Illustration: Judy Green
As we count the cost of Christmas and new year sales, we've also been warned to get ready for a tough federal budget in 2014 with much needed cost-cutting to bring down government spending and debt.
New governments tend to load up economic pain at the beginning of their term so they can show improvement before the next election and create room for pre-election handouts.
But there are also long-term factors at work. Based on current projections, Australia's ageing population will see spending outpace revenue in coming decades. We will also see massive rises in health spending and, at some point, an end to the mining boom.
So, if cuts have to be made, where to begin? In the UK, the Conservative government's ''austerity economics'' - of making rapid cuts to welfare, social security, education and the public service - didn't work. Growth in Britain since 2010 has been just 1.1 per cent, compared with 2.9 per cent in Germany and 4.9 per cent in the US.
So the Abbott government should think broadly about potential areas for cutbacks. A good place to start is with corporate welfare.
Business concessions cost billions. Government support for the mining industry alone costs about $4.5 billion a year in subsidies, mainly in the form of cheap fuel and tax breaks for building roads and railways, according to the Australia Institute. This comes when the mining industry is making record profits.
Another place to look is at the many loopholes, trusts, offshore investments and concessions that allow wealthy individuals and businesses to avoid paying tax.
Much of this goes on unseen but, most infamously, the late Kerry Packer's company, Consolidated Press Holdings, paid just $6 million in tax on $600 million profits in 1992. When the Australian Tax Office took him to court to try to get his companies to pay a tax bill of up to $260 million and for Packer to pay $40 million in personal tax, it lost. After a seven year battle, Packer only had to pay $25,000 for his companies and, for his personal income tax, an extra $32.
A more recent example provided in a 2011 report on tax evasion by the Australian Council of Trade Unions claimed that Andrew ''Twiggy'' Forrest's Fortescue Metals Group made $579 million profit in 2010 but was able to ''deduct $176 million against its $174 million prima facie tax bill, meaning that it paid no tax in 2010''.
Multinational companies can take advantage of other ways to avoid paying taxes in Australia. Google, Apple and Starbucks have all been accused of ''profit shifting''. Most infamously, Google has been accused of using the ''Double Irish and Dutch sandwich'' method that sees sales from Australia invoiced out of Google Ireland so that profits avoid taxation by passing through Ireland, the Netherlands and the Bahamas. Reportedly, Google pays very little Australian company tax on the profit it makes on an estimated $1 billion a year in Australian advertising revenue.
On this issue, the Abbott government has promised action, signalling it will tackle profit shifting through Australia's presidency of the G20 forum this year.
State and federal government duplication is another area for potential savings. As small payments to the states have increased over the past few decades, blurred responsibilities have led to duplication that The Australian estimates cost about $3 billion a year just for the health and education portfolios.
''Political welfare'' also needs attention. While politicians' travel entitlements and book subsidies have gained much attention, the biggest area of abuse is government advertising.
In 11 years, the Howard government spent nearly $2 billion on government advertising. The Gillard and Rudd governments spent at least $100 million a year on government advertising. Some of this money is spent on routine or important community information campaigns but too much is spent on partisan promotion that taxpayers shouldn't be funding.
Now we come to the more controversial areas that would personally affect many readers (and I'm not even going to talk about private health insurance subsidies, the Extended Medicare Safety Net or subsidies to underperforming businesses, to farmers and wealthy upper-class schools).
Superannuation tax concessions cost over $30 billion - about as much as age pensions. The low tax on superannuation contributions and earnings, and the zero tax on super benefits after 60 years (introduced under the Howard government), are particularly expensive. As journalist Mike Steketee pointed out earlier this year on The Drum: ''The cost to revenue … is almost 50 per cent more than the Defence budget and $2.3 billion above Commonwealth spending on education.'' He asked: ''Where is the sense of outrage about this budget-blowing, out-of-control 41 per cent increase in government spending, making it the fastest growing major area of government?''
Negative gearing is another legal tax perk and one relied upon by more than a million Australian landlords who deduct losses on rental property from their income to lower their tax liabilities. No politician will likely ever touch this issue even though it costs at least $1.5 billion a year, possibly $3 billion a year according to some sources, and has contributed to Australia having one of the most expensive housing systems in the world.
Finally, Abbott's paid parental leave scheme will pay women their full wage for six months' leave. It is not means tested but is capped so the top payout would be $75,000 plus super. This plan is forecast to cost $5.5 billion a year and only focuses on the first six months. It doesn't do anything to help solve the high costs of childcare for years to come after the birth of a child.
I've benefited from some of the policies I've mentioned and many people may be in the same boat - benefiting from policies as we wonder about the sense of them. The new year is a good time to think about spending and how we fund the future.
Sally Young is an Age columnist and associate professor of political science at the University of Melbourne.