Budget overdraws on ideology

Tuesday’s budget will be framed by two things: Tony Shepherd’s National Commission of Audit and the budget emergency confected by the government.

Both these things are political. Neither is the right basis from which to develop a sober economic blueprint for the country.

The Commission of Audit’s terms of reference were both broad and stupidly limiting – set, it would seem, to produce a political outcome.

The commission was established as the first significant review of government “scope, efficiency and functions” in two decades. Shepherd was given “a broad remit to examine the scope for efficiency and productivity improvements across all areas of Commonwealth expenditure, and to make recommendations to achieve savings sufficient to deliver a surplus of 1 per cent of GDP prior to 2023-24”.

But the commission was explicitly forbidden from considering changes to tax concessions, as these are not regarded as expenditure under the terms of reference. The commission could recommend cuts but not means of reclaiming forgone revenue.

Concessions for the fossil fuel industry, like the fuel tax credit scheme, were not considered. There is $10 billion that, for reasons that are purely political, will not be scrutinised for savings.

Then there are tax concessions for superannuation, also inexplicably outside the remit of Shepherd’s commission. The cost of these concessions will likely exceed government spending on the age pension by 2016-17. These costs are growing at twice the rate of spending on the age pension, and yet they will not be considered. Instead it is pensioners who are the whipping boys of pre-budget rhetoric. It is a fairly limited definition of “broad remit”.

But language is important here. The commission’s terms of reference are laced with the phrases that have become the government’s bombast. The terms tell us “the size of the Commonwealth government has expanded significantly”. It is “essential that the Commonwealth government live within its means”. Taxpayers deserve “value-for-money from each dollar spent”. All that is missing is Joe Hockey’s patented “The age of entitlement is over”.

Hockey, for his part, has set about creating a panic into which his budget will launch. Hockey’s Australia has a “serious spending problem”. Its “biggest costs are also our fastest growing”. There is a need for “heavy lifting” to get the budget “back on track”. 

The rhetoric is not matched by the Australia’s fiscal health, especially compared to global realities. But this rhetoric is about sneaking through an ideological budget that will include big cuts for the public sector and to support for the old and poor.

Hockey is right in many respects. There are structural issues with Australia’s spending on welfare, particularly on the middle-class welfare that has become John Howard’s most offensive legacy. But this is not what the budget will deal with and that is partly because the politics of preparation – the Commission of Audit and the government’s own rhetoric – has forbidden the consideration of serious answers to these issues.

On Tuesday we can expect a tough budget, pointed in the wrong direction.

This article was first published in the print edition of The Saturday Paper on May 10, 2014 as "Budget overdraws on ideology".

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