States would have the power to levy income tax, all patients would pay a $15 fee to visit a doctor, everyone would pay more for medicines, and family payments would be slashed under a sweeping set of measures recommended by the Abbott government’s Commission of Audit.
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Treasurer Joe Hockey says structural reform must happen for Australia to maintain its quality of life. Nine News.
Pensioners would also be hit hard, with the benchmark payments gradually reduced over time to 28 per cent of average weekly earnings, eligibility for the pension tightened and part of the family home considered in an assets test as the pension age rises to 70 by 2050.
University students would pay more for their degrees and start paying back their loans sooner, while schools would become the sole responsibility of the states with the Commonwealth education department wound back.
Released by the government on Thursday afternoon, the commission's report warns of a nightmare “business as usual” scenario that would see 16 consecutive budget deficits handed down through to 2023-24. The commission's report details 86 at times radical recommendations to federal government.
The commission’s alternative “reform scenario” would slash Commonwealth spending in 15 key areas, would sell key assets and would abolish or wind back a slew of government agencies.
Further changes proposed by the Commission on Thursday in the first such audit since the Howard government’s 1996 review, include:
- Abolishing the annual minimum wage cases – though not the minimum wage itself – and setting a new benchmark of 44 per cent of average weekly earnings
- Requiring unemployed people between 22 and 30 to move to areas of higher employment after one year or surrender the dole
- Increasing the Medicare levy surchage to 3-3.5 per cent for high income earners without private health cover
The government says it's not the budget, but its Commission of Audit is recommending sweeping spending cuts.
- Introducing road tolls to reduce congestion and increase funds gathered from road users - a move that would hit transport companies hard
- Selling off federal assets including the Snowy-Hydro, the Australian Submarine Corporation, Defence Housing, Australian Rail Track Corporation, Australia Post, Medibank, the Royal Mint and the National Broadband Network over time
- Abolishing 35 government agencies, merging six and consolidating 57 others including the Climate Change Authority and Clean Energy Finance Corporation – both of which the government has already promised to shut – and the Export Finance and Insurance Corporation. The departments of Immigration and the Customs and Border Protection would be merged into one agency – Border Control Australia
- Abolishing Family Tax Benefit B – currently received by 60 per cent of families – and tightening the eligibility for Family Tax Benefit A
- Cutting industry assistance, including to car makers that are on their way out of Australia. Even the Prime Minister Tony Abbott's $16 million for chocolate maker Cadbury announced during the last election would be scrapped
- Cutting the government’s proposed paid parental leave scheme from a maximum payout of $50,000 to $28,730, depending on average weekly earnings. More money would then be allocated to childcare assistance
Canberra would be particularly hard hit if all the recommendations were implemented, with another 15,000 public servants to go, middle management bloat tackled, the Defence Materiel Organisation to be abolished and its functions rolled back into the Department of Defence and a requirement that total staffing at Canberra headquarters be rolled back to 1998 levels.
The Commission predicts savings from its recommendations would be modest in the early years before rising to $20-30 billion in 2017-18 and reaching $60 billion to $70 billion by 2023-24. It also estimates that lower interest rates could save the government an additional $15-20 billion annually within a decade.
The recommended changes are projected to put the budget back in the black by 2019-20 and on track to meet the Abbott government’s long-term goal of a 1 per cent surplus by 2023-24.
Under the business as usual scenario, the Commission projects spending as a share of GDP will reach 26.5 per cent by 2023-24 and net debt will rise to 17 per cent of GDP, or $440 billion.
“If a shock wave hits and we don’t have a buffer in place then it’s more likely that governments will have to cut back dramatically and more painfully,’’ the Commission warns.
Whereas with the reform scenario, spending cuts from 2014-15 through to 2023-24 would see Commonwealth net debt peak at 15.1 per cent in 2016-17 and then decline as government payments fall back to about 24 per cent of GDP.
Revenue is predicted to slowly return to longer term average of about 25 per cent, including taxation and other revenue, and the budget would reach its 1 per cent surplus target by 2023-24.
