Wednesday, November 27, 2013

Election well over, now for the truth

For three years Tony Abbott and company told us all our political problems were caused by Labor, and if only we elected the Coalition our problems would be no more. For three years Labor told us the budget would be back to ever-growing surpluses in next to no time.

And for six years - which coincided with our biggest boom since the Gold Rush - both sides of politics told us Australian families were having terrible trouble coping with the rising cost of living.

They encouraged us to feel sorry for ourselves, accepted the blame for the heavy burdens we were labouring under, and implied they could do more to help.

What they didn't tell us was the truth: that for most of us, wages and pensions were rising faster than the cost of living - meaning our standard of living has actually been improving - but that this was due partly to the resources boom, which couldn't last, and partly to the government doing more for us in the budget than it could afford to go on doing unless we were prepared to pay a lot more tax.

In the recent election campaign both sides promised a much enhanced scheme to help the disabled and significantly increased funding for schools. To these Abbott added more generous paid parental leave, abolition of the mining tax and abolition of the carbon tax.

What they didn't tell us was that, when you go out beyond the next four years, they had no way of paying for their promises on top of all their existing commitments, which will get ever-more expensive.

So the stories we're hearing now of the federal and state governments' longer-term budget problems must be coming as an unpleasant surprise to a lot of people.

First we had a Productivity Commission report reminding us that increased spending on age pensions, age care and healthcare (for everyone, not just the increasing proportion of old people) - not to mention the cost of superannuation tax concessions - would put growing pressure on the budget, and do so at a time when a smaller proportion of the population was working and paying income tax.

The commission recommended that the age pension age be phased up to 70 and that old people who own their homes be required to borrow against them to help cover the cost of their aged care.

Then we had a report from Melbourne's Grattan Institute estimating that the combined federal and state government budget deficit is likely to grow to $60 billion a year over the coming 10 years.

The institute provided a menu of tax increases for the politicians to pick from: broadening the goods and services tax to cover food and private spending on health and education, removing the tax-free threshold for payroll tax, getting rid of the health insurance tax rebate, restoring the indexation of petrol excise, making the family home subject to capital gains tax, eliminating the 50 per cent discount on the gains tax, or getting rid of negative gearing.

On the spending side, the pollies could cut spending on transport infrastructure, halve industry support, increase university HECS fees, greatly increase school class sizes, cut defence spending or make savings on healthcare.

But Grattan zeroed in on retirement income support. It's already planned to phase up the age pension age to 67 by 2023, but the institute proposes lifting it to 70 by 2025. It's already planned to lift the minimum age for access to superannuation from 55 to 60 in 2024, but the institute proposes lifting it to 70 by 2035. These two measures would save about $12 billion a year.

It suggests including the family home in the assets test for the age pension (saving about $7 billion a year) and reducing the tax concession on super contributions for higher income-earners (saving $6 billion).

This story that the budget will come under pressure is nothing new. We've already had it from three reports prepared by Treasury, from previous Productivity Commission reports and many others.

So let me ask you: What sort of conclusions and recommendations do you expect the Abbott government's commission of audit to come up with? My guess is, not very different to what we've been hearing - though, since it has been contracted out to the Business Council, it may go out of its way to direct the pain away from big business and the well-off.

Since we have to make a lot of tough choices if we're to avoid the North Atlantic economies' record of racking up ever-growing budget deficits and debt for decade after decade, I think pushing back the retirement age makes a lot of sense - more sense than many of the other items on the list.

The already retired and all those not far off retirement wouldn't be affected. But the notion that, despite ever-greater longevity, better health and less physical work, we should remain free in perpetuity to live in taxpayer-funded retirement for 30 years or more is insupportable.

For at least the past six years self-centredness has reigned supreme, with everyone - from big business to alleged battlers - demanding the government do more for them, but insisting others pay for any improvements.

It can't go on. Let's hope Tony's got the ticker to turn things around - and do it fairly.