Thursday, May 14, 2015

The budget

Federal Treasurer Joe Hockey handed down his second budget for the Abbott Government on Tuesday night at Parliament House in Canberra.

The deficit is predicted to shrink from $48 billion in 2014/15 to $35.1 billion next year, and is expected to be down to $7 billion in three years' time.

The big winners were small business owners and parents with hefty childcare bills, while those on the paid parental leave scheme, people on working holidays and foreign aid lost out.

Jobs and small businesses

The Federal Government will be delivering $5.5 billion in its jobs and small businesses package to aid growth in the economy as well as employment. There is an immediate tax deduction for items valued up to $20,000 and businesses with an annual turnover of less than $2 million will get a tax cut from 30 per cent to 28.5 per cent.


Parents will get more than $10 billion a year from taxpayers to help them pay their childcare fees once new subsidies start. The federal government will spend an extra $3.2 billion on childcare subsidies over the next four years. This is on top of the $7 billion a year - and rising - existing price tag for subsidising fees.

Paid parental leave

With this lifeline for childcare, Mr Hockey also put an end to 'double dipping' for parents who benefit from the paid parental leave scheme to prevent them from receiving payments from both the government and their employer. In a bid to save $968 million over the next four years, from July 2016 the government will restrict access to the scheme.


In a bid to get back more than $1 billion, the government will be cracking down on welfare cheats. The Department of Human Services will get added powers to detect fraud and recover debt. The six-month wait for the unemployed to access the dole in last year's budget has now been reduced to a month, while parents who do not vaccinate their children will not be eligible for benefits.

Combating terrorism

The growing threat from terrorism, home-grown extremism and war in the Middle East has prompted to the federal government to outlay $1.2 billion in new funding for national security. The new money comes on top of $1 billion outlined in the mid-year fiscal review, and is part of a total of $35 billion in the 2015-16 budget for defence, national security and law enforcement.

Foreign aid

Foreign aid has been slashed by $1 billion to $4 billion in this year's Budget. Indonesia has suffered a 40 per cent loss in aid from Australia, while Papua New Guinea saw a five per cent drop in its benefits and Nepal's aid was slashed from $26.8 million to $33.9 million. Cambodia's chunk of assistance has been safeguarded at $79 million, which includes part of a refugee resettlement deal.


A $1.6 billion funding boost for medicines on the Pharmaceutical Benefits Scheme has been delivered. The five-year increase will go towards will go towards giving 1,000 people subsidised access to expensive melanoma treatment, which cost up to $131,000.


From January 1, 2017, the asset-free area for pensioners will increase, which means 170,000 pensioners with moderate assets will receive a full or increased pension. This will come with an increase in the the asset test taper rate from $1.50 to $3. In other words, for every $1,000 of assets over the asset-free threshold, the pension rate will reduce by $3 a fortnight.


The controversial proposal of deregulating university fees was not revisited in this year's Budget. But now the government plans on collecting from those who live overseas and owe tens of thousands of dollars in HECS or HELP debts. Currently, Australians living and working overseas - who could be working as high-flying investment bankers or financial brokers - do not have to repay their fees.


A further $70 million will be provided to drought-stricken farmers on top of a $333 million package announced last weekend. This money will deliver much-needed money back into the pockets of primary producers for depreciation of water facilities, fodder storage and fencing.


Comments on the budget

Waving the white flag

In Budget 2015, the government has waved the white flag on attempts to reduce the size of the state. It has given in to the vested interests calling for your tax dollars.

The budget is littered with references to the fairness of paying more tax, and hands out government largesse to the middle class. It is little wonder that government spending is at almost record high levels. Excluding the 2009-10 budget at the height of the GFC, government spending as a percentage of GDP is at its highest level since the recession in the early nineties. Net debt will exceed $300 billion inside two years and gross debt will now peak at nearly $600 billion -- and that’s if we are lucky.

The government’s so-called credible path to surplus is built on artificial assumptions of a return of economic good times and rising tax revenue through bracket creep. Spending remains far above the level of the Howard government. It is even above the level of the Gillard / Rudd governments. It is disappointing that those in charge no longer believe in the benefits of small government.

