The blame game might be tiresome, but the cuts will be painful

By 18 December, 2013 25

parliament house

By Michelle Grattan, University of Canberra


Joe Hockey has delivered a bleak MYEFO. AAP/Alan Porritt

The big message out of the updated, gloomy budget figures released today is: prepare for some shocker spending cuts to come.

The strategy is obvious, learned from forebears. Present a black picture. Heap blame on your predecessor. Have the answers. But make it clear these will involve bitter medicine.

“Living within our means requires the elimination of waste, but it will also require people to adjust to reductions in some spending to which they have become accustomed,” the Mid-Year Economic and Fiscal Outlook document says.

Treasurer Joe Hockey was blunt: “Over the next few months Australians will be asked to accept the decisions that help to make our quality of life sustainable.” Shades here of Hockey’s speech last year about the end of the age of entitlement, though he’s more careful with his language.

The government is trying to wipe the slate as clean as possible for its coming changes, that will follow the Commission of Audit findings and be in the first Hockey budget in May.

This year’s budgets revenue estimates have deteriorated significantly since the election but the Coalition is also punching home the dire message by adding to the bad numbers itself.

What Labor left, what has changed in the underlying situation and what the Abbott government has done all blur into the new bottom line. The result provides a rationale for doing things that might otherwise be harder to justify.

It’s notable that the government has been able to come up with a massive black hole since the pre-election update (nearly $17 billion this financial year and more than $68 billion over the forward estimates) even when we have the Charter of Budget Honesty.

That charter, put in place by former Liberal treasurer Peter Costello, has Treasury and the Finance Department issue an update early in an election campaign. PEFO, as it’s known, is designed to prevent nasty post-election surprises.

The current black hole is a combination of worsening circumstances since PEFO, decisions and revisions by the new government (including an $8.8 billion injection for the Reserve Bank) and methodological changes in projecting unemployment and the terms of trade in the out years.

The Coalition used to accuse the Labor of over-optimistic budget figures. Now in power, it is producing what may be pessimistic numbers. That improves the chances of the results later looking positive, at least compared with this benchmark.

Assistant Treasurer Arthur Sinodinos said the projections should now be more realistic and believable. If the reality turned out better, that would be a pleasant upside surprise, he said. Precisely.

Shadow treasurer Chris Bowen pointed out that the old methodology, which had unemployment in the out years based on “trend”, was used by the Howard-Costello government as well as Labor. Using the PEFO methodology would have meant the unemployment projections in today’s MYEFO would have been lower.

Either way can be justified but the method does affect the numbers. Just as statistics can often be cast in different ways, so the assumptions on which projections are based will feed through into the figures. It’s a reminder that budget numbers always contain “rubber” of one kind or another.

In making its savings for the May budget the government will be hemmed in by election promises. For example Tony Abbott said before the election there would be no net cuts to health and education. But there will be “efficiencies” within these broad areas – almost certain to mean sweeping changes.

While Abbott stresses promises matter and has relearned that lesson from the character-forming experience over the Gonski school funding, it’s clear the government is willing to stretch promises when it thinks it can get away with it.

Apart from the pre-election pledges, it is saying that everything is on the table for review.

In 2014, the Coalition will need to alter its messaging. As the election recedes it can’t play the blame game endlessly. The relentless negativity of opposition has turned into the relentless negativity of government but that will alienate people if it goes on too long.

The electorate is impatient and fickle. If the government is successfully to sell a difficult and likely unpopular package, it will need a narrative that better sketches a picture of the Australia to be created. Just as it has updated the budget numbers, it will have to revise its rhetoric, in order to take the voters along with it.

Michelle Grattan does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

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25 Responses to The blame game might be tiresome, but the cuts will be painful
#1
EvanJames11:22 am, 18 Dec 13

And Hockey won’t even hint at whose entitlement they’re going to end. Most economic commentators point out that there’s heaps of fat to trim… tax breaks, middle class welfare, all kinds of things. But on past record, Hockey seems to focus on the old age pension. Miserable.

#2
wildturkeycanoe1:09 pm, 18 Dec 13

Start at home and abolish lifelong pensions for retired politicians, or perhaps at least means test them and increase the age at which they get to claim them to 75 as well. There’s half our debt fixed in one sentence.
We are all in for a very rough ride with these jokers in power….

#3
HiddenDragon1:10 pm, 18 Dec 13

The Australian public have become so used to magic pudding economics that it will be very difficult for this Government, just as it would have been for Labor if they had been re-elected.

