Monday, February 25, 2013

Tony Abbott you need to balance your books. Your time starts now

Guest columist Shane Wright, from the West Australian:

If the polls are to be believed, Tony Abbott will be running the country by mid-September.

For those ALP supporters hoping for some sort of miracle – be it delivered by Julia Gillard or Kevin Rudd – the current poll leads enjoyed by Mr Abbott this far out from election day give him an 85 per cent chance of winning.

Given that the economy and managing the Budget will be key features in the coming weeks and months, it’s time to have a careful look at what Mr Abbott, shadow treasurer Joe Hockey and shadow finance spokesman Andrew Robb are offering voters.

The Opposition has been deliberately cagey about its big ticket policies and their costs.

Its current plan is to release these costed policies in the 33 day period between the issuing of the parliamentary writs and polling day on September 14.

But Mr Abbott has been clear that many of the policies that went to the 2010 election will get another run around the electoral paddock.

At the last election, as Mr Abbott repeatedly mentions, the coalition offered savings of $49 billion. But the fact he also offered $38 billion in spends, for a net improvement to Budget of $11 billion over four years, is barely whispered.

Some of those savings have gone, swept away by time.

For instance, at the small end of the spectrum the Opposition planned to save $4 million by not proceeding with Australia’s bid for a place on the UN Security Council...

Abandoning a plan for a 50 per cent tax discount on interest income was going to save the Opposition almost $1 billion. Unfortunately, the Government has already ditched that.

But the march of time means there are also potential new savings from programs put in place by the Government that could be axed by an incoming Abbott Government.

Mr Abbott’s plan to get rid of the Schoolkids Bonus, which started last year, will deliver a $2.1 billion boost to the Budget bottom line.

The single biggest save announced in 2010, and to which the Opposition remains committed, is a freeze on public sector jobs.

Whatever you think about public servants they’re easy fodder for politicians of any stripe.

It’s unclear, however, how this will play out as some parts of the public service will be excused from staff cuts.

The major issue remains around the carbon price (and if you read the coalition’s "Our Plan" document you could be forgiven for thinking that is the only thing holding back Australia).

It’s easy to say the carbon tax will be gone within months, but so too will around $8 billion a year in revenue.

That revenue is going towards a variety of measures, the most costly of which is the increase in pension payments and the big lift in the tax-free threshold.

Mr Abbott has confirmed the pension increases will have to be wound back as will the tax-free threshold change.

Somehow, he is also offering tax cuts to all (but a reversal in the tax cut delivered by the tax-free threshold change) on top of the abandonment of the carbon tax.

He might have to mention to the States that their GST revenue will be down slightly because the carbon price pushed up prices.

The tax-free threshold change could have an impact on employment for low income earners (who are in the best position to increase hours and boost their overall income).

The mining tax, damp squib in terms of revenue it has so far turned out to be, will also go.

In terms of revenue right at this moment that is not of huge consequence to the Opposition (although a falling dollar would certainly beef up future revenue flows).

The Opposition has been upfront in dumping all policies linked to the MRRT including the $500 co-payment for superannuation to people who earn less than $37,000.

Except it hasn’t abandoned every policy tied to the mining tax.

It remains committed to keeping the increase in the superannuation guarantee to 12 per cent that will cost close to $1 billion a year by the end of the forward estimates.

(Yes, the super guarantee costs the government because it gets less tax as superannuation is taxed at a much lower rate than ordinary incomes.)

Though the Opposition won’t concede this point, its job has been made easier by some of the cuts delivered by the Government since 2008.

The changes to the Baby Bonus and Family Tax Benefit, the increase in the age pension age, the abolition of the dependent spouse tax offset, cracking down on wealthy parents who move income to their children, the changes to FBT on work cars … the structural base of the Budget has been improved no matter what coalition MPs argue (or have opposed it the Parliament).

This is where Mr Hockey and Mr Robb will have to make fiscal ground by cutting programs put in place by the Government, such as Medicare Locals, or implement their own structural saves.

At the same time they will have to add in their own policies that will cost money.

The Opposition is already committed to winding back one Government saving measure, the means testing of the private health insurance rebate, which will be a long term drain on the Budget.

Peter Costello’s biggest financial windfall, outside the mining boom, came from selling Telstra.

But Mr Hockey doesn’t have a business of such a size to flog off.

The Opposition is committed to selling Medibank Private (a policy it has held for more than five years) which, in better times, had a theoretical price tag of at least $4 billion.

There is the option to sell Australia Post which last year delivered a reasonable profit on the back of soaring parcel deliveries caused by the increase in online shopping.

If the post office was sold off with a banking licence then Mr Hockey could not only reap a financial windfall but also boost competition in the financial sector.

(Axing the NBN does not have a major impact on the Budget because of the way it is funded. However, selling it could produce a much needed financial fillip.)

There may be substantial unaccounted savings, however.

The Opposition’s border protection policy, if it works, would free-up billions in dollars that could be moved into other parts of the Budget.

However, no one knows for certain that the policy will work.

Defence is potentially a Budget destroying sector for both the Opposition and the Government.

Two mega projects must soon get the green light – and hit the Budget bottom line.

The Joint Strike Fighter and the submarine replacement program will together cost the Commonwealth tens of billions of dollars.

Mr Abbott is promising a three percent real annual increase in Defence spending "subject to improvement in the Budget".

Notwithstanding that no one can define what "improvement in the Budget" means, decisions to start paying for the JSFs and the submarines may have to be made earlier rather than later.

And as the JSFs have already proven, big Defence procurements are notorious for going way over budget.

We haven’t even added the thought-bubble of dam building across northern Australian. That’s dam building without any infrastructure to support it.

All of this is before we hit the economy proper.

There have been ongoing warnings from Treasury that tax receipts won’t flow like they did before the GFC.

Then add in the high Australian dollar (which is doing far, far more damage than any carbon tax), the global currency wars, any move in government bonds and a host of other factors.

All this awaits Mr Abbott, Mr Hockey and Mr Robb.

Related Posts

. Costings. Swan chucks Hockey a time bomb

. It's gone. No Coalition commitment to deliver a surplus within 12 months

. Lib costings debacle. Amateur hour all round