Surrender to the forces of tax and spend

The main disappointment of this budget is not so much the persistence of large deficits (though that is a worry), but the government’s surrender to the forces of tax and spend. To the extent the gradual pathway back to a balanced budget is credible, it is only because of a heavy reliance on personal income tax bracket creep.

Astonishingly, personal income tax revenue is projected to grow on average by 7.5% a year over the five years to 2018/19 – a cumulative increase of 44% when average wages would have risen by 15 - 20%. There is no commitment in this budget to do anything to relieve bracket creep either now or in the future. Total revenue as a percentage of GDP is projected to return to pre-GFC levels, but in those days that level of revenue was generating sizable budget surpluses.

What has changed is that spending will be much higher than in pre-GFC days. The upsurge in spending under the Rudd government is not being wound back. The budget fine print admits as much, speaking of “the need to do more to bring spending down over the medium term”. Yes indeed, otherwise the path Australia will be on will not be towards a sustainable surplus, of which the government boasts, but towards permanently bigger government.

Cue back in the rack

After last year’s political difficulties with the Medicare Co-Payment, Budget 2015 has shown that the Abbott Government has put the cue in the rack when it comes to structural health reform.

This is a missed opportunity, given the release of the Fourth Intergenerational Report early this year, which again showed how formidable are the long-term financial challenges facing Medicare in an ageing Australia.

The IGR is meant to set the stage for national debate about health reform, but the government appears to have preferred to put last year’s bruising encounter with the AMA behind it and revert to the Howard Government’s strategy of trying to be “Medicare’s Best Friend”.

Instead, health ‘reform’ seems to have been outsourced, under the guise of a more consultative process, via Medicare Benefits Schedule Review Taskforce. The government says it wants to work “hand-in-hand” with the Medical profession to address waste and improve efficiency. I fear that given the political muscle the Australian Medical Association (AMA) has flexed since the 2014 Budget, this will end up meaning “hand-in-glove” with the government forced to take whatever the AMA proscribes.

Those interested in genuine reform need to take up the Business Council of Australia’s constructive call for changes to the health system to be discussed outside the context of the budget deficits and debt. We need to change the conversation and talk instead about innovations in the health system that can lower the cost and improve the quality of health care, even if these ideas challenge the Medicare Sacred Cow.

Innovations that have been flagged such as greater involvement of private health funds in primary care, risk-rating private insurance premiums for unhealthy behaviours, and better use of patient outcome data all need greater thought and discussion.’

The CIS Health and Ageing Program has proposed a national system of opt-out, superannuation-style health savings accounts to reduce the fiscal pressures on Medicare, and has repeatedly called for greater use of competition and private provision of public hospital services to improve the affordability of the health system.

Low key budget caps low key year for schools policy

This is a low key budget for schools that caps off a low key year in federal policy for schools. That is not to say nothing has been achieved, just that it has largely been smooth sailing.

There are no big surprises in the schools budget. With the exception of a new $5m ‘parental awareness’ campaign, the key additional spending measures have previously been announced — funding for the Australian Institute of Teaching and School Leadership (AITSL) to implement the findings of the teacher education review, extra subsidies for remote indigenous students to attend boarding schools, and a nationally consistent approach to funding for students with disabilities.

Recurrent funding to government and non-government schools will increase in line with expectations in the next two years. Recurrent funding beyond 2018 is still putatively linked to CPI but this is likely just to be a placeholder while a new model is developed.

Various other existing programs will continue, including funding to support Independent Public Schools, the school chaplains program, and Teach for Australia, and there has been some streamlining in the departmental structure that will generate over $130m in savings. The government has cemented its position on NAPLAN and My School, with some additional funding to implement changes flagged earlier this year.

The good, the bad and the ugly

This is a timid budget from a government that is hostage to a hostile Senate, with no clear commitment to much needed productivity-enhancing reforms. Yet there are some good measures, especially for small business.

The good is the $5.5bn tax relief for small business -- a timely incentive to spur investment and hopefully job creation in an important section of our economy. By the same token, infrastructure credit lines for constructions of ports, pipelines, electricity and water infrastructure are also an excellent measure to lift Australia’s production capacity.

