After weeks of speculation and leaks about the contents of this year’s budget, the Federal Government is poised to take a series of tough and unpopular decisions designed to repair Australia’s finances. As the Prime Minister stated last week, “come budget night, I suspect that there won’t be many without a potential grumble”.
It seems the ‘grumbling’ has begun already. A poll released in Saturday’s Fairfax papers showed the public deserting the Government, no doubt in response to revelations that the budget will contain severe welfare cutbacks, a rise in the pension age, a rise in the petrol excise, and the introduction of a so-called ‘deficit levy’ on high income earners. The poll showed the Coalition trailing the ALP 46-54 on a two-party preferred basis. The Coalition’s vote has fallen seven per cent since the last election, just seven months ago.
A tough budget will undoubtedly hurt the Government politically in the short term. The ALP and its leader Bill Shorten will spend coming months hammering the Government on cutbacks and alleged broken promises. Coalition MPs will become jittery and some will express their concerns publically. There will be more bad polls.
However, in the long run, the public will respect the Government for its willingness to administer the tough love that Australia needs.
Australia does have a ‘debt and deficit’ problem. Many who oppose budget cuts point out that our level of debt is small compared with Europe and the United States. This is true, but our level of debt is growing faster than just about any other advanced economy, meaning that unless we take corrective action to fix the budget, we will eventually find ourselves in the same parlous position as Europe and the United States. The Treasury estimates that on current trajectories we are heading towards $667 billion worth of debt. At that level, we will have limited capacity to respond to another economic shock like the GFC.
The interest bill on Australia’s debt is already around $10 billion per year. Unless the budget is fixed, Australia will continue to throw more money down the drain in interest payments, money that could be used to build infrastructure and upgrade services.
In reducing Australia’s debt, the Government is proposing a series of fair and sensible measures. Take the increase in the pension eligibility age to 70, for example. The pension was introduced in 1908 with an eligibility age of 65. At that time, life expectancy was roughly 55. Now, life expectancy is roughly 85, but the eligibility age remains at 65, although it is slowly rising to 67 by 2023 pursuant to changes introduced by the Rudd Government. So while the pension was originally designed to support older Australians in the last few years of their lives, it is now supporting them for nearly a quarter of their lives. The pension is the largest line item in the budget, costing $39 billion per year. And with an ageing population, the cost is rising by about $3 billion a year. Clearly, this is unsustainable. Importantly, the Government will raise the pension eligibility age to 70 slowly, reportedly over 20 years to 2035. This gives those affected ample time to adjust their planning.
But it is not only older Australians who are shouldering the burden of fixing the budget. The Government wants to spread the burden fairly and equitably across society. Thus, it has been reported that Australians earning more than $180,000 will pay more income tax, corporate welfare will be slashed, and politicians will suffer a pay freeze.
While the Government will suffer short-term political pain as a result of tomorrow’s budget, ultimately it will be given credit for fixing Australia’s debt problem in a way that is fair and equitable.
Evan Lacey is a 3rd year JD student and member of the Liberal Party of Australia