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Gillard widens the hunt for savings

Julia Gillard has said cost-cutting measures previously off the table, will now be looked at. AAP/Alan Porritt

Julia Gillard has thrown a heavy punch as the Government continues its pre-budget softening up process. But where the blow will land remains to be seen. Gillard described the budget’s revenue problem - a $12 billion hole in tax estimates since October – as “new news compared to six months ago”, indeed, even compared to three months ago.

So, she said, “I have expressly determined we need to have every reasonable option on the table to meet the needs of the times - even options previously taken off the table.”

The government needed “maximum flexibility” to deal with complex and rapidly changing events, she said in an address in Canberra.

This is made for a scare campaign and the opposition and commentators were quickly raising the spectre of more taxes on super, higher taxes or subsidy cuts for business, another assault on the baby bonus, even “taxes on the family home”. (Gillard did rule out putting the GST back on the table.)

Gillard’s message, however, was mixed. Her signature reforms of schools funding and the disability scheme would be protected.

The burden would be spread. “No one will be singled out”. The budget would not “cut to the bone”. New spending would be covered by savings.

Later government sources played down the language, saying it was a conventional cutting exercise, and ruled out super being revisited. But suggestions swirled that the government might bring in a special levy to pay for the disabilities scheme.

With the deficit debate in full swing, the government knows it has to focus on the important question of, in Gillard’s words, “how, and how fast to fill that significant fiscal gap”.

While the size and time span of the deficit is unknown, the government must outline a credible road back to surplus if it is to present a convincing economic story.

There used to be budget “leaks”; now there are “drops” and “framing”. Bad news is put out to give air on budget night for the good news. Or dire warnings can turn out to have been overstated, so there is relief. (Deloitte Access Economic’s Chris Richardson said the everything-on-the-table line was not necessarily as scary as it sounded.)

Whatever Gillard is talking about, it doesn’t seem helpful to encourage a lot of hyper speculation when the government already has problems galore. If it has in mind some particular nastiness, perhaps better to get it out now. If not, the language was not well chosen.

Gillard tried to meet the critics' most obvious charges about the government crying poor. Yes, despite the write down, revenue would still be up next financial year, she said. But population, health care costs and other things would also increase. “Revenue growth will be less than natural growth in key areas of expenditure”.

And to those who say the issue isn’t about less tax in but about spending, “of the advanced Western economies, only Switzerland spends a smaller share of its economy on government than does Australia”, Gillard said.

An Essential poll released today tested public backing for different blunt instrument savings measures. No doubt the government has done some research itself.

Nearly two thirds (64%) supported increasing taxes for big corporations (including 54% of Coalition voters), while 45% would favour reducing tax breaks for high income earners. Those were the only options where support exceeded opposition.

The levels of opposition for other options were: cut “middle class welfare” such as the baby bonus, first home buyers grant and family tax benefit payments, 48 %; reduce defence spending, 48%; postpone the NBN, 45%; postpone the Gonski changes, 51%; cut spending on unemployment and disability benefits, 60%, and postpone other infrastructure projects like new roads and highways, 71%.

The Coalition side of politics continues to hedge on its finances, But in a speech to the Sydney Institute today, Defence spokesman David Johnston confirmed it won’t be undertaking any spending splurge to restore Labor’s previous cuts to Defence.

Tony Abbott had committed to no further cuts. “We have resolved to cauterise the haemorrhage and then move to begin the repair,” Johnston said.

“Our aspiration is that as soon as we have come to terms and corrected the current fiscal situation we will return to the aspiration of [spending] 2% of GDP [on defence] and 3% real growth in the defence budget. My mantra is to under promise and over deliver”.

Meanwhile Chris Richardson, in a spirit of tease, has assembled a list of measures, each of which would cover the $12 billion shortfall. There is one that catches the eye: if the existing taxes on cigarettes was tripled it would raise $12 billion (and add about $17 to a pack of 25 cigarettes).

Don’t worry smokers, it’s an election year. But what a great public health way of dealing with the black hole.