The bad is a differential tax preference for small and big business, which is contrary to the liberal principal of equality before the law. Companies should have an incentive to grow. Yet in Australia there are still too many regulations that penalise a successful enterprise. For instance, whereas a company with 14 employees is exempt from providing redundancy pay, a company with 16 employees is not.

The ugly is seen in several places: the overregulated childcare system; the unsustainable age pension path; the byzantine industrial relation laws; the inefficient tax system… and the list goes on. In particular, nothing was done to enhance the competition laws and institutions in light to the recent recommendations of Harper’s Review.

Australia cannot rely on pushing its lucky country status beyond reasonable limits. After more than two decades of uninterrupted growth, we need to take on clever productivity-enhancing policies to become the guides of our destinies.

Means-tested PPL: An end to `double dipping’

Budget 2015 proposes to do what the Rudd government should have done in 2011: Means test taxpayer funded Paid Parental Leave (PPL).

In a move that is estimated to save $967.7 million over four years, from July 1 2016 the full PPL payment will be paid only to those who do not have private PPL workplace entitlements, and partial payments will go to those whose employer’s PPL conditions are less generous than 18 weeks of the minimum wage ($11,500). According to the government, 34,000 parents will lose access to the payment and 45,000 will receive partial PPL payments.

Restricting PPL in this way is a blunt form of means testing, as higher income parents are those most likely to have access to more generous PPL workplace entitlements. This is in contrast to current policy where parents with incomes up to $150,000 can pocket the $11,500 from the taxpayer on top of their workplace entitlement (`double dipping’).

As payment is not conditional on extending the parental leave period beyond that offered by their employer, PPL payments do more to supplement incomes than to increase the time parents spend with their newborns.

While a step in the right direction, it is unlikely to provide the $1 billion in savings the government is hoping for. It is more likely the employers of the 45,000 parents with less generous PPL workplace entitlements will cease to offer PPL and shift the cost onto the taxpayer.

Not much good to come from new spending

This Budget heralded reforms to childcare that are huge in terms of the architecture of the payments. The two main subsidies become one Child Care Subsidy and are supplemented by a Child Care Safety Net, all set to cost $10 billion in the first year they are implemented, 2017-18.

I have to hand it to the government... even I thought that spending wouldn’t hit the $10 billion mark until the end of the forward estimates period. This is compared to 2015-16 spending estimated to be $7.2 billion.

The sad truth is there’s not much good to come out of all this new spending. Households earning up to $65,000 receive their childcare subsidised at a rate of 80%. This tapers until the combined income reaches around $170,000, where the subsidy is 50%. Incomes of more than $185,000 are subject to a cap of $10,000 per child -- an increase in the current cap of $7,500. Households below that figure will have no cap whatsoever on the fees they can have subsidised. Prices are benchmarked to ensure taxpayers aren’t subsidising a luxury service. But a benchmark of $115 a day when the policy is implemented, is too high and provides no incentive for services to keep a lid on fees.

Other than the no-brainer of combining the subsidies, the only other good part of this new childcare program is a new activity test. As I described in my report, Complex Family Payments, the previous activity test for both subsidies was wide enough to drive a truck through. Now, unless both parents meet an activity test of eight hours a fortnight, there will be no subsidies. Families with a combined income below $65,000 will be able to access the Child Care Safety Net to ensure their children have access to childcare for child development purposes. Income support recipients also benefit from the Additional Child Care Subsidy.

How is this to be funded? There are three main options. The favoured one is through cuts to Paid Parental Leave in this year’s budget, and last year’s cuts to Family Tax Benefit Part B, but the Prime Minister has also said he’s open to other commensurate savings. But there will be no net improvement to the budget bottom line The worst case scenario is that no cuts are to be found, and the government will bow to political pressure to pass the new program anyway. Then we can all look forward to a massive injection of funding into a rapidly-growing area of spending for no benefit, simply because the government doesn’t want to pick a fight with vested interests.

