Tony Abbott’s world just gets uglier

The ugly position the Abbott Government finds itself in has been underlined by the latest tax revenue and public expenditure figures from the official statistician.
A lot of attention will probably be drawn to the 15 per cent plunge in tax receipts across all levels of government in the September quarter to less than $100 billion.
There is no doubt that tumbling commodity prices and weak wages growth are weighing heavily on the Budget ledger – Deloitte Access Economics reckons the write-downs will push the Budget deficit to $34.7 billion this financial year – $5 billion more than the Government forecast in May.
But the steep 15 per cent fall reported by the Australian Bureau of Statistics today is hardly unexpected – it happens every year at this time. Historically, the three months to September is the weakest quarter for tax collections, for the obvious reason that most corporations settle their annual tax bill in the June quarter.
What is more telling is the ABS’s assessment that Commonwealth spending (ex-defence) grew 2.2 per cent in the September quarter and is up more than a 1 per cent from where it was when the Coalition came to office little more than a year ago.
The Government will probably claim that this is because so many of its Budget savings measures have been stymied by a hostile Senate.
But they should not be let off the hook so easily.
Take the $7 Medicare co-payment proposal, which is languishing on the Government’s books and hasn’t even made it onto Parliament’s agenda yet.
The Government claims it will save $3.5 billion by slicing $5 from Medicare rebates for GP, pathology and diagnostic imaging services. But this money has not been slated to improve the Budget bottom line.
Instead, the revenue was to be directed to the Medical Research Future Fund, to provide a fig leaf for Tony Abbott’s pre-election pledge not to cut spending on health.
Other measures will take years to deliver savings, such as shifting more tertiary tuition costs onto students.
Ripping more than $1.8 billion out of public hospital funding is a significant (if short-sighted) savings measure, but it won’t really have a big impact on the bottom line until 2017-18, while abolishing programs and agencies, such as the Australian National Preventive Health Agency are mostly small beer (scrapping ANPHA will realise just $6.4 million in savings over four years).
Instead, the Government has lumbered itself with a raft of unnecessary costs arising from impulsive and ill-considered decisions affecting the machinery of government.
For instance, the Government reckons that – on paper, at least – abolishing AusAID and absorbing its functions within DFAT will save $397.2 million over four years.
But there are good reasons to question whether the savings will approach anything like that.
First of all, the savings were predicated on staff cuts, and DFAT offered attractive redundancy packages to entice people to leave. As at 30 June, 272 DFAT staff had accepted a voluntary redundancy. Tellingly, a majority (56 per cent) were 50 years or older and 55 per cent were executive level staff – so their payouts would not have been cheap.
Secondly, the entire process was a productivity killer. For months, nothing much was done as management worked out how to takeover would work, and sorted out the structure of the new, larger, organisation.
Third, the process has been a morale killer for many in the Department, further hitting productivity.
You can only wonder whether all these flow-on costs formed part of the calculation when the Budget was being drawn up. I suspect not.
A similar gag-handed decision is to relocate many of the functions of the Department of Agriculture to regional centres dotted across the country.
For an agrarian socialist, it sounds like a neat way of spreading jobs and encouraging economic activity in smaller regional centres.
But reality has a way of mugging such hopes.
There is the cost of breaking the lease on existing premises, locating and securing appropriate accommodation, assisting staff who are willing to relocate and paying out and replacing staff who are not.
Then there’s the increased expense of co-ordinating activities across and geographically dispersed and decentralised organisation – not least higher communication and travel expenses.
Then there is the challenge of luring appropriately skilled and experienced staff to work in these regional offices – not many rural communities will be flush with people experienced in, say, administering a grants program or overseeing research projects.
As the Government struggles to come up with a compelling narrative to pitch its forthcoming Mid-Year Economic and Fiscal Outlook, it will have seen precious few green shoots of hope regarding the Budget books.
As Reserve Bank of Australia Governor Glenn Stevens noted today, it will be “some time yet” before there is a sustained fall in unemployment, so growth in wages (and hence income tax revenue) will be weak for quite a while yet.
And desultory economic growth will not do much for corporate profits or tax receipts either.
If the Government wants to burnish the Budget books and chart a convincing path back to surplus, it will have to contemplate killing more than a few sacred cows, like the massive subsidies currently built into the system for superannuants and hugely expensive corporate tax breaks and handouts.
If Tony Abbott truly thought last May’s Budget was brave, then he and Joe Hockey will have to deliver something of Homeric proportions if they are serious about setting the Budget on a sustainable path.
Otherwise, we’ll just continue to bumble along on familiar our shambolic path of hasty, ill-conceived and partisan Budget decisions and just hope that something – another China, perhaps? – comes along to paper over the glaring inadequacies of the nation’s political class.

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