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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.

Join the conversation

31 Comments sorted by

  1. Lincoln Fung

    Economist

    Is the PM correct in saying that “of the advanced Western economies, only Switzerland spends a smaller share of its economy on government than does Australia”, as quoted as Gillard said.
    I would imagine that the US would be a case to consider. It is difficult to imagine that the US has a bigger government than Australia's measured by percent of GDP.

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    1. Jonno Downes

      logged in via Facebook

      In reply to Lincoln Fung

      If one considers that government spending includes military spending, it's not at all surprising that USA would have a higher % than us.

      1.5 seconds on google turned up http://en.wikipedia.org/wiki/Government_spending which includes data from 2011 showing we are at 34.3%, USA at 38.9%, Switzerland at 32.0 % (and for some interesting other comparisons; Sweden: 52.5%, UK 47.3%, Greece 46.8%)

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    2. Chris Reynolds

      Education Consultant

      In reply to Jonno Downes

      But then what would Abbott sand Hockey have to bang on about if they couldn't complain about the big spending Labour government. Fair go. You have to give them some room to move. The Coalition spin machine never let a few facts get in the way of their negative narrative.

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    3. Tony Grant

      Student

      In reply to Lincoln Fung

      LF...didn't know what the IPA was and now the war machine that is the USA and its GDP; economist or first term economic student?

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    4. Christopher Seymour

      Business owner

      In reply to Jonno Downes

      The table showed Australia 104th out of 170 countries. Singapore and South Korea are outstanding advanced economies that have a much lower rate off government spending. Its a bit racist to exclude them from "western economies". Even China is shown as the government only spending 20.8% of the national wealth. Do we want to be in the nations growing wealthy - or the ones like Greece?

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  2. Greg North

    Retired Engineer

    " 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”. "

    Seems as though Julia is agreeing with Tony Abbott who has said there is more a spending problem than a revenue one and if we have that when revenue drops, we'll have an even bigger spending problem, no doubt if Julia is still at the helm to give us even more borrowing and interest building on the debt.

    Julia seems to think the load will be light if we all lift with our shares.
    I imagine there would be a few million in the right direction if all parliamentarians were prepared to halve their salaries.

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    1. Tony Grant

      Student

      In reply to Greg North

      Greg,

      Did you read the report of health costs "medical practitioners" and their increased or over servicing?

      While we can all say that the pollies may/should have their incomes reviewed...its peanuts compared to the 100's of millions in health care maybe "inappropriate spending"?

      I have an associate that lets me know of the "over-servicing/abuse) of medicare...in mental health a member of the FRANZCP.

      Seeing up to 80 patients per day often in groups of 4 or 5 and all individually charged…

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    2. Greg North

      Retired Engineer

      In reply to Tony Grant

      If you have facts that can be substantiated Tony, take them to medicare for medicare are always on the outlook for dodgy practising.

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    3. Tony Grant

      Student

      In reply to Greg North

      NSW Health is continually threatening these doctors, the reply, we will all stop doing your program (methadone) in which NSW Health backs off and only after it is embarrassingly painful and then Medicare get involved with a "flogging by feathers"!

      You do get the bigger picture here Greg, not just the obvious $'s back the "black market economy" and the need for billions in spending on "law enforcement and increased health programs"..."the snake biting it's own tail"?

      Continuous cycle, a huge waste of funding and life, you aren't that political blinkered?

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  3. Lee Emmett

    Guest House Manager

    In relation to budgetary concerns, I wrote 'the following in response to Julie Novaks article in The Drum where she suggested that reducing spending was preferable to raising taxes when discussing fiscal measures. I think the same ideas are relevant in the present discussion.

    'The IPA is a professional think-tank which supports 'spending reductions' except when wealthy folk lose some of their concessions. They support 'privatisation' because they represent a small proportion of owners and share-holders…

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    1. Suzy Gneist

      Multiple: self-employed, employed, student, mother, volunteer, Free-flyer

      In reply to Lee Emmett

      Thanks, Lee.