Preventive health offers gleam of good news

The $600 million going to improved cancer screening programs in the new health budget will be money well spent -- a refreshing change of pace from the previous government’s preventive health spending. The cervical cancer screening program that some media outlets have billed as 'new' is not new, exactly... merely an update to bring the existing program in line with new technologies and expert recommendations. Likewise, the 'new' expansions to the National Bowel Cancer Screening program have been long planned.

Still, these programs will save lives, and that’s more than could be said for anything done by the Australian National Preventive Health Agency (ANPHA), the Gillard government creation which in this budget will finally be zeroed out and its responsibilities formally handed over to other agencies.

The highlight of the cancer screening package is the National Cancer Screening Register, which will allow patients to keep track of whether their screenings are up to date. A little spending now, to create this very useful database, will yield long-term benefits.


9 million homes with 2.6 occupants - this is the Australian housing market

Housing affordability is a major concern for many Australians.

Negative gearing, foreign investment and immigration are just some of the factors identified as pushing house prices beyond the reach of younger people in particular.

That's despite interest rates being at historically low levels, banks being willing to lend more than in the past, and a higher number of two-income households.  So, what are the facts about housing in Australia?


There are approximately 9,000,000 dwellings in Australia. The 2011 Census found that 67 per cent of households own their home or are purchasing it through a mortgage - most of the rest are renters. That home ownership figure was 1.1 percentage points lower than the 2006 Census. Tasmania has the highest home-ownership rate at 70 per cent, and the Northern Territory the lowest at 46 per cent.


The proportion of home ownership has been fairly stable for more than fifty years, after rising from 53 per cent in 1947 to 63 per cent in 1954 and hitting 70 per cent in 1961.


The level of home ownership increases with age: for those aged 15 to 24 only 22 per cent own or are buying a home, while 75 per cent rent. It's pretty much 50-50 between 25 and 34, and by the age of 75 close to 85 per cent of people own their home outright, less than 3 per cent have a mortgage and less than 10 per cent are renting.


One way to assess housing prices over time is to compare them to income. In 1981-82 the median after tax household income was around $15,000 while the median dwelling price was $48,000. That works out as a price-to-income ratio of close to three, or in other words in 1981-82 it took a little over three years' take-home pay to buy a house. Nationally that ratio has now passed six, or more than twice as much, and in places like Sydney it went above nine during the property boom of the early 2000s.


A measure of housing affordability is the per cent of income spent on housing. In March 2015, an average of 31.5 per cent of income was spent on home loan repayments, while renters paid an average of 24.8 per cent of their income.


While our homes are getting more expensive, they are also getting bigger. New homes in Australia are bigger on average than anywhere else in the world at 245 square metres for new freestanding homes and 215 square metres for new homes overall - up around ten per cent in a decade.


We have more spare rooms; in 1976 there were 3.1 people per household in Australia, that has since fallen to around 2.6, yet the average number of bedrooms per dwelling has risen in that time from 2.8 to 3.1.


Sydney has the hottest property market in Australia. In the year to December 2014 prices in Sydney shot up 12.2 per cent. The next largest increase was Brisbane's 5.3 per cent, followed by Melbourne's 4.5 per cent. All other capitals had growth of 2.5 per cent or less. The average price of residential dwellings across Australia was $571,500 at the end of 2014.


While in dollar terms people with mortgages spend the most per week on housing at around $408, that represents only 18 per cent of their income. Renters spend an average of $275 but that's a higher proportion of their income at 20 per cent.


Owners like free-standing homes. Of owner-occupied households, 88 per cent live in separate houses, compared with 57 per cent of renters.


Three-quarters of Australia's almost $2 trillion in household debt is borrowing for housing. In 1990 housing represented only 47 per cent of household debt.


Less than 3 per cent of Australian households have investment loan debt, compared to around one third of households with home loan debt, and 12 per cent with debt over property other than their home.


More than 100,000 Australians are regarded as homeless.  On Census night 2011, 6,813 were sleeping out in tents or improvised dwellings, 17,721 homeless people were in boarding houses and a similar number, 17,369, were staying at someone else's home temporarily.

