Guest post: David Leyonhjelm’s alternative budget

This year’s budget provides an opportunity to return Australia to a path of fiscal responsibility. Rather than promising everyone some candy, the government needs to win back its credibility by demonstrating a clear plan to return the budget to surplus and pay down its debt. Credibility was lost when the Government went to the last election promising no cuts, only to propose cuts in the 2014 budget, and by promising responsible budgeting while presiding over a worsening budget deficit.

With Australia’s taxes already internationally uncompetitive, the plan must be based on spending cuts. However, the only way to make cuts politically palatable is to share the load. The government must convince the community that if everyone takes a small haircut now, larger and more painful cuts will not be required in future.

Such a plan would set the agenda for the election, leaving Labor with the task of proving it is not irresponsible. An economic narrative based on curing the deficit disease before it becomes life threatening would be compelling. And unlike with the 2014 budget, obstructionist crossbench Senators would be irrelevant — the key vote would be at the ballot box, not in the Senate.

The government will never win the vote of those who care nothing for responsible budgeting, demand ever more government spending, and subscribe to tax-the-rich rhetoric. But if it can gain the support of the remainder, there are more than enough votes to win the election.

The responsible thing to do

In his budget speech, Treasurer Morrison should commit to paying off the Government’s credit card, starting with a balanced budget in 2016-17. Our economy is growing at a healthy 3 per cent and unemployment at 5.7 per cent is as low as can be expected given our labour laws. And while commodity prices are lower than what we enjoyed over the last decade, they are higher than they were at any time between 1983 – when the Australian dollar was floated – and 2006.

An increasing debt burden does a disservice to the next generation. And a rising debt to GDP ratio, if not reversed, is a recipe for eventual Greek-style default and disaster.
A big job

Commonwealth Government revenue per person this year is around $16,500, while its spending per person is $17,900. Hence, we have a significant budget deficit.

Spending has been increasing relentlessly for decades and there has also been no let up in taxation. We now tax smokers, drinkers, high income individuals, corporations, capital gains and retirement savings more than most other countries in the developed world. As a result our overall tax burden is high by international standards, even ignoring the tax-like nature of Australia’s compulsory superannuation contributions.

If we do nothing, bracket creep will boost revenue per person over the next three years to around $17,400, while spending will remain at around $17,900. Thus we would still have a sizeable budget deficit, spending would remain bloated, and our tax burden would be even heavier. This cannot continue. We need wholesale change, beginning with balancing the budget in 2016-17.

Spending cuts will be noticed

To balance the budget in 2016-17, the Commonwealth Government needs to cut spending by $1,400 per person. This amount could not be taken from you without you noticing. Everyone needs to take a haircut.

However, the cuts required should be put in context; real spending per person only needs to return to the levels of 2007-08, which represented the height of the big spending Howard era. 2007 was hardly a year when Australians starved in the streets. All it requires is unwinding Kevin Rudd’s spending splurge in response to the Global Financial Crisis.

Haircuts for welfare recipients

As welfare is more than a third of Commonwealth government spending, it cannot be immune from cuts. Government spending on welfare should be cut by $300 per Australian per year, noting that this would still leave $6,000 per Australian. A third of this should come by freezing welfare payments and child care subsidies. The aged, families, unemployed and sick would all take a small haircut. Single age pensioners would miss out on a $20 boost to their fortnightly pension.

More than half of the cut should come by including the family home in the means test for the age pension. This would ensure that young people who can’t afford a house don’t pay taxes to fund older Australians with multi-million dollar houses.

The final contribution should come from consistently applying the income test for Family Tax Benefit Part A payments once a family earns more than $50,000. The impact of this would fall largely on families with incomes in excess of $90,000.

Haircuts for healthcare users

Government spending of $110 per person should be cut from the health budget.

A $5 Medicare co-payment for non-concessional patients should be reintroduced. This would represent a fraction of the cost of consultations. The Government’s proposed $5 increase in co payments for pharmaceuticals for non-concessional patients should proceed as well.

