View from The Hill

Gillard backflip on disability levy would come at political cost

Swan today will say the budget will put in place measures to permanently improve the bottom line. AAP/Lukas Coch

The levy being planned by the government to part pay for the national disability insurance scheme is not in itself a bad option.

It wasn’t the preferred choice of the Productivity Commission, which thought it less efficient than funding out of consolidated revenue.

But if the community wants desirable and costly plans – and this is both – they must be financed by spending cuts or higher taxes, and the government needs some of each in its difficult budget circumstances.

There is, however, a political problem with this particular levy (which would take the form of an addition to the Medicare one).

Gillard has previously flatly ruled it out.

The idea came up at a Lodge dinner she had with premiers last July. Federal Labor’s bete noire, Queensland premier Campbell Newman, floated it, but Gillard was adamant.

“We will make the appropriate [funding] arrangements out of the Commonwealth’s budget without a new income tax”, she said publicly.

Newman tweeted at the time, “PM did fail to seize unique opportunity to fully fund NDIS on Tuesday night with support of ALL premiers. I am still asking why!!??”.

In view of what is now being canvassed, why indeed? Presumably one reason was because the government still believed it could get back to surplus, difficult as that was already starting to seem.

Perhaps Gillard should have been more circumspect in December, when she said, “I have in the past ruled out a levy and I will do it again now”. Later that month the surplus commitment was dumped.

That was then. Yesterday Finance Minister Penny Wong said the government was considering “a number of funding options” and “obviously a levy is something stakeholders have been calling for and have been calling for in the last 24 hours”.

Even if a levy won public support – the NDIS is very popular - the backflip would feed into the Opposition’s storyline that Gillard’s word can’t be trusted. A “broken promise” on another tax would be an unfortunate bookend to the broken promise on the carbon tax.

The levy debate, however, is also raising doubts about how a Coalition government would handle the hugely expensive NDIS, to which it has also committed.

Tony Abbott has always been a stronger supporter than shadow treasurer Joe Hockey, who has worried about the cost. Asked yesterday whether the scheme was still affordable, Hockey said, “Well, it depends on what the state of the budget is”.

Abbott said: “we will fund the national disability insurance scheme over the long run by building a strong economy.” Asked whether the Coalition was still completely committed to delivering the NDIS in the same time frame that the government had put forward, he parried the question. The Opposition appears to be leaving itself wriggle room on timing.

Abbott will have the choice of accepting a levy to help the Opposition’s bottom line or opposing it and saying he’d make room for the NDIS by savings, or if necessary would string out its implementation.

On the ABC last night former treasurer Peter Costello, with the luxury of not being a politician seeking votes, gave both sides a lecture. The proposed big spending on Gonski and the NDIS should not be undertaken in the present budgetary situation, he said, and also made it clear that neither should Abbott be pursuing his very generous paid parental leave scheme or the Coalition’s costly direct action climate plan.

“The easiest cut you will make is the stuff you never go into,” Costello observed.

Treasurer Wayne Swan today will continue to hammer home the pre-budget message that the government is on the fiscal warpath.

He will tell a CEDA function: “In this budget, we’ll announce further measures to build on the very substantial structural savings we’ve already put in place to address long-term fiscal pressures by permanently improving the bottom line”.

He will say the government’s expenditure as a percentage of the economy over the forward estimates is set to come in at less than the average of the 30 years prior to the Labor government.

Swan says that Costello got $334 billon revenue windfall but failed to invest in the nation’s future. “I’ve copped $160 billion in revenue downgrades”. The Coalition had left an “unsustainable” surplus.

Swan will also put pressure on Abbott to spell out his plans in his budget reply, which he makes on May 16.

“He will know the full extent of the revenue write downs which add to his $70 billion budget crater to give him his starting point.

"Australians rightly expect Mr Abbott to outline the alternate choices he would make to return the budget to surplus while he funds his promises”.

Swan admits he has “lost some political paint” from saying the budget would remain in deficit longer than previously forecast. “But I’m happy to wear it – because it’s the right decision to support jobs and growth”. He says that if the government had the same tax-to-GDP ratio in 2012-13 as the Howard government had in 2007-08 – equal to 23.7 % - its revenues in that year alone would be about $34 billion higher.

“So if our level of tax receipts was as high as Howard and Costello had, we would have a budget surplus in 2012-13”.