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Trust is the biggest casualty of the budget

By Bruce Duncan CSsR

Australian Budget 2014The Abbott government has deeply shocked many Australians for the cavalier way it reneged on its many promises not to cut welfare and other programs, and not to increase taxes.

People presumed that Mr Abbott was a man of his word. Mr Hockey and Abbott simply junked their promises, which they had endlessly repeated, and talked away as if their broken promises were of no consequence.  They appear astonishingly deaf to the damage they have done to their own credibility. Why should the electorate believe anything they say in the future?

The budget strategy looks very cynical in hindsight. Mr Abbott strenuously reasserted his promises on scores of occasions. Given that the prime minister had ceaselessly lampooned the Gillard government for breaking its promise not to introduce a carbon tax, Abbott’s breach of promises looks doubly troubling. Pragmatism rules supreme; whatever it takes, it seems.

The government hopes that the shocked electorate will overlook this breach of promise as Coalition leaders insist that rescuing the economy was their prime duty. The Labor government with its emergency spending saved Australia from the worst impacts of the financial crisis, and the Commonwealth finances need to be restored over time. However the Coalition’s budget concentrated on cutting spending while ignoring the decline in revenue.

The problem is two-fold. First, it is apparent that the supposed economic crisis is not as dire as the government made out in its panicky rhetoric. The difficulty stemmed from a fall in government revenue from 26 per cent to 23 per cent of gross domestic product over a decade, while spending dropped only from 25 per cent to 24 per cent. The main reason for the fall in revenue was the tax concessions under Howard and Labor governments, mainly to the more wealthy in the community. In the last seven years, tax cuts amounted to $169 billion, with 42 per cent of that going to the top 10 per cent of income earners, more than the entire bottom 80 per cent received.

Hon Tony AbbottSecondly, the budget measures fall most heavily on poorer and more vulnerable groups, the sick, aged and disabled, while richer groups escape largely unscathed. As Jennifer Westacott, chief executive of the Business Council of Australia noted, the unemployed are particularly hard hit, people aged 25 to 30 being able to access Newstart for only six months each year, and being required to work for the dole at least 25 hours a week.  Unemployed people aged under 25 will be on the Youth Allowance “Other” payment which is $45 less than Newstart.

The biggest budget savings come from some of the poorest people in the world, with our overseas aid being cut about $7.6 billion over four years. Aid is to be frozen at $5 billion a year for two years, with no adjustment for inflation. The government has abandoned Australia’s pledge under the Millennium Development Goals to increase aid to 0.5% of gross national income, which itself was well short of the UN target of 0.7%. Yet Australia is planning to spend $8.3 billion over four years on detention centres offshore and in Australia.

Australia’s intervention in the Solomon Islands to rescue a failing state cost Australia more than $2.6 billion over a decade. Yet we are bordered by various fragile states, not least Papua New Guinea, where our aid is vital to secure their stability and prosperity. In these circumstances, it is very short-sighted to make such heavy cuts to overseas aid.

As a face-saving measure to appear more equitable, the budget put a levy of 2 per cent for three years on people with taxable incomes in excess of $180,000. People on taxable incomes of $200,000 would pay an extra $400 a year, while those on $350,000 would pay an extra $3,400. Even this meagre impost on the rich met with squeals of protest. Such protests would not pass the laugh test. Most Australians can only dream of such high incomes.

The taxation system is complex and some of the richest people evade paying their fair share. The Age economics editor, Peter Martin, pointed out on 13 May that in 2011-12 some 75 Australians with average incomes of $2.6 million paid no tax. They cut their combined income to $82. Some 1095 others earning more than $150,000 also paid no tax, though half of them paid on average nearly $225,000 for tax advice.

Tom Allard wrote in the Age on 3 May that ending excessive tax concessions to high income groups would readily fix the Commonwealth deficit. He argued that government borrowing guarantees to the big four banks give them huge financial advantages. To adjust for this, a 0.2% levy on bank assets above $100 billion would net tax of $11 billion over four years. In addition, fairer taxation of superannuation could net $12 billion, as could ending income splitting in discretionary trusts. Abolishing the capital gains tax discount introduced by the Howard government could bring the government revenue of $20 billion over four years, and ending negative gearing could add another $16 billion.

One could be forgiven for thinking that the Australian coat of armsgovernment is driven by a neoliberal agenda, as also indicated in the Commission of Audit report, attempting to reduce wages and incomes for lower income groups, privatise as many assets as it can, minimise regulation in business and particularly finance, cut taxes, including the mining and carbon taxes, and reduce government expenditure on services. Driven by this philosophy of small government, the government plans to axe 16,000 public servants, and place its faith in private enterprise and free-market mechanisms.

It is no surprise that the government has broken its promises not to cut funding to the ABC and SBS. Another particular target for the government is the effort to promote clean energy and moderate global warming. Future generations will undoubtedly look back at this unwinding of policies to avert climate change with bewilderment and possibly outrage.

The government appeared much too clever in cutting off $80 billion of funds to the States for education and health in the decade from 2018, thus trying to wedge the states into calling for increases to the GST. Such imperious behaviour has unsurprisingly infuriated the States.

Mr Abbott has called for “adult” policies in Australia. Yet his relentless negativity before the election and his provocative treatment even of the State premiers do not augur well for a sensible debate about securing fairer tax policies.

One might wonder how this harsh budget sits with Mr Abbott’s understanding of Catholic social thought, including that of his earlier exemplar, B A Santamaria, who would be very surprised at the budget’s unfairness. And what do members of the government make of Pope Francis among many others calling for governments to remedy growing inequalities between and within countries?

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• Fr Bruce Duncan CSsR is one of the founders of the advocacy group, Social Policy Connections, and Director of the new Yarra Institute for Religion and Social Policy, based at Yarra Theological Union in Melbourne.

Calculator photo:Flikr; CSIS PONI