#4
howeph1:27 pm, 18 Dec 13

Here’s $5 Billion a year in extra revenue that few voters are going to complain about (~$20B over four years).

Scrap Abbott’s brain fart, paid parental leave scheme, that everyone thinks is unaffordable middle class welfare, saves another 20B.

There you go; I just reduced the deficit ($120B over four years) by a third without cutting back essential services like the NDIS, pensions, education, health etc.

#5
arescarti422:12 pm, 18 Dec 13

EvanJames said :

And Hockey won’t even hint at whose entitlement they’re going to end. Most economic commentators point out that there’s heaps of fat to trim… tax breaks, middle class welfare, all kinds of things. But on past record, Hockey seems to focus on the old age pension. Miserable.

Agreed, although for what it’s worth our aging population will be a massive problem for us in the future.

The baby boomers are a huge bulge in the demographic age distribution. That’s been great while they were all working age, and supporting a comparatively small number of children and elderly, but now that they’re exiting the workforce, we’re amassing this great weight of old people who on the whole blew all their money during their working lives instead of saving it, and expect the comparatively much smaller cohorts of younger generations to pay for their retirement incomes and rising medical expenses.

In the long term, either taxes are going to have go up massively, the budget will be in deficit for generations, or retirees are going to have to wind back their lifestyle expectations.

#6
chewy142:33 pm, 18 Dec 13

wildturkeycanoe said :

Start at home and abolish lifelong pensions for retired politicians, or perhaps at least means test them and increase the age at which they get to claim them to 75 as well. There’s half our debt fixed in one sentence.
We are all in for a very rough ride with these jokers in power….

Retired policitians cost $20B odd a year? Well I never.

Although you’re half right in that we need to reduce the reliance on the old age pension and significantly restrict eligibility. The family home over a certain level needs to be included in the means test.
here’s the start of my list:

Mining tax expanded
PPL scheme gone.
Negative gearing gone.
Super concessions reduced
Family benefits reduced
Health rebate gone
Income tax up
Pension eligibility tightened

#7
Thumper3:25 pm, 18 Dec 13

Cut the absolutely ludicrous paid parental leave scheme for a start…

#8
wildturkeycanoe3:36 pm, 18 Dec 13

chewy14 said :

wildturkeycanoe said :

Start at home and abolish lifelong pensions for retired politicians, or perhaps at least means test them and increase the age at which they get to claim them to 75 as well. There’s half our debt fixed in one sentence.
We are all in for a very rough ride with these jokers in power….

Retired policitians cost $20B odd a year? Well I never.

Although you’re half right in that we need to reduce the reliance on the old age pension and significantly restrict eligibility. The family home over a certain level needs to be included in the means test.
here’s the start of my list:

Mining tax expanded
PPL scheme gone.
Negative gearing gone.
Super concessions reduced
Family benefits reduced
Health rebate gone
Income tax up
Pension eligibility tightened

I agree on most of those, but there are ramifications. With the FTB for instance, if you cut that and increase taxes, there are single income families who will have to restructure and go job hunting. Restricting pension to those who don’t own their own homes means home owner retirees will have to look for work, or sell their house to survive, especially with the super concessions gone. Without health rebates, more people will be looking for more work to pay for their medical bills. Ultimately, the unemployment rates are going to skyrocket, with all these older geneartion folks trying to survive, thus taking jobs from the ones leaving school. Without job creation [smashed by the mining tax], it will be a pretty miserable country to live in. Labor will get re-elected in 3 and a bit years time.

#9
watto233:48 pm, 18 Dec 13

Its quite easy to make cuts.
Cut the baby bonus.
Cut the first home buyers grant.
Don’t bring in the ultra expensive Paid Parental leave program.
Cut all middle class welfare.

Don’t get rid of the mining and carbon taxes, because they actually raise money.

Oh wait these are all things the liberals either bought in or want to get rid of…

I’m sure there are some labor schemes that could be cut too.

I note they are getting rid of the super scheme, whereby low income earners could get $1000 of their own money matched by the gov into their super scheme. To me this is helping the countries future but hey lets cut that.

NBN will probably go, even though thats good for the future for everyone also.

The coalition may be a 1 term government, but I suspected as much once Abbott got in and turned back to his real self and not the 1 yr before election campaign Abbott.

#10
schmeah5:17 pm, 18 Dec 13

watto23 said :

Its quite easy to make cuts.
Cut the baby bonus.
Cut the first home buyers grant.
Don’t bring in the ultra expensive Paid Parental leave program.
Cut all middle class welfare.

Don’t get rid of the mining and carbon taxes, because they actually raise money.

