2015 Budget response

2015Budget

Full marks to the Government trying to get spending under control.  The road to surplus is vitally important for Australia so we can recover after the mining boom, weather future financial storms and pay for our future needs and priorities.

Australia has taken a massive pay cut after the mining boom, which was providing about 20% of our national income but has fallen away some $100 billion over 18 months.  Looking at it another way, since the Mid-Year Economic and Fiscal Outlook, Commonwealth revenue has fallen $2.1 billion in the current financial year, and about $5.9 billion less per annum in the forward years after that.

With such a massive pay cut, the government must cut spending.  If mum or dad came home saying they’d had to take a pay cut, the family would not keep spending at the same level.  Nor should the nation.  They would not take out another mortgage for living costs either – they’d be earning money just to keep up with the interest, and ultimately pass on the extra debt to the next generation.  Families would not do that.  Nor should the nation.

Last September I laid out ways to reduce spending, and pre-budget the government agreed in principal with my proposal to end duplication in health and education bureaucracies, seeking over $200m in savings from those two portfolios.  A further $900m is sought from health, approximately 1% of its overall budget, designed to seed the $20 billion Medical Research Future Fund (MRFF) together with a raid on the Health and Hospitals Fund for infrastucture, from which $1 billion is taken to start the MRFF.  To be clear, the approximate $1 billion in savings is in line with usual ‘efficiency’ dividends required of departments, and federal Health does not run a single hospital.  As stated shortly, in my home state of South Australia, health grants to state hospitals increases in real terms over forward estimates.

South Australia

There is not much in this budget specifically for South Australia compared, for instance, to $499 million to Western Australia due to the fall in its iron ore price, or the $5 billion allocated to support concessional loans to encourage infrastructure investment in northern Australia.

Commonwealth funding to SA increases $2.4 billion overall, with hospitals funding increasing 19% and schools 26%.  Already-announced projects like upgrades to South Road as a north-south corridor through metropolitan Adelaide contribute a total of $2 billion into South Australia.

A previously announced and welcome spending commitment of $241 million over 5 years is for South Australian River Murray communities in recognition of their irrigation efficiencies, for infrastructure development.  Some $25 million of this money is presently held up by a stand-off between the State and Federal Government about whether spending that money will affect South Australia’s GST receipts.

I am also encouraged that the Commonwealth is investing further in the Australian Nuclear Science and Technology Organisation, which ought to link in well with South Australia’s Royal Commission on the nuclear fuel cycle.  Family First supports both – our State has a substantial amount of the world’s uranium.  Nuclear science has delivered significant benefits in medicine, and can do the same in the fields of energy, climate and economic development.

There has been a debate over South Australian pensioner concessions on council rates, which used to be funded by the Commonwealth.  They never should have been.  It is up to councils to provide those concessions, or failing that the level of government closest to them – state government – to fund it, as they do in other states.  Each level of government needs to spend only what relates to their constitutional responsibilities, and then have the revenue it needs to pay for those responsibilities.  That is why Family First supports both the federation and tax white paper reform processes in 2015 to clear up responsibilities and the revenue reasonably needed for them.

Families

I don’t support this Budget’s signature policy of taking money from single income families to give to double income families.  Family First supports the child care funding reforms for now* because they are short-term solutions to longer-term living-cost problems.  Families that need two incomes and child care are in that predicament because they have such high mortgage costs, driven largely by sky-rocketing land prices.  The materials and labour cost of constructing a home has not changed in real terms for over a decade, but as I told the Senate inquiry into housing affordability, land prices have gone through the roof.  Child care demand is a symptom of the mortgage costs / housing affordability disease.  So Family First is seeking two reform commitments from the Government – to address land supply, and to provide tax relief for single-income families through income splitting.  If they commit to those things, I could accept Family Tax Benefits funding changes.  I will not accept cutting Family Tax Benefit out once the youngest child turns 6.  Maybe once they turn 12, and maybe freezing indexation for just one year, not two, as indexation is relatively low at present.  Again, only if I get commitments on land supply and income splitting.

It is worth noting that table 9.3 of Budget Paper 5 (shown below) reveals the truth of the families package – the total assistance to families goes from $38.8 billion in 2014/15 to just $39.8 billion in 2018/19.

Families Get Less Not More In Budget 2015-16

This ‘increase’ is half the current Consumer Price Index (CPI) rate, so in effect, total support for families falls under this Budget.  That is another reason why I can not support cuts from single income families to pay for support for double income families.

