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Budget cuts hit lowest-income earners hardest, says Treasury

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Tom Allard and Peter Martin

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Modelling reveals where the budget hurts

Treasury modelling shows the lowest income earners are hit hardest by the budget but Liberal Senator Simon Birmingham disagrees.

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The federal government delivered its May budget fully aware its spending cuts would hit poorer households much harder than wealthier ones, a Fairfax Media freedom of information request has revealed.

Treasury numbers released to Fairfax Media back private modelling showing the cuts were sharply inequitable, a contention repeatedly played down by the government.

Prime Minister Tony Abbott with Treasurer Joe Hockey. Treasury warned the government its budget measures would hit low-income earners the hardest.

Prime Minister Tony Abbott with Treasurer Joe Hockey. Treasury warned the government its budget measures would hit low-income earners the hardest. Photo: Jonathan Ng

The budget has been widely criticised as unfair, and a hostile reception from the public led to a slump in the polls for the government. Many of its measures are being blocked by the Senate, with Treasurer Joe Hockey frantically negotiating with crossbenchers to salvage the budget.

The Treasury analysis reveals the spending cuts cost an average of $842 a year for lower income households, while the average high income family lost just $71. Middle income families were down $477.

Partly offsetting the skewing of spending cuts towards low earners was the temporary deficit repair levy for those earning above $180,000 a year.

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The Treasury modelling says the average high income family would pay an extra $446 a year in tax; middle income families an extra $15; and low income families only $2 a year more.

The combined effect is that an average low income family loses $844 per year in disposable income (earnings after tax and government payments) due to the budget. Middle income earners forgo $492; while a high income family is down by $517.

The Treasury analysis is simplistic. It does not account for the effect of changes such as the proposed $7 Medicare co-payment; fails to account for inflation, and is for only one year – 2016-17 – of the budget estimates. As such, it understates the disproportionately negative impact of the budget measures on poor families compared to wealthier ones.

For example, in 2017-18 the deficit repair levy will be abolished and high income earners will be much better off. Also in 2017-18, the full effects of the cuts to family benefits will be felt.

The analysis was just one of several provided to government in the lead-up to the budget. However, Treasury refused to release two detailed sets of modelling because they were ''brought into existence for the dominant purpose of submission to the cabinet''.

 It is understood the 52-page and 21-page submissions starkly showed how less wealthy households suffer far bigger falls in disposable income than richer ones, especially for families with children aged between six and 16.

A spokeswoman for Mr Hockey said the average lower-income household would still receive $12,604 in 2016-17 in cash transfers such as family benefits from the government.

''Our budget aims to make the welfare system sustainable and to reduce $123 billion in projected deficits and debt, heading towards $667 billion without remedial action,'' she said.

''Our budget is focused around building a stronger economy so Australians can experience more and better jobs.''

Mr Hockey hit out at Fairfax Media's report on Monday, saying it was more ''malevolent misinformation'' from Fairfax because it failed to acknowledge the greater amounts of tax middle and higher income families pay.

''That story is wrong because it fails to take into account a range of things like the fact that higher income households pay half their income in tax, low income households pay virtually no tax,'' the Treasurer told the Nine Network.

''It also fails to take into account the massive number of concessional payments, such as discounted pharmaceuticals . . . discounted transport, discounted childcare, that goes to lower income households.

''It just seems to be a little inconsistent, I saw they were apologising for one of their cartoons on the weekend and there's a lot of misinformation that's coming out and I sometimes its quite malevolent out of those papers.''

Labor Treasury spokesman Chris Bowen said Mr Hockey could not disown the figures.

''These are Treasury figures,'' Mr Bowen told ABC radio on Monday. ''This is the direct impact of decisions in his budget.''

Chief executive of the Australian Council of Social Service Cassandra Goldie said the budget hurt most those that could least afford it.

''If this budget stays in place, you will see an acceleration of inequality. You will see a rise in child poverty,'' Ms Goldie said.

''Mr Hockey is asking if there’s an alternative plan for fixing the budget deficit. There are a raft of ideas, starting with the billions of dollars of tax concessions for higher-income earners and wealthy retirees.''

The government’s secrecy about its modelling of the impact of the budget on households is unusual. This year’s was the first budget since 2004 to be presented without detailed tables showing the projected change in the real disposable incomes of different family types.

Australian National University public policy experts Peter Whiteford and Daniel Nethery attempted to replicate the household ''cameo'' tables usually in the budget and found that a single parent with one child aged six on the parenting payment would lose 10 per cent of their real disposable income by 2016-17.

A single person on three times the average wage would lose just 1 per cent of his or her disposable income, they found.

