Pensioners, health, family payments face cuts under report

Treasurer Joe Hockey

Treasurer Joe Hockey

States would have the power to levy income tax, all patients would  pay $15 co-payments to visit a doctor, everyone would pay more for medicines, and family payments would be slashed under a sweeping set of measures recommended by the Abbott government’s Commission of Audit.

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Pensioners would also be hit hard, with the benchmark payments gradually reduced over time to 28 per cent of average weekly earnings, eligibility for the pension tightened and part of the family home considered in an assets test as the pension age rises to 70 by 2050.

University students would pay more for their degrees and start paying back their loans sooner, while schools would become the sole responsibility of the states with the Commonwealth education department wound back.

Released by the government on Thursday afternoon, the commission's report warns of a nightmare “business as usual” scenario that would see 16 consecutive budget deficits handed down through to 2023-24. The commission's report details 86 at times radical recommendations to federal government.

The commission’s alternative “reform scenario” would slash Commonwealth spending in 15 key areas, would sell key assets and would abolish or wind back a slew of government agencies.

Further changes proposed by the Commission on Thursday in the first such audit since the Howard government’s 1996 review, include:

- The annual minimum wage cases would be abolished – though not the minimum wage itself – and a new benchmark of 44 per cent of average weekly earnings set;

- Unemployed people between 22 and 30 would be required to move to areas of higher unemployment after one year or surrender the dole;

- Road tolls would be put in place to reduce congestion and increase funds gathered from road users - a move that would hit transport companies hard;

- Federal assets including the Snowy-Hydro, the Australian Submarine Corporation, Defence Housing, Australian Rail Track Corporation, Australia Post, Medibank, the Royal Mint and the National Broadband Network should all be sold over time;

- 35 government agencies would be abolished, six merged and 57 consolidated including the Climate Change Authority and Clean Energy Finance Corporation – both of which the government has already promised – and the Export Finance and Insurance Corporation. The departments of Immigration and the Customs and Border Protection would be merged into one agency – Border Control Australia;

- Family tax benefit B – currently received by 60 per cent of families – would be abolished, while the eligibility for Family Tax benefit A would be tightened;

Canberra would be particularly hard hit if all the recommendations were implemented, with another 15,000 public servants to go, middle management bloat tackled, the Defence Materiel Organisation to be abolished and its functions rolled back into the Department of Defence and a requirement that total staffing at Canberra headquarters be rolled back to 1998 levels.

The savings from the commission’s recommendations predicts its measures would deliver modest savings in the early years before rising to $20-30 billion in 2017-18 and on to reach $60 billion to $70 billion by 2023-24, while lower interest rates could save the government an additional $15-20 billion annually within a decade.

The alternative reform scenario is projected to put the budget back in the black by 2019-20 and on track to meet the Abbott government’s long-term goal of a 1 per cent surplus by 2023-24.

Under the business as usual scenario, the commission projects spending as a share of GDP will reach 26.5 per cent by 2023-24 and net debt will rise to 17 per cent of GDP, or $440 billion.

“If a shock wave hits and we don’t have a buffer in place then it’s more likely that governments will have to cut back dramatically and more painfully,’’ the commission warns.

Whereas with the reform scenario, spending cuts from 2014-15 through to 2023-24 would see Commonwealth net debt peak at 15.1 per cent in 2016-17 and then decline as government payments fall back to about 24 per cent of GDP.

Revenue is predicted to slowly return to longer term average of about 25 per cent, including taxation and other revenue, and the budget would reach its 1 per cent surplus target by 2023-24.

The commission proposes the adoption of three fiscal rules: a tax to GDP cap of 24 per cent, a 1 per cent surplus by 2023-24 and a substantial reduction in net debt.

The proposal to allow the states to have the power to collect income taxes represents a radical shake up that would require the Commonwealth to reduce its income tax take.

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