Chris Richardson, from Deloitte Access Economics, has written an appraisal of the Federal Budget, which pretty much perfectly reflects my own views:
Some of the specifics were undoubtedly tough – Australia is not currently doing enough for our unemployed, and this budget will add to their burdens, especially for the young. That’s a step in the wrong direction.
And the “sharing” could have been better…
Yet the broad patterns mostly make sense. This is indeed a genuine step towards repairing the nation’s fiscal finances…
[Yet] the budget merely began the repair task. This is far from being a finished story…
While commentators can bag individual measures – such as Abbott’s flawed paid parental leave measure, harsh cuts to unemployment benefits for the young, and the general lack of structural reform – taken as a whole, this was a brave Budget by the Coalition that at least provided a reality check to an electorate that has been spoilt over the past decade or so, and whom has yet to come to terms with the fact that the rivers of gold from the commodity price boom and favourable demographics have dried up.
I view this Budget as drawing a line in the sand. In effect, the Coalition has said that Australian cannot afford the generous entitlement schemes implemented by previous governments (particularly the Howard Government) and signaled that the nation as a whole has to tighten its belt and look to additional revenue streams.
Sure, while there are many areas still in need of attention – most obviously unwinding egregious tax concessions, including negative gearing and superannuation on high income earners, as well as broad-based tax reform – at least the Coalition has begun the process. Rome wasn’t built in a day.
The Coalition’s targeting of the Aged Pension is especially commendable and was most surprising. Instead of taking the easy way out and appeasing the large and vocal grey vote, which also happens to be a key pillar of its electoral base, the Coalition took the bold move of unwinding generous indexing arrangements, tightening means testing of the Commonwealth Seniors Health Card, and even abolishing the $850 a year Seniors Supplement.
As highlighted by Hockey himself in Tuesday’s Budget speech, “currently, an individual with a home and almost $800,000 in assets still qualifies for the age pension; a couple with a home and almost $1.1 million in assets also qualify for the age pension”. Few could objectively argue that this level of support is not more generous than necessary and allows precious tax dollars to flow to those that are not in genuine need.
The fact is, this is merely the beginning of tough Budgets. Commodity prices and the terms-of-trade are trending down, crimping the tax take from profits, and workforce participation is entering a structural decline, brought about by the large scale retirement of the baby boomer generation, just as outlays to the aged are increasing.
Politicians and the Australian public more generally must confront the reality of a Budget facing intense long-term structural headwinds, and recognise the need for expenditure cuts and/or tax increases – there can be no more free lunches.
At least the Coalition appears to recognise this new normal, and has signaled as such in the Budget. Best we all get used to it, too, as these headwinds ain’t going away.
