A Budget commentary
Fred Argy
The 2003/4 Budget should help to sustain our strong economic performance - but it does nothing to stop the erosion in Australian egalitarian values.
Fiscal and monetary policy continues to be astutely managed. The slight stimulus provided by the Budget and continued low and stable interest rates should help cushion the expected slow-down in the economy. In my view, unemployment is still slightly above the minimum sustainable level - the so-called NAIRU. A further decline in the "official" rate of 0.5 per cent of the labour force - or 1 per cent in the total labour under-utilisation rate - could easily be achieved without generating increased inflationary pressures, especially in the context of an appreciating currency.
The Howard government is also showing welcome flexibility on public debt. It appears to have rejected the need for further rapid debt reductions even when the economy is growing well, although it is still formally committed to the nonsensical goal of achieving fiscal balance or zero net borrowing over the business cycle. And increased investment in tertiary education will have positive long-term effects on human capital and economic growth.
Outside the economy, the news is much less positive. Despite pressing problems with land degradation and inland waterways, there is nothing on the environment in the Budget. But, in fairness, a systematic program of ecological repair will require State co-operation and there may be some announcements to come.
Australia's forgotten people
The Budget does little to redress Australia's social problems. There are seven groups of "forgotten Australians" crying out for policy attention: I list them each below, followed by a commentary on the budget/policy response.
1. The "welfare poor": They are income support recipients (for example, those on Newstart Allowance) whose benefits have fallen markedly relative to pensions and earnings and who have been subjected to ever-tougher breaching penalties over the last few years. Many of these people are suffering real hardship, in the sense that they have to go without a daily meal or heating and do not possess the capability to participate in the activities of the community with dignity and self-respect.
Budget response: Under pressure from the senate, the government has made welcome reductions in the severity of breach penalties, but the social security system remains harsher and more selective and moralistic than a decade ago. Unfortunately, further change is unlikely, as there is no strong groundswell of sympathy in the community for welfare recipients of working age.
2. The "working poor": They are principally low-skilled workers in casual, part-time jobs or on low award wages, and whose bargaining power vis-a-vis employers has steadily diminished. Their earnings have lagged well behind the rest of the community, their workplace environment has become more stressful and they have lost all control over their hours and family time.
Budget response: The working poor get a little relief in the form of tax cuts that, in proportional terms, are slanted towards them. But, as ACOSS has pointed out, many of these people do not pay sufficient tax to receive any significant benefits and an estimated 41 per cent of the tax benefits will go to families with incomes above $1500 a week.
3. The long term unemployed: These Australians have been jobless for more than a year because they lack the skills and characteristics to fill the new kinds of job vacancies and their number has not significantly decreased relative to a decade ago.
Budget response: Apart from some small additional outlays on employment assistance for people with disabilities and indigenous Australians, the long term unemployed are mostly ignored in the Budget. The Howard government has blinkered spectacles on employment. It is focused on an imaginary problem that does not exist to any significant extent - viz. poor work motivation ("bludging" or "cruising"). And, although it has certainly improved services for disadvantaged job seekers, including a beefing up of the Personal Support program, the government is ignoring the very real problem of structural unemployment - the mismatch between unemployed and vacancies. This requires a combination of education, training, wage subsidies, regional infrastructure investment and job creation in select areas.
4.Indigenous Australians: They continue to experience the most acute state of disadvantage, both relative to other Australians and relative to other indigenous people in the world.
Budget response: The plight of aborigines gets some relief through improvements in education and employment support programs, but such assistance represents a drop in the bucket when one considers the magnitude of the problem.
5. Sole parents and people on disability pensions facing "poverty traps": They have little financial incentive to move out of welfare into work. Together with the long term unemployed, they account for the growing proportion of children in jobless households.
