The federal government has a tough task in this year’s budget. After two years of stressing its “spending problem”, it is expected to match its rhetoric by demonstrating genuine progress in reducing government spending as a share of the economy. But it has few easy options for making large savings.
In fact, if it wants to make cuts, it will almost certainly have to revisit some Ghosts of Budgets Past to revive or repackage old reform proposals. But this approach is fraught with political pain. So what is the status of past spending measures? And what might the government do on budget night?
The government surprised everyone when it introduced such a broad suite of higher education reforms in its 2014-15 budget.
The Senate blocked the major measures – deregulation of student fees and a reduction in per-student subsidies paid by government. Simon Birmingham announced that the government would delay the package to undertake further consultation after he became education minister in September 2015. Yet the substantial savings from the reduction in subsidies remain factored into the budget bottom line.
The government is reportedly considering several options in this budget. The first is a modified fee deregulation proposal, with caps on the maximum amount that universities can charge. Caps might take some of the political heat out of the changes, reducing the possibility of a scare campaign around A$100,000 degrees.
If universities are allowed to increase fees by as much as the government cuts subsidies, there will be no change in revenue for universities. But students will pay a greater proportion of the costs of their courses.
Other potential measures include reducing the income threshold at which graduates repay their student debts, winding back Commonwealth scholarships for disadvantaged students, and cracking down on the use of the HELP scheme for the vocational education and training sector.
The health policy measures from the 2014-15 budget were among its most controversial. The proposed $7 GP co-payment (and associated cut in the Medicare rebate for GP visits) was shelved by then-health minister Peter Dutton in September 2014.
Three months later, the government announced a new iteration of the policy: a $5 cut to GP rebates, a larger cut for short consultations, and a freeze in rebates until 2017. After Sussan Ley became health minister, the cuts for shorter consultations and the co-payment were officially dropped.
On the other hand, $800 million in proposed savings from increases to Pharmaceutical Benefits Scheme co-payments and the safety net remain on the books despite Ley acknowledging that the measures are “not going to pass parliament” because the Senate crossbenchers oppose them.
The fraught politics of co-payments will probably put any further attempts to change these arrangements for GPs and pharmaceuticals into the too-hard basket. Ley’s review of the clinical effectiveness of the 5,700 items on Medicare Benefits Schedule could yield potential savings, but it will not report until the end of the year.
Foreshadowing the government’s 2015 Intergenerational Report and its alarming projections of population ageing and budget ruin, it introduced several measures to rein in age pension spending in its 2014-15 budget.
These included lowering the indexation rate of the pension – a change intended to reduce pension increases over time – and increasing the age at which people can access the pension from 67 to 70, with increases starting in 2025.
Again, the pension changes did not pass the Senate. The government abandoned the proposed changes to indexation arrangements in its 2015-16 budget, putting forward an alternative measure to increase the rate at which the pension is withdrawn for wealthier pensioners.
The Greens agreed to pass these changes in return for reinstating a review of retirement incomes, including superannuation tax concessions.
The proposed increase in the Age Pension age to 70 is still unlegislated. While it remains on the books it has no effect on the budget over the four-year forward estimates.
The government is highly unlikely to reform the Age Pension further in this budget. The focus in relation to retirement income will be on superannuation. The Government has confirmed its will somewhat wind back tax concessions for superannuation contributions made by high-income earners.
Family payments were one of the few major spending areas the government had not promised to shield from cuts before it was elected in 2013. So, cuts in the 2014-15 budget were not unexpected.
The changes, which included freezing increases in payments to compensate for inflation and ceasing payments for Family Tax Benefit B to families with a youngest child six or older, would have reduced expenditure by over $7.4 billion.
After legislation stalled in the Senate, the government successfully negotiated a redesigned family payment reform package in return for passing a $3.5 billion increase to childcare subsidies in its Jobs for Families package. The combined effect of the family payment and child care changes was a package that was roughly budget neutral.
This budget will probably engage in the time-honoured practice of tinkering with these payments, but potential savings are unlikely to be large.
The government has been largely unsuccessful in pushing through the changes to unemployment benefits it announced in the 2014-15 budget.
It has abandoned its proposal to strip young people of their income support for up to six months a year. The Senate had blocked the initiative, along with an alternative proposal for a compulsory four-week waiting period for all income-support payments for young people.
The $620 million in budget savings from other measures – increasing the age before young people can access Newstart Allowance and freezing indexation of means-test thresholds – remain in the budget estimates despite these also failing to get passage through parliament.
There are reports that the government is planning another crackdown on unemployment benefits in this budget. But, it is difficult to see where savings will come from. Welfare groups, economists and business broadly agree that Newstart payments are too low to provide an adequate minimum standard of living.
Where does this leave the government?
The government faces a steep challenge to meet its goal of reducing spending.
About $9 billion of spending cuts are baked into the budget estimates but are unlikely to be passed by the current parliament. And the $10 billion in fresh spending commitments made since Malcolm Turnbull became prime minister last year has made the task even harder.
To get there, the government will almost certainly have to revisit some of the more sensitive areas that have caused it pain in the past. For a government about to embark on an eight-week election campaign, it’s hard to imagine how its powers of persuasion could be more sorely tested than they will be on Tuesday night.