Commonwealth Government subsidies for the training of future health workers – which represent a completely unnecessary intervention in state activity – should be stopped.
And programs to promote healthy lifestyles should be abolished, as how we live is none of the government’s business. However, immunisation programs should be retained as these provide benefits beyond the individuals who receive the vaccine.

Haircuts for students

A budget boost of $150 should come from the education budget. Half of this boost could come by requiring graduates to repay their concessional student loans from their first pay check. Currently they don’t start repaying their debt until their income exceeds $53,000, and the Government is planning to lower this threshold only slightly.
The other half of this budget boost could come by reducing Commonwealth funding for students in non-government schools, towards the level of Commonwealth funding for students in government schools. The only reason they are different is to counteract State discrimination against non-government schools. Ideally, only one level of government should fund schools using student-linked vouchers, making it irrelevant who owns the school.

Haircuts for public servants and the military

Government spending of $10 per person should be cut by implementing the Commission of Audit recommendation to remove excessive senior staff at Defence Headquarters, comprising the top brass of the Defence Force and senior executives from the Defence Department.

More broadly, public service wages have risen faster than private sector wages since the end of the Howard era. To restore relative wage rates, the wages of all Commonwealth Government employees should be cut by up to 2 per cent, which would reduce government spending by $15 per person.

Haircuts to industry interference

Tourism, mining, energy, manufacturing, construction and agricultural industries should all receive a haircut by shaving 20 per cent off their industry assistance, cutting government spending by $25 per person. A similar haircut for university academics and other government researchers would cut government spending by around $20 per person. Philanthropic and business support is likely to increase in response, which would help fill the gap.

A 20 per cent haircut for the ABC, SBS, arts and sports funding, heritage and national parks would cut government spending by around $25 per person. Taxpayers should not be expected to fund ‘the Weekly with Charlie Pickering’, the opera, or sporting events.

Suspending unnecessary spending

To round out the spending cuts, spending of $40 per person should be cut from the Commonwealth Government’s environmental initiatives. The Abbott-era Direct Action Plan should be suspended until international commitments to reduce emissions become binding, and Abbott’s Green Army should be abandoned as a Commonwealth frolic into State government affairs.

Government spending of $25 per person should be cut by abolishing regional development spending, which is code for pork barrelling.

Spending of $130 per person could be cut by suspending foreign aid (except for short-term responses to natural disasters overseas, which often involve our military). Governments do not need to be involved in foreign aid so long as individuals are able to make charitable contributions to overseas causes they consider worthy. Government-funded foreign aid typically involves the poor in rich countries funding the rich in poor countries, or rich countries imposing first-world priorities on third-world countries.

Haircuts for the States

Government spending of $140 per person should be cut by discontinuing Commonwealth spending on affordable housing, which is a state responsibility. Similarly, government spending of $410 per person should be cut by discontinuing Commonwealth involvement in the provision of roads and railways. Road making is an important function of government, but it is a state and local responsibility. Commonwealth involvement is motivated by vote-buying. The State Governments have healthier budgets and balance sheets than the Commonwealth and can afford to fund roads.

Annual spending cut per person
Welfare
180 Include the home in the age pension means tests
10 Apply the income test for Family Tax Benefit consistently
110 Freeze welfare payments

Health
45 Introduce a means-tested Medicare co-payment
55 Stop subsidies for training health workers
10 Stop healthy lifestyle promotions

Education
75 Lower the income threshold at which graduates start repaying debt
75 Reduce the gap between Commonwealth private and public school funding

Public servants and the military
10 Cut senior staffing at Defence headquarters
15 Cut Commonwealth Government employee wages by up to 2 per cent

Industry interference
25 Cut industry and agriculture assistance
20 Cut research funding
25 Cut funding for the ABC, SBS, sports, arts, heritage, national parks

End the Direct Action Plan and Abbott’s Green Army $40
Stop Commonwealth spending on regional pork barrelling $25
Cut foreign aid $130
Return responsibilities to the States
410 Cut Commonwealth spending on roads, railways
140 Cut Commonwealth funding for housing

Total $1,400

Cutting government spending by $1,400 per person is not dramatic. In fact, it would be hard to distinguish the proposed spending levels from the status quo (see chart). After making these cuts there would still be massive government spending.