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    2. Greg North

      Retired Engineer

      In reply to Lee Emmett

      You're spinning yourself into a bit of a tiz Lee, even if it is a communist one right down Julia's lane and yes she does have connections in that direction.

      Whatever Alesina and Novak positions are, the Labor pro growth stance has done what exactly!, other than see a lot of money being spent which because of materials etc. used was really great for climate change and not so great for our national bank account balance, meanwhile forgetting what Paul Keating once said of there being no free lunch…

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    3. Tony Grant

      Student

      In reply to Greg North

      Greg,

      You really need to keep busy, you are a very naughty boy!

      How many billions are given to companies each year in write-offs and including farmers, the latest in the welfare of the businesses going bad?

      Total (Gross) Tax receipts Vs hand-outs to all that take from the tax purse (businesses all)?

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  4. Jack Arnold

    Director

    I have no problem with:

    1. a 1% levy to support the National Disability Insurance Scheme, especially if it comes off the top of corporate earnings;

    2. an International Financial Transaction Tax of 0.01% on foreign capital monies exceeding $1 million that flush through the secure Australian economy without presently paying any consideration for the privilege;

    3. cigarettes being $20 per packet to reduce the about $3.2 BILLION per year cost of smoking related medical care paid by the community for individuals who choose to damage their health by paying excise of about $800 million per year;

    4. saving BILLIONS by stopping payments to the US corporate jailer originally employed by John Howard simply by changing the Liberal Party policy of refugee internment to meet our International Conventions.

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    1. Greg North

      Retired Engineer

      In reply to Jack Arnold

      If your directorship is of a corporation Jack, you might well appreciuate that any percentage off the top of corporate earnings is going to be viewed internationally as just another reason why not to do business in Australia and for Australians through shareholdings which many will be courtesy of their superannuation accounts, it will mean their superannuation account will just fare worse.

      Seeing as the NDIS is essentially for medical care or related aspects, Labor might find that it would have…

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    2. Ronald Ostrowski

      logged in via Facebook

      In reply to Greg North

      Greg, your unsubstantiated reply to my post whereby you parrott all of the fact-impaired nonsense from LNP headquarters has inspired me to provide the following link: http://www.independentaustralia.net/2013/politics/debt-and-deficit-downunder-dont-be-so-damned-depressed/#commentspost

      That link is not for you, Greg, but for others who look to reports and stories as to what is really going on with our economy. As for your claims about Labor's spending (without even mentioning the GFC) and repeating radio hate jock rants about asylum seekers and rolling out carpets and such like, I think that has been replied ad nauseam by me and others on so many blogs for the past two years. You believe what you want because I don't care.

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    3. Jack Arnold

      Director

      In reply to Greg North

      Oh dear Greg, there is such a thing as community responsibility and personal accountability.

      Australia is the land of opportunity and the entrepreneurs are lining up to exploit the riches that Australians are generally too lazy/stupid/disinterested to utilise. Certainly politicians of all persuasions do little to encourage community growth by banging on about centralising government jobs.

      We could have saved millions by NOT selling Telstra to give John Howard the pension he required for for what retrospective objective analysis is showing was irresponsible financial policy decisions.

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    4. Greg North

      Retired Engineer

      In reply to Ronald Ostrowski

      I had a look anyway Ron or Ronald, knowing what to expect and seeing a Ron there.
      The opening headliner says it all eh!
      We're so better off than a host of other countries and that is good and what is bad is that we seem to be striving to catch up with them.

      " But the advantages of a strong dollar more than compensate. It is boom times for importers. And for travellers. This is the best chance Australians have ever had to see the world. You can buy 100 British pounds for 153 Aussie dollars today. In 2001, that would have cost A$304. "

      You just have to love that and then the add on of " Come on over "

      I suggest you have a look at spending and revenue for the last couple of years and think about what is being achieved and then blog all you like on it.

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  5. Ronald Ostrowski

    logged in via Facebook


    I find it appalling that we still are stuck will Howard's expensive middleclass welfare and corporate welfare outlays. While I do not particularly care much for Greens policies Christine Milne is right about the savings gained by taking away the fuel excise from the mining industry. Struggling farmers would probably need to keep it.

