The War On Spending: Hockey And Abbott Beat A Hasty Budget Retreat

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The Abbott government is backing down on some of its welfare changes.

Employment Minister Eric Abetz has signalled that the government will drop its controversial new requirement for job seekers accessing unemployment benefits to search for 40 jobs a month.

“We have listened to the community feedback, we do understand that for business this would be a burden,” Abetz told the ABC's AM program.

Sensitivity not being the government’s strongest quality, it appears that the “community feedback” it has listened to is from businesses worried about an avalanche of frivolous job applications, rather than job seekers or the welfare sector.

The government shows no sign of backing down on another controversial aspect of its welfare changes: completely cutting off Newstart benefits to under-30s for six months. As far we know, that particular piece of punitive “reform” is staying.

The backdown is part of a broader trend for the Abbott government, which is finally beginning to realise that the current Senate is hostile to much of its legislative and budgetary agenda.

On the budget, for instance, the government has essentially capitulated on most of its more controversial welfare cuts. While the majority of the budget was contained in the Appropriations bills, which have passed, that still leaves about $23 billion of budget cuts left in limbo, with no sign of Senate support.

The government seems to have tacitly acknowledged this, last week splitting legislation on welfare cuts into a series of bills in the hope of negotiating with Labor on each component. The ALP then agreed to wave through one bill worth about $2.7 billion in savings, mainly to do with crimping health care concessions for pensioners and winding back the threshold for Family Tax Benefit B to $100,000 a year. But to gain this support, the government abandoned another $10 billion of welfare cuts.

Many Coalition policies are going nowhere. They include widespread changes to university funding, the $7 co-payment for GP visits, cuts to benefits and pensions, the six month period of no Newstart for under 30s, and Tony Abbott’s cherished election promise of a generous paid parental leave scheme.

The recalcitrant Senate is contributing to the ballooning budget deficit. As the Treasury revealed in late September, the budget deficit has already grown by $18 billion in just nine months under Joe Hockey. Those figures do not include the cost of the new war in Iraq and Syria on which the Abbott government has now embarked.

The budget deficit could get a lot worse if the government rolls over on its attempts to get other bills passed. The current rules allow it to claim savings for any measure that has legislation before parliament, even if the bill has not been passed by the Senate.

Some of this legislation has little chance of being passed. For instance, the government’s higher education “reforms” have already raised the hackles of much of the universities sector, and are bitterly opposed by Labor, the Greens and the Palmer United Party. The government’s planned changes to Medicare, including the $7 co-payment to visit a doctor or get a blood test, seem similarly doomed.

In the case of the university reforms, the huge uncertainty imposed by the stalled legislation is starting to cause real problems for the sector. Students preparing to enrol next year currently don’t know what their likely university fees will be, and universities can’t tell them, because they don’t know the fate of Christopher Pyne’s reforms. New Matilda is already hearing anecdotal reports of significant drops in school-leaver enrolments, in large part because of the uncertainty.

Apart from the unrest in the sector, that also delays any budget savings by another year. So much for the adults being back in charge.

Legislative gridlock is therefore starting to pose real problems for a government that, like its predecessor, has made much of its intention of returning the federal budget to surplus. Much of the heavy lifting of getting the Commonwealth back into the black is predicated on welfare and tax changes that have small effects in the short term, but that add up to big savings over years. For instance, the government wants to shave the indexation of many pensions and benefits, which would see them grow more slowly than previously. This adds up to billions by 2017-18.

But if the government can’t pass those changes into law, then it can’t get those savings in place for future budgets. According to analysis by the Australian Financial Review’s Laura Tingle, “there are now budget measures worth about $1.8 billion in 2014-15 in Senate limbo and further losses of savings from measures that will be passed but which have to be delayed.”  Tingle estimates the budget bottom line is down about $5 billion by this estimation – on top of the approximately $18 billion blow-out since September 2013.

All of which makes Joe Hockey’s next task rather difficult. The forthcoming Mid-Year Economic and Fiscal Outlook, or MYEFO, is shaping as something of a mini-budget. The government is expected to announce more spending cuts, and may even try to introduce a temporary tax or levy to help pay for the cost of the new Iraq war.

All this comes against a backdrop of an economy that is far from firing on all cylinders, despite the alarming recent run-up in house prices in Sydney and Melbourne. Tax revenues continue to disappoint, eroding the gains Hockey has made in the savings already passed.

Hockey now faces a nightmare scenario: all pain, but no gain.

The Treasurer has already had to wear most of the political damage of his harsh budget measures, and will have to wear more as further cuts are announced. If he does push through the really controversial bits, like the health and education changes, that too will impose political damage.

But even if the government gets further cuts through the Senate, that doesn’t mean there will be a pay-off down the track. Hockey’s future budget surpluses, on which the Coalition has set so much stock, now look every bit as illusory as those promised by Wayne Swan.

New Matilda

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