How Will We Pay For It All?


"Disability plan could top $10 billion". So ran the Australian Financial Review’s headline on Saturday. The proposed National Disability Insurance Scheme, the AFR’s John Kehoe reported, could well cost $10.5 billion a year by 2018-19, according to the Australian Government Actuary.

The NDIS is currently the subject of heated debate. Despite tripartisan support for the introduction of the scheme in federal parliament, the states, as ever, are worried about the cost. It was for this reason that Queensland, which is in the midst of a brutal austerity drive, decided to stay out of the trial of the NDIS brokered at the most recent Council of Australian Governments meeting.

The NDIS is not the only expensive social spending program in the news just now. Schools funding is also a hot topic. The Government’s response to the Gonski review of schools funding is expected within weeks. The price tag for the full implementation of the reforms is estimated at $6.5 billion a year.

Community groups, meanwhile, want to raise the rate of Newstart. There’s been a long-running campaign by the community sector to do something about the penurious rates of government assistance for job seekers. The Australian Council of Social Service estimates this will cost around $600 million a year (pdf).

It’s not just social spending on the lobby group wishlists. As we’ve canvassed here before at New Matilda, defence funding has been wound back quickly under Julia Gillard, so much so that the government has thrown out its previous Defence White Paper and is planning a new one for 2013. The boffins and the generals continue to argue that Australia needs to spend tens of billions to acquire new submarines and fighter jets.

Infrastructure investment is another perennial laggard. Australia’s infrastructure backlog — the investment required to build new bridges, roads, rail links and so on — has been estimated at $770 billion. Actually, that was in 2008 dollars, so the figure is almost certainly higher. Infrastructure Partnerships Australia has been banging on about it for years. No-one has really been listening, although under Anthony Albanese the federal government has tightened up the process under which the government funds big projects. Even so, it took until 2012-13 for state and federal governments to fund all the projects that Infrastructure Australia identified as "ready to proceed" — back in 2009.

Schools, disabilities, job seekers, defence, infrastructure: there’s no shortage of worthy items for the federal purse. But there’s not enough money to go round. Julia Gillard’s government has slashed billions from the budget in recent years in a desperate attempt to get the bottom line back into the black. At the same time, taxes have been held below Howard government levels. Australia has one of the smallest government sectors in the OECD. Believe it or not, Australia is running a smaller government as a share of the total economy than it has since the 1990s — a fact Julia Gillard was none too shy in trumpeting during yesterday’s querulous Question Time.

That hasn’t stopped conservative politicians from arguing that government should be smaller. The Opposition under Tony Abbott has long been convinced Australia’s government is too large, whatever the international comparisons tell us. An incoming Abbott government would cut 12,000 positions from the Australian Public Service and seek to fund major savings in the tens of billions. Philosophically, Joe Hockey has been open about his beliefs that future governments will no longer be able to afford social entitlements.

At the state level, conservative politicians have gained power at a time when state finances are under pressure. The response has been austerity, particularly in Queensland. There, LNP Premier Campbell Newman is chasing savings that amount to around 10 per cent of the state’s annual expenditure; more than 20,000 public service jobs may eventually go.

Savage cut backs like those underway in Queensland are designed to get the budget quickly back into balance. But they also inevitably affect the quality and reach of social safety nets. We’re already starting to see significant cuts to public services in the Sunshine State, whether it be public health measures such as breast screening  and HIV counselling, or emergency services such as paramedics. The individual merits of particular programs can of course be debated, but as Newman is beginning to understand, a serious attempt to reduce the size of government will inevitably lead to programs being axed and public servants losing their jobs.

The pain in Queensland and the clamour for disability reform highlights a growing divide in Australian politics. There is a serious disconnect opening up between the expectations of voters for more and better government services, and their willingness to pay the taxes to fund them. Simply put, Australia cannot continue to enjoy European-style social safety nets and American-style taxation levels.

Something’s going on here, and it’s starting to worry senior policy makers. Last week, the Treasury Secretary, Martin Parkinson, was in Brisbane to give a speech at a women in business function. "As Australian incomes have continued to rise over past decades, so too has community demand for the government provision of what economists call ‘superior goods’, including aged care, health, disability, education and social welfare," he noted in his address (pdf). "We face, as a community, a widening gap between the demands we are placing on government and what we are prepared to pay to fund government."

Put simply, the numbers don’t add up. Parkinson pointed out that there is no way existing levels of taxation can finance ambitious new social spending programs, particularly as our society ages. Robust economic growth won’t do the trick either, as long as taxes are held static as a share of the economy. "What will be required — of governments at all levels — to meet the community’s demand for new spending, will be more revenue or significant savings in other areas," he stated bluntly.

As it happens, I think Australia can afford new safety nets like the NDIS, and new investments in schools, roads and hospitals. But we will have to be prepared to pay more tax. The time has come to re-open the tax reform debate, putting all the cards on the table. Personal income tax rates, the GST, negative gearing, superannuation and capital gains tax should all be up for sustained and robust debate.

There are hundreds of billions of dollars available to governments prepared to broaden the tax base — for instance by including health and education in the GST, by abandoning absurd tax subsidies to wealthy landlords like negative gearing, by subjecting the family home to capital gains tax, by reducing superannuation tax breaks, and by asking Australians earning high incomes to pay more tax. It won’t be painless. It won’t be easy. Indeed, some of these measures will probably be political suicide for whichever politician first suggests them. But paying more tax will be necessary if we want to keep improving our standards of living, particularly amongst the most disadvantaged in our community.

Of course, there is an alternative. We could reduce Australia’s size of government to US levels. Australia could abandon its commitment to free public health, to universal public education, to a meaningful safety net for the unemployed. The richest in our society will do fine: they will be able to save for their retirement, to pay for private health care and for quality private education for their children. But the poorest in our society will go backward, fast.

Ben Eltham is New Matilda's National Affairs Correspondent.