Don’t be too alarmed by the startling proposals by the National Commission of Audit. Few of its recommendations will make it into the budget on Tuesday week. They were never intended to.
Ostensibly, the commission wants to reverse the tide of a century of federal-state relations, substantially dismantle Medicare, crack down on the age pension while leaving superannuation tax concessions unscathed, reduce Medicare to something mainly for the poor, hit middle-income families and make the treatment of welfare recipients much harsher.
Don’t believe it. Truth is, almost all incoming Coalition governments have commissioned commissions of audit since Nick Greiner used the tactic in 1988. What all the federal and state audit reports since then have in common is that only a handful of their recommendations are ever acted on.
That’s not their purpose. Rather, it’s to claim that the previous, Labor government left the books in a terrible mess, thereby justifying an initial, horror budget – all Labor’s fault – and the breaking of any election promises now found to be inconvenient.
In this case, the audit report is softening us up for the budget by raising the spectre of a much tougher budget than we’re likely to get. It’s Joe Hockey getting ready to leave unsaid: See, I let you off lightly.
Audit reports are never put into practice because they are commissioned from worthies who make radical proposals no politician hoping for re-election would ever implement. The cuts we do see in the budget will have been worked up by the professionals: Treasury and Finance.
This report’s proposals go so far over the top – are so impolitic, impractical and improbable – that today is the last you will hear of most of its 86 recommendations.
What distinguishes this report from its predecessors is the blatancy of its commissioning. It comes from an "independent" inquiry effectively handed over to just one business lobby group, the one composed of the most highly paid chief executives in the country, the (big) Business Council.
Not surprisingly, the commission found ways to solve our budget problem at the expense of almost everyone bar the top "1 per cent" whose interests the council represents. Speaking as a near one percenter myself, there’s little in its 86 recommendations that would make a dent on my pocket.
There’s little in the report’s analysis of the budget problem that is new. Not to anyone who had bothered to read Hockey’s mid-year budget review in December, Treasury’s budget review published early in last year’s election campaign or any of Treasury’s three intergenerational reports.
Don’t be in any doubt: we do face a genuine and worrying problem with the budget which, without unpopular measures, will remain in annual deficit for years to come and rack up an excessive level of public debt. It’s not a problem yet, but it will become one and the best time to start making tough decisions is now.
What’s new – and dishonest – is its claim that the problem is all on the spending side of the budget, whose projected growth is "unsustainable". Its solution is to slash spending that supports the living standards of low- and middle-income earners, while arguing that asking high-income earners to chip in by paying higher taxes is unthinkable.
It exaggerates the projected rapid growth in government spending by focusing on the 15 biggest spending programs, which happen to be the fastest growing, while ignoring the many other programs, expected to grow much more slowly.
It turns out total spending is projected to grow at the rate of 5.3 per cent a year, while the economy grows at 5.1 per cent. That says there’s no big problem on the spending side.
In fact, the commission exaggerates the size of the problem by adopting the arbitrary assumption that the growth in tax collections is capped at 24 per cent of gross domestic product. It justifies this by claiming the cap is needed to avoid the evil of bracket creep, conveniently ignoring the scope for covering the cost of limiting bracket creep by cutting the many tax breaks enjoyed by people at the big end of town.
But none of this fiscal prestidigitation says the budget will be a cakewalk. It will be the toughest budget since the Howard government’s post-election budget in 1996. Its bark, however, will be worse than its bite.
A lot of its toughest measures won’t take effect until after the next election. And some of its most unpopular measures are unlikely to make it past a hostile Senate.