billion deficit as “just tickety-boo”.
Despite some sweeteners in the 2015 budget, most of the pain will again fall on low-income families, notably those with children. According to the National Centre for Economic Modelling, low-income families could lose over $3700 in 2015-16, more than $70 a week. These losses increase each year, and in the next four years will total over $20,600 by the end of 2018-19, up to 7 percent of their disposable income, after taking account of other budget measures. By contrast, families with incomes of more than $120,000 will lose $11,574 by the end of the four years.
Protests from social service agencies
The social service agencies have been quick to protest against the unfairness. ACOSS approved the new investment in early childhood education and care, along with new youth transitions and mentoring programs, and increased fairness in the path towards pension reform, but lamented that the two budgets stripped $15 billion over four years from basic services for low- and middle-income households, services which are critical for vulnerable groups. The two Coalition budgets will also cut spending on family payments by $9 billion, of which about $6 billion will affect low-income households.
ACOSS singled out the failure to abolish a waiting period for unemployment benefits, though it was reduced from six months to one month, but now includes people under 25 years of age.
The 2015-16 budget fails to reverse funding cuts to policy, advocacy, and service delivery for social services, health, and legal assistance, and in Aboriginal and Torres Straight and Islander communities. The budget introduced new cuts to child dental health programs, community health, and remote housing, as well as continuing cuts to the public service across all departments. The government has cut $1 billion over four years from community services, including $500 million for Aboriginal and Torres Straight Islander programs.
The budget did nothing to increase affordable housing. On the contrary, it cut affordable housing and homelessness programs by $674 million over four years, resulting in the loss of 12,000 affordable housing dwellings.
The government also intends to cut funding for hospitals and education to State and Territory governments of $80 billion over ten years, a massive cost-shifting exercise.
The major social service networks reinforced the protests from ACOSS, including Anglicare, the Salvation Army, and Catholic Social Services Australia. Marcelle Mogg from CSSA drew attention to the budget’s silence on mental health initiatives, and on providing safe and secure housing for vulnerable families.
Don’t mention the tax
The elephant in the room, of course, is tax reform, and trimming excessive tax benefits for superannuation, negative gearing, and capital gains taxes. Superannuation concessions will cost the budget some $50 billion within four years, much more than the pension.
We know that three fifths of the deterioration in the budget from 1998 to 2013 was due to decreased revenues, especially the eight successive income tax cuts. The government has been pursuing tax avoidance by major international companies (estimated at over $8 billion a year for the 200 top companies), but this will take years to work through, especially as the staff of the tax department has been reduced by 10 percent.
The 2014 budget was so stunningly unfair that it alienated many constituencies. Yet its policy initiatives reverberate through the 2015 budget, favouring mining interests, undermining the financial basis for our universities, and continuing major tax benefits to upper-income groups through superannuation concessions ($35 to $40 billion a year, mainly to high-income groups), negative gearing, and concessional capital gains ($7 billion a year), family trusts, and other ways.
Real wages of the average worker have been falling in Australia, despite the fact that company profits have been taking away from wages an increasing share of national income. Some leading business voices have even been calling for reduced wages to increase business competitiveness.
To make matters worse, the government is not doing enough to take advantage of historically low interest rates to promote major infrastructure works and hence strengthen the economy for long-term benefits. Major problems are also presented by cuts to support for the CSIRO and other scientific research ($151 million), for education, the universities (20 percent funding cuts), and the TAFEs. Further, reduced interest rates are again fuelling the damaging asset bubble, especially in housing and real estate. No-one wants to think about how this may end.
It is not just that the Coalition’s budget deficit has greatly worsened, and may not return to surplus for 40 years. The Abbott government has violated deep beliefs in a ‘fair go’ for everyone, and failed to chart a credible economic course for the nation.
For detailed figures, see Harold Levien, ‘The coalition government’s bankrupt economic policies’, 7 April 2015, www.onlineopinion.com.au/print.asp?article=17236.