    People with private health insurance should not be given a rebate unless they are 100% covered. This business of getting minimum coverage to avoid paying the…

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    1. Greg North

      Retired Engineer

      In reply to Ronald Ostrowski

      Whatever middle class welfare you may feel exists Ronald pales into insignificance against the spending levels of the Rudd/Gillard governments and though now they have something of a revenue reduction projected, revenue and spending are both greatly in excess of Howard years.

      And just where will all the expenditure be going to and more importantly whatever Labor attempt to manage, they usually mis-manage with the greatest of excellence.

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    2. Hardy Gosch
      Hardy Gosch is a Friend of The Conversation.

      Mr.

      In reply to Greg North

      Greg.

      Great to see you are following the principles and strategies of your party..
      Remember when you were first indoctrinated that you were told::
      Truth is irrelevant in politics, but plausibility is not.
      or
      No matter how far from the truth, if a statement is convincing, and especially if it matches preconceived prejudices, it will be believed.
      or this one
      If you repeat a lie often enough, it becomes the truth.
      and
      The bigger the lie, the more people will believe it.

      For a refresher check out http://www.thepoliticalsword.com/
      Your leader is doing well!

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    3. Jack Arnold

      Director

      In reply to Hardy Gosch

      Hi Hardy ... I seem to remember the last great Fascist outbreak in Europe in the 1930s used much the same strategies ... could it be history repeating itself on the other side of the world?

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    4. Hardy Gosch
      Hardy Gosch is a Friend of The Conversation.

      Mr.

      In reply to Jack Arnold

      There are unmistakingly strong similarities. Indoctrination techniques applied by Murdoch, his Mates and Minions seem to work a treat!
      The majority of the befuddled public hasn't got a clue what is going on. They do not seem to grasp that this is not about the nation's well being. It is purely driven by vested self interest, profit and power!

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    5. Miles Ruhl

      Thinker

      In reply to Greg North

      Greg, you continually repeat on almost every article on TC about the supposedly woeful overspending of the Labor govt, yet you never once cite a single actual item over than the ridiculously Alan Jones'y ones about school halls, pink batts and refugees. (The latter of which is in itself ironic given the govt is spending even more than ever on it just trying to grab the xenophobic LNP vote with a copycat manoeuvre)

      Examples, please Greg, and I don't mean sound bites.

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  6. Chris Reynolds

    Education Consultant

    Well. Disappointing maybe for the media that likesleaks and scoops but if you want the electorate to get the narrative maybe you have to talk with them. Cant have it both ways Michelle. They either share their issues with us before the big decisions are taken or they drop them on us unprepared. Either way they cant win with some sections of the press it seems.

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    1. Hardy Gosch
      Hardy Gosch is a Friend of The Conversation.

      Mr.

      In reply to Chris Reynolds

      Hi Chris.
      Having it both ways is the modus operandi for some churnalists. These prolific arm chair critics have made "fence sitting" an art form.
      What I like about TC is that on almost any given topic you can get "professional "opinions. This is not the place.

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    1. Jack Arnold

      Director

      In reply to Hardy Gosch

      But Hardy, the TC Editorial Board changed the Community Standards so that Ms Grattan could get on with her yellow churnalism under the pretence of being a Professorial Fellow at Canberra University. Strangely, on ABC RN Fran Kelly ignores that academic "qualification".

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  7. john davies
    john davies is a Friend of The Conversation.

    retired engineer

    I read the Grattan article, thought "Team Greg will be onto this", and waited.

    Sure enough, there it is, consistent in its normal bias and lack of logic, highly predictable, diverting discussion away from more serious views and enough of it to swamp almost everyone else.

    A suggestion - why not give Team Greg a regular "column" to comment on any other contribution? Separate it from other comments. That way other contributors can read a sensible/constructive conversation without being so often diverted by blatant propaganda while people who remain interested in Team Greg's views would still be able to read them. Just a thought.

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  8. James Hill

    Industrial Designer

    Concerning the Greg North problem, the human nervous system responds to continuous but meaningless signals by filtering them out by reduced sensitivity.
    Greg who?

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