Budget response: Little has been done to reduce work disincentives. Some sole parents and disability pensioners will be made subject to activity tests and breaching, and this could force them into the work force. In principle, this is defensible, but only provided it is matched by measures to make them more job-ready and strengthen the financial rewards from work. In this regard, the working credits scheme which came into force in April could prove helpful. However, more extensive use of earned income tax credits and training programs is needed. As for retirees and older persons of working age, the special concession on bulk billing proposed for holders of the Health Card could actually diminish their incentive to work. Considering that the government and treasury want to increase the labour participation of older workers and retirees, there are policy contradictions here that need sorting out.
6. Location-disadvantaged Australians: They are missing out on the benefits of economic growth simply because they are living in the wrong areas.
Budget response: The Howard government has done more than a little to improve services in non-metropolitan areas, but the regional imbalance in employment opportunities remains in the "too hard" basket.
7. Children from low income families who face competitive disadvantages in future employment markets: One big reason is that they have poorer access to essential services such as education, health, housing and public transport.
Budget response: The Budget does not deal with this challenge. In fact, the health reforms, as they now stand, will tend to further squeeze children of low income working families.
In short
In short, we cannot expect much social healing from the Howard government. While there has been a considerable increase in "social spending" since 1996, this reflects, in good part, the explosion in "well-off" welfare (home savings grants, baby bonus, health cards for self-funded retirees, more subsidies for private schools etc.) and the GST compensation outlays.
What of the proposed health and education reforms? Ideally, from an equity viewpoint, we should have a universal health and education system funded out of progressive taxation. But there has been a steady erosion of both health and education universality and the progressive tax system. While this has been happening for some time, much of it can be attributed to the Howard government. It has always been a classical Howard tactic to introduce modest change bit by bit over a period of years - until it adds up to something very significant and the contradictions generate their own self-momentum of reform. In the case of health, bit by bit reform to Medicare will turn it eventually into a scheme only for the poor, and the bulk of taxpayers will resent having to pay for it. Even with universities, the probabilities are that students will be increasingly asked to pay a higher proportion of the cost of their education. It is the "foot in the door" syndrome.
But a return to universal systems and old-style progressive taxation isn't going to happen. So a good "second best" is to have a system that effectively shelters the poor while asking other users to pay more. And it can be said that the Howard health and education reforms are trying to contain the future growth of "well-off" welfare. Unfortunately, they leave too many near-poor out of the safety net.
The Labor alternative
Would an alternative Labor government make a big difference to the plight of the seven forgotten groups of Australians outlined earlier? Simon Crean's response to the Budget could prove a political watershed. In my recent book, I was a bit hard on the ALP, saying that its egalitarian convictions were "more rhetoric than practice" because it seemed unwilling to adopt a less conservative stance on taxation and public debt than the Coalition or to rearrange the Howard spending priorities.
That may now be partly changing. Labor is still reluctant to adopt a distinctive stance on taxation and net public borrowing over the cycle. But it has indicated a number of poorly targeted government spending programs that it might claw back, including-the "baby bonus", big business tax cuts and possibly the private health insurance rebate and superannuation taxes. Two cheers for that.
However, in my view, Labor should be less negative in its approach to Peter Costello's budget. It can achieve more by seeking to amend the reforms of the government than to simply block them. Take the tertiary education reforms. The reform package could be made acceptable if:
(a) it included some measures to help students from low socio-economic backgrounds - such as provision for lower HECS fees (thatis, encouraging universities to means test) and additional targeted scholarships;
(b) it removed the proposed restrictions on industrial action by university staff (which could possibly extend to staff of schools and hospitals) and the built-in incentives to embrace individual bargaining - all ideological irrelevancies with dangerous implications; and,
(c) the package included more funds for apprenticeships and vocational training - areas of education that are in even greater need than universities.
With these and similar changes, the government's tertiary education reforms could be good for equity as well as the economy. Similarly, the health reforms could be made more socially acceptable if they did more to shelter low income working families.
Fred Argy is a long-retired public servant who is currently a Visiting Fellow at the Australian National University. His latest book is Where to from here? Australian egalitarianism under threat (Allen & Unwin 2003).