Fifty-six per cent of homeless people are males; 44 per cent are females. Sixty per cent of homeless people are aged under 35, and one quarter are Indigenous Australians.


The treacherously abandoned people of West New Guinea

Formerly Dutch New Guinea, now Irian Jaya

There is a small group of Islands a little to the east and south of PN-G where cannibals live happily shrinking heads and practising voodoo. They love life, respect death and deal with natural catastrophes as they have done for thousands of years.

They eat well, breeding goats, pigs and fowl and grow an array of vegetables to supplement an abundance of seafood, paw paws and coconuts.

I had occasion to spend some time with them while conducting search and rescue missions in the area. Their culinary skills surpass that of any urban restaurateur.

There is no finer example of the human race than an indigenous native unaffected by modern values. Kids flash brilliantly white teeth, women’s black hair glistens in the sun, yet there is no fluoride added to their water, no shampoos or hair conditioners, just coconut soap and charcoal.

West-Papuan natives lived a similar idyllic lifestyle... that is until men from other lands, as far away as Britain, discovered copper, gold and gas below their gardens and made friends with Indonesia, supplying it with arms to kill hundreds of thousands of those who wanted to keep their land and develop a proud nation from their mineral wealth.

But mere natives could not be afforded such a luxury, so West Papua became a lawless Indonesian killing field without any international penalty or oversight.

Britain and the US could not be seen to be conducting the genocide of a potential nation of people, nor could Australia, who also had a dirty finger in the minerals pie.

Mines have poisoned rivers and moon-scaped vast areas of West Papuans’ homelands. (pictured is West Papua’s Grasberg mine, one of the world’s largest gold mines). No compensation to the natives... only billions in payola going into the Indonesian Government’s coffers. Natives’ complaints are simply silenced with a hail of bullets.

UK PM, David Cameron, when visiting Indonesia in 2012, said, “Indonesia has transformed itself in the past decade into one of the world’s most important democracies, with a free media and elections. The military no longer plays a role in politics, but fulfils its proper role defending the country from external attack.” What a load of British bullshit uttered on behalf of the massive British Petroleum company!

There is no more brutal a military than Indonesia’s when allowed to occupy a region and routinely slaughter natives who have merely demanded a right to self-determination. Yet the West fawns over so-called “progress” made by the world’s “foremost emerging democracy”.

When the Suharto dictatorship fell 17 years ago, Britain’s Labour Party discarded its arms embargo and allowed British-built aircraft to be used to slaughter the people of East Timor from the air.

Other arms companies then began trading with Indonesia for the first time in more than a decade once they realised the extent of the area’s mineral wealth.

With the Timorese invasion eventually having been settled in favour of Timor’s sovereignty, the Indonesian militia kept their guns trained on West Papua. They remain there, raping, torturing and killing hundreds of thousands of innocents with complete impunity.

Australian-supplied helicopters were used to kill 5,000 highland natives with no more than bows and arrows for protection, yet no reports surface because no journalists are permitted entry to West Papua.

According to the World Bank, West Papua’s regional GDP is 50% higher than the national average while the people living there are among the poorest in all Oceania.

The Bali two will be forgotten by week’s end with Australia returning to its craven support of this decadent Islamic nation, gifting it hundreds of millions in unneeded aid... aid that was spent on building the very madrassas that schooled and trained the Bali bombers.

Contrary to what Abbott believes, Indonesia is no threat to Australia, neither in a military nor a trade sense. Indonesia has no middle class economy, only the very corrupt rich and the very indigent poor who have no bridge to improvement.

Indonesia maintains only loose trade alliances with its neighbours via ASEAN and no ability to deploy a meaningful military force from 18,000 disparate islands. The corrupt rich of Islamic nations will never fight and the poor neither know how to nor do they want to.

It’s hard to trust the sincerity of Tony Abbott’s Aboriginal conscience when he openly supports the genocide of another indigenous people who are nearby and equally linked to their lands.

All trust in Labor died with Whitlam and the Balibo five.

Australians with a conscience should be concerned that this genocide of a beautiful people continues.  ... but they should be horrified that Australia is openly supporting it.


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