I also note that:

  • the Budget reveals the true cost of Paid Parental Leave (“PPL”) – which Family First opposed as unaffordable and inconsistent with the ‘budget emergency’ 2014/15 narrative.  PPL would have cost $7.4 billion had it proceeded;
  • the Budget saves approximately $1 billion in removing the capacity for parents to claim both a private sector PPL and the public PPL, by removing entitlement to the public PPL.  The major increases in child care subsidies (shown above) alleviate the loss of public PPL – it is unsustainable to keep funding both.
  • the budget had an unexpected $184 million in additional demand on parenting payments from Centrelink

* Family First supports the child care payments ‘for now’ because the ultimate aim is to reform (a) tax treatment of families and (b) state-federal interference and cost-shifting. Child care subsidies are not a Commonwealth responsibility, tax is.  Just as we do not want Commonwealth taxpayer money going to housing or duplication of health and education, we prefer to phase out child care subsidies and put more money back in families’ pockets through tax relief, for them to spend as and how they see fit – e.g. child care, school fees, uniforms, tuition

Jobs

Businesses create jobs, not governments.  Every government job needs taxes to pay for it, from businesses and families.  This in turn means the capacity for job creation in the private sector diminishes.  The preferable option is to reduce taxes so the job is created in the private sector.

That’s why I support the $3.25 billion small business tax cut and new $1.75 billion new accelerated depreciation rules, because Family First always supports ways for individuals and businesses to reduce their tax burden.  Even with these lower taxes, company tax receipts are projected to increase from $68.2 billion in 2015/16 to $86.2 billion in 2018/19.  However, we prefer a simpler tax system, with companies and individuals starting at a flat tax rate of 30% this year, and then all going down 1% per annum to a national flat tax rate of 20% by 2025.  Not only does this put money back in the pockets of families and small business to spend as they see fit, it will deliver more revenue for government than the present high tax system.

That said, this Budget brings a welcome confirmation of the abandoned 6 month wait for the dole.  The Budget revealed this policy would have saved the Government $2.1 billion.  Family First opposed this policy from day one, because the government was imposing that without doing anything to address industrial regulation.  There are jobs out there for people who are currently unemployed, but it is against the law for them to take those jobs.  I oppose the new 4-5 week wait for the dole, again because industrial regulation goes unaddressed.  I will not support even 1 day waiting for the dole for that same reason.  That said, if a person is not in training, education, working in some way or genuinely seeking work – that is, if they are just sitting at home without a valid reason – then I support them having to wait a month to start getting the dole.

The failure to address industrial regulation is also why I do not support, but probably can do little about in the Senate, the new $320 million spending commitment on “youth employment strategies”.  We do not need employment strategies, we need deregulation of industrial red tape.  The jobs will then emerge from behind the present bans on employing people on terms and conditions that suit them.

Foreign Aid

This 2015/16 Budget does not make new cuts to Foreign Aid, as the $1 billion cut recorded in this Budget was what was announced at the Mid Year Economic and Fiscal Outlook last December.  I’m disappointed that foreign aid remains at low levels, and want Australia get back up beyond previous levels to 1% of Gross National Income.  This exceeds the current global 0.7% target.  Family First policy is that foreign aid, as much as possible, be directed to non-government agency providers, not foreign governments.  Improved Foreign Aid is only possible through budget repair.

Housing

As I said in my speech on reducing spending last September, the government should not need to spend billions of dollars on housing.  Housing is not a Commonwealth responsibility – it is a state & territory responsibility.  If state and territory governments and land management agencies stopped gouging government-owned land for huge profits, and released it for housing supply, then we would solve the housing affordability crisis and the present need for government support for families who can not afford the cost of their own home.  This 2015/16 budget shows the government raises spending on ‘housing and community amenities’ from $4.9 billion this year, to $5.3 billion in 2015/16.  At least, after that, it falls each year to $4.5 billion in 2018/19.  However, there should not be any need for the commonwealth to spend money in this area at all.

Immigration

The immigration reforms that Family First supported in the Senate (with amendments) continue to deliver better arrangements for Australia’s borders and migration system, as well as putting the people smugglers out of business.  Now Indonesia are following Australia’s lead on boat turn-backs, and European nations are eager to know how we have secured our borders.  Detention costs are falling dramatically as a result of the new immigration policies and children and their parents are being released from detention.  This was not possible while the boats kept coming under the previous government.  Not only does the closure of detention centres save money, it means we have funding in the system we can use to expand our refugee intake from crises all over the world.

The 2015/16 Budget reveals an additional $286m cost due to the slow progress in processing the existing caseload of illegal maritime arrivals.  This comes on top of an additional $247m spending on offshore resettlement arrangements, and a new capital cost for resourcing existing processing facilities offshore of $141m.  These are largely offset by savings of $539m in this year alone from detention centre closures due to the stopping of the boats.

Net Debt

I am very concerned at the continuing upward trend in national debt.  It grows from $250 billion in the current 2014/15 year to $325 billion in 2018/19 – a massive rise in just 4 years.  Debt as a percentage of GDP continues to rise, peaking at 18% in 2016/17.

Other observations

  • there has been a further $153m cost from the historically generous retirement incomes for public servants now in retirement, known as ‘defined benefit superannuation’
  •  data retention policies will cost $131.3m over 4 years to implement and fund changes

So in conclusion, Family First takes a short term and longer term view –  controlled spending, and supporting new child care measures for double income families in this Budget, and seeking land supply reform and tax relief for single income families in the longer term.

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