Overview
Dr Matthew Thomas
and Dr Luke Buckmaster
The task of managing Federal Government finances into the future
is a difficult one, and one that has been further exacerbated by
the global financial crisis, recession and increasing rates of
unemployment. The Rudd Government is confronted with the need to
keep spending under control and to increase the proportion of the
population taking part in the labour market if it is to sustain
economic growth. Without on-going high rates of economic growth,
the nation will struggle not only to support an ageing population
but also, according to economist Professor Bob Gregory of the
Australian National University, a substantial increase in the
number of people relying on income support. According to Gregory,
based on his analysis of changes in the welfare population
following the 1990–92 recession, the expected rise in
unemployment is likely to be followed by increases in the number of
people on disability and carer payments, and/or on sole-parent
pensions.[1]
Early in its term, the Rudd Government signalled its intention
to tackle the rising cost of social security benefits by, in part,
winding back what has come to be known as ‘middle class
welfare’.[2] In
its first Budget, the Government introduced a new means test on the
baby bonus, and limited access to Family Tax Benefit Part B to
those earning less than $150 000. In the lead-up to the
2009–10 Budget, the Government indicated that it would be
introducing further measures to wind back middle class welfare.
Much of the commentary immediately following the Budget observed
that the Government’s ‘attack’ on middle class
welfare was not nearly as tough as was expected.[3] It is possible that this is at
least partly due to the Government’s balancing the need to
institute long-term cuts in welfare expenditure with the need to
avoid measures that could further reduce economic demand. It may
also be the case that the Budget signals ‘round one’ in
the reforms to middle class welfare, with ‘round two’
to follow. It is anticipated that the Henry Review of the taxation
system will examine instances in which tax benefit payments that
advantage people on higher incomes could be reduced.
In the making of the 2009–10 Budget, the Government was
also faced with balancing a number of other (potentially
irreconcilable) objectives, including:
- making significant increases in expenditure, either as part of
efforts to stimulate the economy or the implementation of policy
commitments
- making significant reductions in some areas of expenditure in
order to offset increases in other areas and
- embarking on significant (and potentially very expensive)
policy reform in a range of areas, some of which were identified by
the Government when it was in
opposition.
The difficult nature of this challenge was nowhere more evident
than in the area of social policy where, for example, the
Government had the task of simultaneously increasing the pension,
whilst reducing funding through a variety of mechanisms, such as
eligibility changes, means testing and caps on welfare expenditure.
At the same time, the Government was faced with implementing
commitments to reform key social policy areas such as higher
education, welfare payments, paid parental leave and
health—that is, not simply spending more or less but changing
overall policy frameworks.
Social policy contributions to this Budget Review examine the
policy context for a range of measures in social policy-related
portfolios in the budget. They seek to provide a clearer
understanding of the background, rationale and policy direction for
these measures and therefore a better understanding of the budget
from a social policy point of view. In addition to the question of
whether funding commitments are adequate, the types of issues
examined include how funding will be spent, whether
particular measures are consistent with previous approaches, the
apparent rationale for particular measures and the likely success
of particular measures.
Overall, the contributions highlight the tensions described
above—that is, the tensions associated with combining
increased expenditure in some areas with reduced expenditure in
others, whilst also undertaking significant reform. The following
points are particularly noteworthy:
- as indicated above, while the Government raised expectations
about significant cuts to ‘middle class welfare’,
changes to entitlements based on income were relatively modest.
These included means testing of the Private Health Insurance
Rebate, tightened indexation of Family Tax Benefit Part A and
returning the pension taper rate to 50 cents in the dollar.
However, critics have suggested that this has left a range of other
areas of middle class welfare relatively untouched—for
example, child care tax rebate, more stringent tightening of
superannuation concessions and pension asset testing
- the Government has commenced significant structural reform
through investments and/or administrative changes in some areas
such as higher education, pensions and paid parental leave but not
others such as health (where reform will probably have to wait
until after the final report of the National Health and Hospitals
Reform Commission has been released)
- a number of budget commitments continue changes in policy
direction that have been ongoing since the Rudd Government came to
office—for example, changes in areas such as immigration
policy (abolition of the 45 day rule) and Indigenous affairs
(funding aimed at forging ‘a new relationship with Indigenous
Australians’) and the health workforce (making greater use of
nurses through enabling nurse practitioners and midwives to access
Medicare Benefits and the Pharmaceutical Benefits Scheme)
- there has been a continuation of the tendency for greater
generosity towards some income support recipients than to
others—for example, pensioners have gained an increase in
their benefits, while similar increases in income support rates
have not been passed on to sole parents, students or the unemployed
and
- commencement of a number of measures has been deferred to a
later date, such as increasing the age at which people can access
the age pension and the introduction of demand-driven funding in
higher education.
Generally speaking, from a social policy perspective, the
2009–10 Budget is a cautious one. Arguably, given the current
economic circumstances and the complexity of the social policy
environment, this is to be expected. While the Government has
introduced some significant reforms, some tough decisions have yet
to be made if the broad goal of shoring up economic growth and
sustainability are to be realised.
Unfortunately for the Government, the 2009–10 Budget is a
mid-term budget, where, arguably, opportunities for reform are
typically greatest. As a result, it may be the case that the
Government’s strongest opportunity for major reform has been
lost.
[1].
Quoted in D Uren, ‘One in four workers to go on
welfare’, The Australian, 31 March 2009, p. 4.
[2].
‘Middle class welfare’ may be broadly described as
welfare that may be accessed by people other than the poor. For an
analysis of key issues in the debates about middle class welfare,
see L Buckmaster, Money for nothing? Australia in the global
middle class welfare debate, Research paper, no. 31,
2008–09, Parliamentary Library, Canberra, 2009, viewed 21 May
2009, http://www.aph.gov.au/library/pubs/rp/2008-09/09rp31.pdf
[3].
See for example, M Brissenden, ‘Budget fails to match tough
talk’, ABC 7.30 Report, 13 May 2009, viewed 22 May
2009, http://www.abc.net.au/news/stories/2009/05/12/2568529.htm