Oh wait these are all things the liberals either bought in or want to get rid of…

I’m sure there are some labor schemes that could be cut too.

I note they are getting rid of the super scheme, whereby low income earners could get $1000 of their own money matched by the gov into their super scheme. To me this is helping the countries future but hey lets cut that.

NBN will probably go, even though thats good for the future for everyone also.

The coalition may be a 1 term government, but I suspected as much once Abbott got in and turned back to his real self and not the 1 yr before election campaign Abbott.

As far as I know the first home owners grant is administer by state governments and the baby bonus is basically being whittled awAy to food scraps for the very few women who stay at home to raise their children (I.e. They do not participate in any work).

#11
dtc5:30 pm, 18 Dec 13

watto23 said :

Its quite easy to make cuts.
Cut all middle class welfare.

The ‘middle class’ – everyone who earns more than me and hence should not receive any government money.

the working class – me, its tough to survive out there on my income, what with electricity price increases, bus fares going up and so on.

#12
chewy146:46 pm, 18 Dec 13

dtc said :

watto23 said :

Its quite easy to make cuts.
Cut all middle class welfare.

The ‘middle class’ – everyone who earns more than me and hence should not receive any government money.

the working class – me, its tough to survive out there on my income, what with electricity price increases, bus fares going up and so on.

a. Middle class. I know I’m middle class and there’s no way I or anybody like me should be getting a cent of government money.

b. Working class. The vast majority of “working class” shouldn’t be getting a cent of government money either

c. The well off. See a. and b. They sure as sh@t shouldn’t be getting any government money.

d. The poor. They should be given government assistance (not wholly money) so they can transition into a, b or c.

Problem solved.

#13
Thumper7:14 pm, 18 Dec 13

dtc said :

watto23 said :

Its quite easy to make cuts.
Cut all middle class welfare.

The ‘middle class’ – everyone who earns more than me and hence should not receive any government money.

the working class – me, its tough to survive out there on my income, what with electricity price increases, bus fares going up and so on.

I’m middle class. I earn decent brass. I also get absolutely nothing from the government.

Which is exactly how it should be.

Welfare should be for people who are disadvantaged and in need of help. Not those who are earning decent money.

#14
CraigT8:49 pm, 18 Dec 13

HiddenDragon said :

The Australian public have become so used to magic pudding economics SNIP

The international community’s consensus position is that, with hindsight, Wayne Swaqn and the ALP’s response to the GFC was world-class and perfectly managed.

The IMF states that Howard’s was the most profligate Australian government in over 50 years.

Accusing the ALP of any kind of economic mismanagement is one or both of ignorance and dishonesty.

You’re either a moron, or a liar, but probably both.

#15
CraigT8:54 pm, 18 Dec 13

howeph said :

Here’s $5 Billion a year in extra revenue that few voters are going to complain about (~$20B over four years).

Scrap Abbott’s brain fart, paid parental leave scheme, that everyone thinks is unaffordable middle class welfare, saves another 20B.

There you go; I just reduced the deficit ($120B over four years) by a third without cutting back essential services like the NDIS, pensions, education, health etc.

I’ll give you two more: use the money collected from the Carbon tax to build both a solar PV and a solar, thermal, plants at Gove, providing the power for free to the Alumina smelter there , thus reactivating a moribund business and saving thousands of jobs including the communities the smelter supported.

Ditto Holden in SA. Use the carbon tax revenue to give them world-class infrastructure thus making them competitive.

Tony Windsor knew how to butter his bread:
http://www.tonywindsor.com.au/releases/130205.pdf

Instead, now, we have this regressive bunch of political pygmies hell-bent on driving our economy straight into a brick wall because they are obsessed with idiotic political dogma they picked up while playing student politics and never grew out of.

#16
Reprobate9:24 pm, 18 Dec 13

CraigT said :

Instead, now, we have this regressive bunch of political pygmies hell-bent on driving our economy straight into a brick wall because they are obsessed with idiotic political dogma they picked up while playing student politics and never grew out of.

So need a Like button here! Will just have to give this a +1 instead.

#17
miz10:15 pm, 18 Dec 13

Ah, if only pollies could reduce the rorts to which they have become accustomed . . .

#18
shauno11:03 pm, 18 Dec 13

We seriously need to end the overwhelming sense of entitlement people have. We need to get rid of most middle class welfare and direct it to the NDIS and lower income people only. Get rid of baby bonus and first home buyers grant. We probably have to increase GST to 15% if we have any chance of paying off this debt and funding future expenditure.

