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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, Treasurer Joe Hockey

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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