While I don't agree with the Treasurer's view that we are facing a budget crisis or that the level of government debt in Australia is a problem (government debt in Australia is among the lowest in the OECD), I acknowledge that the government has been confronted by rising costs and falling revenues, and that this has necessitated that they take remedial action to ensure the ongoing sustainability of the systems and programs that we have in place in Australia.
A failure to do so means that we are effectively asking tomorrow's taxpayers to pay for today's spending, which would not be a bad thing if we had been investing to make our children and our children's children richer, but sadly this has not been the case for quite some time. In this regard, it is important to note that this failure "to invest" can be attributed to bad decisions by both of the major political parties.
A return to surplus
The Treasurer's speech made it clear that the government has taken upon itself to return the budget to surplus by 2018-19. They intend to achieve this through a combination of measures including, revenue raising, reducing expenditure, asset sales, and overhauling the public service.
In terms of revenue raising, the rise in the fuel levy is likely to cost the average taxpayer less than the price of a cup of coffee per week. While I have no doubts that the levy will be unpopular, I think most people will eventually accept that it is worthwhile, given that the government intends investing the money in upgrading roads.
Likewise, I think that most people would acknowledge that if they are fortunate enough to be earning in excess of $180,000 a year, (estimates indicate that this will apply to between two and three per cent of the population), then purely on the grounds of equity it is only fair that this cohort contribute more to the repair of the budget.
Tightening the purse strings
Some of the more worrying aspects of the Treasurer's speech were the imposition of a co-payment on visits to the doctor and the cuts to welfare. For parents with young children or people with chronic medical conditions, the co-payment will be tough.
Rather than having a fixed rate or flat co-payment of $7, maybe the government would be better looking at having a sliding scale whereby the payment, if any, is dependent upon a person's income.
In terms of welfare cuts, I am not sure the government fully appreciates just how difficult it is for many families. They need to make sure that they listen to the community, or risk being a one-term government.
The final area worth noting is the proposed overhaul of the public service and the sale of public assets. The aim is to save money for taxpayers by ensuring that government administration is as streamlined and as efficient as possible, while ensuring that government services are delivered effectively and accountably.
While a worthy goal, it is important to recognise that many public servants will lose their job. Mechanisms must be in place to help these people find new employment.
Warning: act now
It is likely that in the short run the tightening of the budget will lead to a slight rise in unemployment. But a failure to act now means the alternative could be far worse.
If governments continue to run deficits and see their debt rise, eventually they will be forced to cut much harder and much deeper. These cuts are likely to fall on the most vulnerable – something I would hate to see happen in a country that is considered one of the most egalitarian in the world.
First published in the Bendigo Advertiser on 21 May 2014.
Earl Jobling is an economics & finance lecturer at La Trobe University.
Photo credit: Malcolm Turnbull