An analysis of the budget by the National Centre for Social and Economic Modelling, commissioned by the ALP,  found the poorest 20 per cent of families will lose, on aggregate, $2.9 billion over four years due to the budget changes, while the wealthiest 20 per cent were down only $1.78 billion.

with Latika Bourke and AAP

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264 comments

  • Just bring on a DD Abbott.

    Commenter
    Neweyboy
    Location
    Newcastle
    Date and time
    August 04, 2014, 6:55AM
    • Yes please....this would have to be the most incompetent and disgusting government Australia has ever had in its history...they do not deserve to be there and we do not deserve them being there...DD now......but of course the narcissistic Abbott wouldn't do it.

      Commenter
      JT
      Date and time
      August 04, 2014, 8:39AM
    • Many people might vote differently now the real lnp have shown their face. I am actually shocked at the nastiness of them, even after Newman.

      Commenter
      ab
      Date and time
      August 04, 2014, 8:52AM
    • For Abbott & Hockey its all about the top 1% and those that donate to the liberal party.

      Changes to the copy right laws are proof the LNP only govern for their paying mates

      Well Im one of the 99% and Im in a marginal electorate

      Commenter
      Keshi
      Location
      Latrobe Marginal Electorate
      Date and time
      August 04, 2014, 8:53AM
    • There's about as much chance of a DD as there is of anyone in the LNP criticizing News Ltd pro LNP propaganda. But of course, when Fairfax publishes the truth as revealed and published by Treasury, all he can do is whinge.
      Hypocrisy like the "fairness" of the budget.
      Roll on 2016 when we we will be rid of the frauds following an election decimation

      Commenter
      Brendan
      Location
      Sydney
      Date and time
      August 04, 2014, 8:56AM
    • Of course it effects the lower income earners more. It is inevitable. They are the ones who get most of the benefits so of course they will be effected most when government tightens its belt. As they should.

      Commenter
      mh
      Location
      Brisbane
      Date and time
      August 04, 2014, 9:20AM
    • I expect that we will see an increasing number of refugee boats "getting through"

      Abbott needs a war and a war on refugees is a good place to start

      He will show us how tough you need to be to stop the boats. Gaoling children and sending them insane is a great way to show us how much of a Christian he is.

      Commenter
      Axis
      Date and time
      August 04, 2014, 9:21AM
    • It doesn’t matter if you don’t care about the poor or even if you have some ideological anger issues where you are mortally offended that there are some who receive handouts that they didn’t earn themselves – the bottom line is that economically we will all be worse off long term with policies that target the less well off, except for the very rich of course!

      Reasons for this include the economic reality that policies that reduce education (through the $40 billion less funding & forcing payment and interest charging for degrees) lead to a less educated population that is not as capable of taking up high end roles and less educated people cost more as they have more health, gambling, crime issues etc. Charging for doctors costs more cos some percentage of illness goes undiagnosed and the later stages of illnesses are very expensive to treat. Taking away the discretionary income of the less well-off hurts all business as if they have nothing left to spend less money flows in the economy.

      It’s one thing that Abbott & Hockey are targeting the poor, but super dumb that they ignore economic history where investment in education and health are vital in growing the entire country. And there are NO examples of countries getting richer by reducing health or education.

      Commenter
      QED
      Date and time
      August 04, 2014, 9:26AM
    • mh, the Government only needs to tighten its belt because their big business backers want to contribute less to the revenue side of the budget. We do not want or need ever greater inequality of wealth in this country. We do not need to be America. Their pursuit of economy ahead of society has not been a spectacular success.

      Commenter
      jofek
      Date and time
      August 04, 2014, 9:37AM
    • ab.....yes the 'nastiness' of them is the trouble i feel.

      They have a tremendous ability to charm and lie to the public without blinking an eye it seems....

      They seem to know what a person with a conscience would do when running a gov, because they parrotted it all before the election to get elected...eg....we won't target the poor and the pensioners, we will not cut health and education, we will create more jobs, we will not reduce taxation on the rich, etc etc....

      And then when they have been elected on their word by the voters......they do a complete about face, .....and joe starts bleating about the 'entitled' and 'lifters' and 'leaners', and says 'i would like to cut more'....as abbott cuts and forces states to sell off public assets to get access to sovereign money(which i think is unconstitutional and illegal).......yes in my opinion the 'nastiness' of it is very disturbing....it disturbs me that we even have people like this existing in auss......

      Commenter
      Trevv
      Date and time
      August 04, 2014, 9:40AM

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Modeling reveals where the budget hurts  (Thumbnail) Modelling reveals where the budget hurts

Treasury modelling shows the lowest income earners are hit hardest by the budget but Liberal Senator Simon Birmingham disagrees.

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