The Commission proposes the adoption of three fiscal rules: a tax-to-GDP cap of 24 per cent, a 1 per cent surplus by 2023-24 and a substantial reduction in net debt.
15 key areas recommended for cuts
The 15 keys areas recommended for cuts are the aged pension, Medicare benefits, hospitals, Pharmaceutical Benefits Scheme, National Disability Insurance Scheme, carers' payments, aged care, the Disability Support Pension, childcare and paid parental leave, family tax benefits, job seeker payments, school funding, higher education, defence and foreign aid.
Big changes would also be made to the health system with high-income earners obliged to take out private health insurance for basic health services in place of Medicare.
The expansion of private health insurance would at a minimum see singles earning over $88,000 and families earning over $176,000 obliged to take greater responsibility for their health care, including all Medicare and hospital services, through a two per cent increase in the Medicare levy surcharge which currently sits at the 1 - 1.5 per cent
The Commission's proposal to allow the states to collect income taxes represents a radical shake up that would require the Commonwealth to reduce its income tax take.
The end to the principle of ''horizontal fiscal equalistion'', which ensures all states can fund a similar level of services through a weighted distribution of the GST, is also proposed.
Victoria, NSW and Western Australia would be the big winners under the proposal that would see per capita paymentstopped up by the Commonwealth.
Against a backdrop of a sixth consecutive deficit, of $18.8 billion, in 2012-13, or 1.2 per cent of GDP, which is predicted to rise to $47 billion or 3 per cent of GDP in 2013-14, the Commission warns that Australia has “spent beyond our means for too long”.
Commonwealth payments of $409 billion in 2013-14, or 25.9 per cent of GDP, are projected to rise to $690 billion over the next 10 years.
Audit Commission chairman Tony Shepherd said: “If we don’t fix the budget, Australia will have little or no buffer to meet future economic and financial shocks … this will strengthen our fiscal position and give us the flexibility and reserves to future-proof our economy.”
Hockey refuses to rule out measures
Treasurer Joe Hockey welcomed the report and said the government simply could not continue to spend more than it raised.
“It is one important input to the government’s considerations for the upcoming budget. While the government will not be providing an immediate response to each recommendation, our response to the National Commission of Audit report will be our first budget 13 May,’’ he said.
The Commission forecasts much of the growth in spending that will occur in 15 key areas, which will account for 70 per cent of the total growth in spending over this period.
Mr Hockey refused to explicitly rule out any of the measures proposed in the audit commission report and said the forthcoming budget would be a “call to arms for the Australian people”.
"If you have the capacity to work, we don't just want you to work, we need you to work."
The Treasurer said proposals for the states to be given the power to raise income taxes and for a change to the GST distribution model were a matter for a coming federation white paper.
“There is no doubt that structurally from an economic perspective the federation is broken and it needs to be fixed,’’ he said.
Similarly, Mr Hockey declined to directly address the proposed changes to pension eligibility which would see the family home included in means testing but added “nothing will compromise our commitment not to change the age pension over the term of this government, first term of this government”.
Mr Hockey said the report proved the federal government had inherited a fiscal mess and promised the government would set about beginning a repair job in the coming budget.
"The fact is that unless structural reform is undertaken Australians will have a lesser quality of life in the future than they have today,’’ he said.
“I have no doubt that there'll be many issues that are highly contentious and somewhat difficult for various stakeholders and some in the community to accept. But there is an overwhelming challenge here and that is to ensure that the budget is structurally fit for the future.”
But Mr Hockey stressed the Audit Commission’s report “was not the budget” and admitted the adoption of some of the recommendations would be “courageous” while some were common sense.
“When you see our budget you'll understand that we are focussed on responding to the challenge in a measured and methodical way. We're not going to cherry pick a part of the report and say, ‘well that's it, it's all done, job over.’ the way the previous Government did with the Henry report,’’ he said.
And Mr Hockey hit back at suggestions the government was poised to break its pre-election promise not to introduce new taxes.
“All this talk about broken promises and so on, of course we are endeavouring to keep our promises and we will, but the bottom line is the Labor Party promised the budget would get back to surplus and it never will,’’ he said.