#19
wildturkeycanoe6:36 am, 19 Dec 13

shauno said :

We seriously need to end the overwhelming sense of entitlement people have. We need to get rid of most middle class welfare and direct it to the NDIS and lower income people only. Get rid of baby bonus and first home buyers grant. We probably have to increase GST to 15% if we have any chance of paying off this debt and funding future expenditure.

Increasing GST by 5% won’t help the lower income households unless you give them exemption from it by say – giving them 5% extra on their income and benefits, because almost every cent we spend has GST on it.

#20
milkman7:00 am, 19 Dec 13

chewy14 said :

dtc said :

watto23 said :

Its quite easy to make cuts.
Cut all middle class welfare.

The ‘middle class’ – everyone who earns more than me and hence should not receive any government money.

the working class – me, its tough to survive out there on my income, what with electricity price increases, bus fares going up and so on.

a. Middle class. I know I’m middle class and there’s no way I or anybody like me should be getting a cent of government money.

b. Working class. The vast majority of “working class” shouldn’t be getting a cent of government money either

c. The well off. See a. and b. They sure as sh@t shouldn’t be getting any government money.

d. The poor. They should be given government assistance (not wholly money) so they can transition into a, b or c.

Problem solved.

I like this approach.

#21
Woody Mann-Caruso8:52 am, 19 Dec 13

shauno said :

We seriously need to end the overwhelming sense of entitlement people have.

We know it’s you, Joe. Maybe you could start by raising HECS debts for you and your illustrious leader. Because we wouldn’t want anybody to think you were *airquotes* entitled to a free tertiary education.

#22
BimboGeek9:20 am, 19 Dec 13

A lot of “middle class welfare” is really just tax deductions getting set aside, funneled through a different office and coming back to you. It’s a forced savings like superannuation and after all the taxes I’ve paid I’m happy to take a little extra now. I think if I’d had it to burn then at the time I probably would have blown it on handbags and shoes.

#23
Woody Mann-Caruso10:47 am, 19 Dec 13

A lot of “middle class welfare” is really just tax deductions getting set aside

Exactly. It’s (trying to, I won’t pretend it’s anywhere near perfect, or even good in some cases) exert some control over the supply of money, and where it ends up – consumer spending, savings, or investment. ‘Let’s just get rid of it all’ is a bit like saying ‘let’s just push these buttons, all at once’. If you want to pull something back, think hard about the ripples created as the economy reacts and tries to restore equilibrium.

#24
HiddenDragon11:02 am, 19 Dec 13

CraigT said :

HiddenDragon said :

The Australian public have become so used to magic pudding economics SNIP

The international community’s consensus position is that, with hindsight, Wayne Swaqn and the ALP’s response to the GFC was world-class and perfectly managed.

The IMF states that Howard’s was the most profligate Australian government in over 50 years.

Accusing the ALP of any kind of economic mismanagement is one or both of ignorance and dishonesty.

You’re either a moron, or a liar, but probably both.

Ooh – I’m hearing that in the dulcet tones of Malcolm Tucker and found it so surprisingly pleasurable that I forgot the safety word.

Back on topic, and with apologies to Gillard’s swan song, responding to the GFC “doesn’t explain everything, it doesn’t explain nothing, it explains some things” about Labor’s economic management.

#25
watto2312:34 pm, 19 Dec 13

chewy14 said :

dtc said :

watto23 said :

Its quite easy to make cuts.
Cut all middle class welfare.

The ‘middle class’ – everyone who earns more than me and hence should not receive any government money.

the working class – me, its tough to survive out there on my income, what with electricity price increases, bus fares going up and so on.

a. Middle class. I know I’m middle class and there’s no way I or anybody like me should be getting a cent of government money.

b. Working class. The vast majority of “working class” shouldn’t be getting a cent of government money either

c. The well off. See a. and b. They sure as sh@t shouldn’t be getting any government money.

d. The poor. They should be given government assistance (not wholly money) so they can transition into a, b or c.

Problem solved.

Completely agree. And both sides of politics are guilty of giving money to people to win votes.
I’m middle class and the only bit of money I’ve got from the gov, was the HECS loan (which really isn’t welfare) and the first home owners grant back in 2001. I didn’t need the first home owners grant but like most people we take what is offered.

Child care is what amazes me. They hand out lots of money so two parents can work and leave kids in childcare. Yet the cost of child care keeps going up because the demand is high because the rebates are there. I know families with kids at private schools and younger kids in childcare. Seriously if you can afford your BMW X5 and kids in private school, you should be getting no money from the government. Hell if you can afford a new car and a mortgage you shouldn’t be getting money from the government.

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