Good Budget strategy, but a mix of good and bad policy measures

I told Ben Davis on 4BC’s Drive program this afternoon that this would be the Federal Budget we needed to have – while we’re not facing an emergency/crisis, if we don’t repair the Budget now, we probably never will. The economy isn’t spectacular, but neither is it weak, and I asked, if we’re running an almost $50 billion deficit now, what would it be if we really faced a downturn?

My impression is that the Budget strategy is good, but there is a wide variance in the desirability of the budget measures contained in it.

The following measures, among others, are good policy:

  • tightening of eligibility for Family Tax Benefit B – reducing middle class welfare is a good objective;
  • fuel excise indexation – it should go up in line with inflation to maintain the Government’s real revenue from fuel excise;
  • $7 co-payment for GP visits – a good demand management measure which is really needed to constrain rapidly growing health care costs;
  • cuts to industry assistance/corporate welfare – Treasury’s Industry Policy Unit, in which I once worked, has had a big win here; and
  • deregulation of university fees – a brilliant move which will hopefully end the mediocrity that has been enforced upon our public universities by years of strong reliance on the Commonwealth.

The following measures, among others, are, alas, bad policy:

  • the inequitable and expensive Paid Parental Leave scheme – see my previous post ABC radio interview on the debt levy and paid parental leave; and
  • the temporary budget repair levy – this is mainly for the optics, so wealthy people are seen to be contributing to the budget repair task, and it doesn’t fix the structural deficit.

I’m also worried about the six month waiting period for NewStart for people under 30, which appears designed to encourage people into education and training but seems unduly harsh and runs the risk of encouraging a lot of dodgy training courses being funded to absorb all the young people who would otherwise be denied Government support.

I’m unsure what to think about the cuts to funding in the forward estimates to the States for the purposes of health and education. It could be a good move if it ends up forcing a re-think of the GST, particularly a broadening of the base (see Dr Parkinson right that the GST should be broadened), to raise revenue to make up the lost funding.

These are my initial reactions based largely on the Budget speech and I may reconsider them after a closer read of the Budget papers.

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7 Responses to Good Budget strategy, but a mix of good and bad policy measures

  1. Craig Wilson says:

    Good stuff gene and I think spot on Devil in detail relating to universities and states funding C

    Sent from my iPhone

  2. Katrina Drake says:

    Thanks, Good summary Gene;

    Further to your comments.

    > The $7 co-payment for GP visits doesn’t commence until July 2015 – that gives us all well over one year to get fit, exercise, lose weight, give up drinking, get our blood pressure under control, a get healthier were possible.

    > I share your concern with the dodgy training courses for under 30s, they are already rampant. However, the $20k Trade Support Loans and existing VET-Fees Help schemes, which enables this age co-hort to borrow to invest in their education, to be re-paid later, may be preferable to unconditional hand-outs to unemployed school-leavers. It may encourage young people to more carefully consider and plan their futures perhaps.

    The biggest concern here is that young people will be trapped by unscrupulous training establishments into large debts that will be a burden for their lives. As they will carry a 2% tax surcharge throughout their working lives.

  3. Jim says:

    A good summary. One thing that I didn’t understand was the rationale for $5 of the $7 GP co-payment being channelled into medical R&D (Medical Research Future Fund). I think it is potentially a waste of taxpayers money and will provide some perverse outcomes. This is for a few reasons.

    1) All of the research I’ve seen on health economics indicates that investment returns tend to be highest for primary/preventative health care. So wouldn’t an economically rational Government use the funds raised for primary/preventative health care? Simply, the expenditure is not optimal, even within the health portfolio.
    2) Much of the medical research is largely speculative (expected returns may be low). Even if the new drug to cure cancer is identified in Australia, all the returns (profits from manufacture and ownership of IP) will probably go to the multinationals anyway. The result is that Australian taxpayers will probably be propping up the share price of Pfizer.
    2) The focus of much of the health research produce new technologies that are both expensive (think the latest gadget that every district health board must have) and will push up the cost of health provision (often for little real health gains). Is this initiative the fiscal equivalent of shooting yourself in the foot …….very slowly?
    3) As our Treasurer constantly tells us, industry protection breeds inefficiency. Has the Coalition just created another protected industry with a guaranteed funding source (i.e. the medical research industry). By my reckoning, the interest on the $20 billion in the Medical Research Future Fund is enough to pay for about 5,000 researchers. Do we really have that much talent and great ideas in Australia? One of the reasons Australia punches above its weight in the world research stakes is because funding is scarce and only the best researchers and research ideas survive.

  4. Katrina Drake says:

    Jim, I agree with your analysis and concerns of the Medical Research Future Fund. There is already considerable waste in the provision of health services, and here is yet another potential $20b.

    Particularly, as we already know the answer to better health and living longer – healthier lifestyle, reduce alcohol consumption, exercise, fresh fruit and vegetables – and so many Australians choose to ignore it.

    However, we are absolutely deficient of any sort of manufacturing base presently. So perhaps the government has identified a world niche for us in exporting medical technology . 3D Print your new liver or heart perhaps and visit the reef while it is being installed.

    • Gene Tunny says:

      Yes, unfortunately many people choose to ignore the obvious.There might be a good case for a special junk food tax, although it might be hard to categorise some food items.

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