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Joe Hockey to stifle spending and taxes in May budget

Warning signs: Joe Hockey speaks about challenges to the budget on Wednesday night at a Spectator Magazine function in Sydney.

Warning signs: Joe Hockey speaks about challenges to the budget on Wednesday night at a Spectator Magazine function in Sydney. Photo: Louise Kennerley

ANALYSIS

Faced with a choice between ramping up tax or bearing down on spending, Joe Hockey has opted to stifle spending.

His target is unprecedented - to limit annual spending growth of 1.75 per cent above inflation for a decade.

By way of comparison spending grew 7.6 per cent per year above inflation in the 1960s, 6.7 per cent above inflation in the 1970s, 3 per cent above in the 1980s, 4 per cent above in the 1990s and 4.4 per cent above in the 2000s.

In one year alone, 2017-18, the current projections have it growing 6 per cent above the rate of inflation. That’s when Labor’s long-term big spending promises on schools and disability care hit the budget.

Hockey didn’t say he would abandon Labor’s commitments in his speech on Wednesday night. He didn’t need to - the numbers said it for him.

The straitjacket is more severe than the 2 per cent target Labor adopted and proved incapable of meeting. Winding back growth in government spending is hard without targeting entire institutions and services - just about the only thing Labor stopped short of doing.

It wasn’t Hockey's only choice. The Commission of Audit made clear that another option would be to allow taxes to rise. It could be done without even pushing up rates. All that would be needed would be to leave rates where they were and allow a decade of bracket creep to push more ordinary Australians into higher tax brackets.

It recommended against that courseand the Treasurer has accepted that recommendation. So we are in for another decade of tax cuts at least sufficient to stop our tax burden from climbing.

It will happen as we watch what the government gives back continue to shrink. Hockey will stick by his election commitment to return the budget to a surplus of 1 per cent of GDP within a decade. He’ll get there by imposing means testsand co-payments and by cutting services. In the centre of his sights are pensions and the Pharmaceutical Benefits Scheme.

It’s just as well the economy has been looking up lately, although Tuesday’s inflation figures make that less certain. Take away government-related prices such as those for education, medicines and more heavily taxed tobacco and there was very little inflation in the first three months of the year. There would have been more if the economy was genuinely strong.

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143 comments

  • Compulsory super payments were begun in order to enable us to pay for most of our own retirement. These payments did not apply, fully, to most people who are now retired, but they should apply, fully, to future retirees. So why is the cost of the aged pension skyrocketing? Doesn't compulsory super work? Why not? Are the super companies ripping us all off? Are we not contributing enough? Why doesn't the government fix it?

    Commenter
    Bittersweet
    Date and time
    April 24, 2014, 7:18AM
    • The Howard government, of which Joe Hockey was a minister, massively raised the asset test for the pension, so that a couple can have more than $1 million dollars in super and other assets and still get a pension. They also removed any tax on superannuation income for over sixties.

      As a result pensions have continued to grow despite the growth in superannuation.

      Commenter
      SD
      Location
      Brisbane
      Date and time
      April 24, 2014, 7:52AM
    • My thoughts exactly. And why should we subsidise the private use of vehicles? Why should I subsidise the [rivate health cover of someone? Why should I subsidise the choice of a parent to send their child to a private school?
      How much space do I have and how much time have we got?

      Commenter
      Franky
      Location
      Sydney
      Date and time
      April 24, 2014, 8:14AM
    • The problem is people can take out a lump sum to spend on whatever they want. If compulsary super had to be converted in its entirity into a pension, then yes it would work as intended as there would be a reduced burden on the tax payers.

      Commenter
      Jane2
      Date and time
      April 24, 2014, 8:20AM
    • dodgy figures....it's my understanding that the super payout from gov coffers is more than the dole/D/pension and old age pension combined....got the table off a gov website a year ago...

      Commenter
      bruce
      Date and time
      April 24, 2014, 8:32AM
    • The Howard government stopped the Superannuation levy for workers at 9% as soon as they got into government instead of allowing it to grow to 15% by 2001 as originally legislated. This is another reason why we are in the mess we are in. He stopped it and allowed corporations to make massive profits during a time of prosperity while not forcing those corporations to provide for the future of our aging population. He also allowed tax free lump sums instead of super being taken as a pension. Super has become a rort and play thing for the rich to minimise tax, It is no longer designed to provide for retirement for the masses. You can thank the LNP for that.

      Commenter
      Shane in QLD
      Date and time
      April 24, 2014, 8:34AM
    • @Cranky
      Sadly 20% won't cut it.
      Multinationals wouldn't pay the 20% any more than they pay the 30%, they will just onshore the losses and offshore the profits.

      Russia has a 16% flat tax rate. Look how well that is working for them.

      Commenter
      Goresh
      Location
      Brisbane
      Date and time
      April 24, 2014, 8:44AM
    • @Bittersweet...I agree but the point is there was no safeguard put in place to protect your Super nest egg from the ravages of the stock market especially during the GFC where many self funded retirees who thought they were self sufficient lost significant amounts of money and now depend on the Government pension, full or part.

      Commenter
      Observer
      Date and time
      April 24, 2014, 8:46AM
    • Also @SD, people can get their super lump sum at 55 or 60 yrs old depending on the scheme.

      Spend the loot then grab the pension at 65yrs.

      You little beaudie!

      Commenter
      yep
      Date and time
      April 24, 2014, 9:02AM
    • The value of Super and many other assets definitely ARE assessable.

      Assessable assets include:

      - any cash or money you have in bank, building society or credit union accounts (including interest free accounts), interest bearing deposits, fixed deposits, bonds, debentures, shares, property trusts, friendly society bonds and managed investments
      - any assets you hold in superannuation and rollover funds if you are of Age Pension age
      - the value of any real estate, including holiday homes, you own (this does not include your principal home)
      the value of any businesses and farms, including goodwill (where goodwill is shown on the balance sheet)
      - the surrender value of life insurance policies
      - the value of gifts worth more than $10 000 in a single year or more than $30 000 in a five year period
      - the value of any loans (including interest-free loans) you have made to family trusts, members of the family, organisations
      - the value of any motor vehicles you own
      - the value of any boats and caravans you own which you do not use as a home
      - the value of your household contents and personal effects
      - the value of any collections you have for trading, investment or hobby purposes
      - the value of your entry contribution to a retirement village if it is less than the difference between the homeowners' and non-homeowners' assets limits
      some income stream products
      - the attributed value of a private trust or private company where you are a controller of that trust or company
      - the value of a life interest created by you or your partner, or upon the death of your partner

      We may also assess your granny flat interest or pre-paid funeral expenses if you have them.

      Commenter
      Pete
      Location
      Mel
      Date and time
      April 24, 2014, 9:07AM

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