The 2014 Federal Budget

Implications for a better Australia

DAVID HAYWARD

David Hayward 2

2014 Federal Budget

• Introduction: worst budget ever• The plan• The budget• What went wrong? • Who really lost?• Where to from here?

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Worst budget ever?

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The plan• Win on back of hugely unpopular ALP• With modest and middle of the road policies

– Except for refugees and the environment• Repeatedly denied a radical plan• “Committed Coalition expenditure including tax cuts, pension

increases and increases in expenditure on health and education total just over $33 billion... Today’s announcement also confirms that the Coalition will increase spending on hospitals, schools, defence and medical research – a far cry from the deceitful lies coming from the Prime Minister and the Labor Party that the Coalition would cut health and education”(Hon Joe Hockey and Hon Andrew Robb, Final Update on Election Policy Commitments, 5/9/2013) .

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The plan cont.• Only to win Government and do the opposite• After padding out budget deficit• And setting up an ideological Audit

Commission to recommend big cuts• Nothing surprising: a well worn electoral path

for right of centre governments whose policies are not popular

• Worked very well many times before– Especially with States; Jeff is still King

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The Budget: Revenue increases and spending cuts, 2014/15-2017/18 ($m)

2015 2016 2017 2018

-$20,000

-$15,000

-$10,000

-$5,000

$-

$5,000 Revenue increases = $8.7b

Most of cuts not till the outyears

Spending cuts = $29.4b

$22b

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The budget: a reminder II• Goal: turn $24b deficit into $1b surplus by 2017/18• Social policy especially hard hit:

– Social Services cut by $15b– Health cut by $6b (mainly to States & co-payment)– Education cut by $3.7b

• In sum: – massive consolidation– Mainly via spending cuts– Focused on social policy (ie those on low incomes)– Income tax hike on high income earners ends in 2017/18– Most regressive budget in living memory– Most pain not due to take effect for 2 years and onward

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What went wrong?• Manufactured claims of crisis clearly untrue:"Australia is not facing a budget or a public debt crisis right now," AMP Capital chief economist Shane Oliver said. "Our budget deficit and net public debt are low by OECD standards...”. Chris Caton, from BT Financial, said it was "simply absurd" to suggest Australia had too much government debt. Saul Eslake of Bank of America Merrill Lynch said (using terms like) budget crisis”…was to.. to abuse the English language”.• Read more: http://www.smh.com.au/business/no-budget-emergency-

say-economists-20140711-zt4kz.html#ixzz38rFDvnIR

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What went wrong cont.Moody’s senior vice-president Steven Hess said …“The Australian government has among the lowest levels of debt …of any advanced economy, and we do not consider that there is a risk to the AAA …” . Fitch Ratings ..Andrew Colquhoun said “Australia has strong public finances… which means there’s quite a bit of leeway in public finances from the perspective of the credit rating,” he said. (The Australian, 11/7/2014, accessed at http://www.theaustralian.com.au/business/economics/ratings-agencies-back-the-governments-budget-strategy/story-e6frg926-1226984874695)

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A problem of revenues not spending: Revenues and expense as % of GDP

20002001

20022003

20042005

20062007

20082009

20102011

20122013

20140%

5%

10%

15%

20%

25%

30%

ReceiptsExpenses

Source: Budget Paper No 1, 2014/15: Historical Tables

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What went wrong cont.

• Budget was really about values“The 2014-15 Budget marks a major step by the Government to transform the role of government in people’s lives.” (Budget Paper Number 1: 1-1)• ie small government (remember culture of

entitlement speech in 2012) – (http://www.abc.net.au/lateline/content/2012/s3480665.htm)

• That sits uneasily with Australian public• Who remain broadly sympathetic to role of government

and endorse value of fairness

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Australian’s views of government spending

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Should Govt spend more or less on…

Source: ANU Poll on Government Expenditure, February, 2014.

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Should the government spend more or cut taxes?

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Too much cutting..

Cut spending t

oo much

Not cut s

pending enough

Cut spending a

bout righ

t

Don't know

0%

10%

20%

30%

40%

50%

60%

Source: Essential Media: http://essentialvision.com.au/category/essentialreport/page/9

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Fairness and the budget:

Overal

l the budge

t was

fair

Bottom line ah

ead of p

eople

Hurts th

e most

vulnerab

le

Preferred better s

ervice

s to cu

tting d

eficit0%

20%

40%

60%

AgreeDisagree

Source: Essential Media: http://essentialvision.com.au/category/essentialreport/page/13

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Popularity of main measures:

deregulat

e Uni fees

$7 medica

re co-pay

ment

Pension ag

e to ris

e to 70

6 month

wait

for d

ole

Tightening d

isabilit

y support

eligibilit

y

Cut 16,500 public

servi

ce jo

bs

Privati

se Roya

l Mint

0%10%20%30%40%50%60%70%

SupportOppose

Source: Essential Media: http://essentialvision.com.au/category/essentialreport/page/12

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Who really lost?• Government’s

popularity destroyed• Budget a complete flop– Still not clear what is to

be legislated

• Senate increased spending, not cut it

• Biggest losers are Neoliberals

• who have taken a beating

• arrogance has not helped

• Values are unpopular, despite 30 years of being on parade

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Who has won?

• Still unclear• But there is now a

political opening• Involving politics of

fairness• And budgets that

redistribute income progressively

• Top of the list of those still vulnerable:– The unemployed

(especially those under 30)

– The disabled– And single parents

• These are the most at risk people of our generation.