If we were in Government, these spending cuts are a fraction of what the Liberal Democrats would pursue. Our policies include major reform to the big ticket items of welfare, health, education, and defence, and the abolition of all grants to the States, forcing them to manage their own finances.
The spending cuts the Liberal Democrats propose would not only balance the budget and repay debt, but would facilitate abolition of taxes on alcohol, fuel, tobacco and imports, allow the tax free threshold to be lifted to $40,000, and allow personal income tax and company tax rates to be reduced to a flat 20 per cent.
By comparison, the proposal outlined in this alternative budget – which achieves a balance simply by shaving spending – is very modest. There is no reason it could not be implemented.

A budget to set the election agenda

A balanced budget would set the agenda for months to come. We would continue to discuss the footy, traffic jams and the Batman v Superman movie, but injected into these conversations would be comments about what the government is doing.

Over the weeks between the budget and the election, begrudging acceptance that balancing the budget is the responsible thing to do would develop. A café manager may overhear a customer sticking up for the budget, saying: “Why shouldn’t the budget be balanced?” A publican may hear drinkers debate the budget across the bar, saying: “What would you do instead?” And amid all the phone watching and thumb twiddling on the bus or train, one may even hear comments like: “But we all have to pay off our credit card.”

The imperative to balance the budget is undeniable, and as my proposals demonstrate, it would not be hard to achieve. All it requires is some gumption from Turnbull and Morrison. Let’s hope they have it.

David Leyonhjelm is a Senator for the Liberal Democrats

This entry was posted in Budget, Economics and economy, Guest Post, Rafe, Taxation. Bookmark the permalink.

29 Responses to Guest post: David Leyonhjelm’s alternative budget

  1. Joe

    Yet again with the house being taxed by stealth. What is it about capital accumulation that so deranges normally coherent persons into thieving bastards.

  2. Can we have a budget for lamp-posts, for suspending of politicians and any rent-seeking overpaid, defined-benefit senior pubes still employed at the ABC, or other politicised departments?

  3. Robk

    A good round up, something sensible, but none the less hard sell, no doubt.
    “What’s in it for me” will be the commentators’ cry as they stick to their tried and proven critique of all things “budget”, goading the masses, showing off their power of insurrection to the government of the day.

  4. struth

    The government must convince the community that if everyone takes a small haircut now, larger and more painful cuts will not be required in future.

    A haircut?
    All the hair needs is a wash.
    It is stinking and putrid and parasites have nested.
    No ACTUAL services need to be cut.
    Just get rid of the total corruption and waste.
    The quangos and unnecessary red tape.
    The actual services that people really require , just need to be run more efficiently or better still, made private for most of it.
    The problem is, you politicians seem to do a small time in the big house and all of a sudden seem to see the world through public servant eyes.
    Next you’ll be telling us the only place to make savings will be the old age pension and the like.
    We dare not touch the truly insulated thousands of completely redundant Public servants and waste.
    Look at the roads.
    Billions wasted in building roads that are not being built due to corruption, and really that is all OH&S and all the other bullshit is.
    You know I could go on, but just don’t end up sprouting that sort of shit after only one stint in the madhouse.
    You’ll be out soon anyway.

  5. struth

    When I made the last comment , only the first part of the post had come up,
    However, in the way the spending cuts should be presented, my comment still stands.
    The liberal government have had plenty of time to implement cost savings in the form of red tape, bureaucracies and quangos and corruption without having to cut services anywhere.
    There is so much waste and corruption that could already have been fixed saving us billions.
    Before we even start on the ABC.
    Mentioning “cutting services” is almost asking to fail.

  6. stackja

    LDP reminds me of Gordon Barton and Don Chipp.

  7. Gab

    when the Government went to the last election promising no cuts, only to propose cuts in the 2014 budget

    Farkinhell. So cuts were no good under an Abbott government, but cuts will be good under a turnbull government. Incredible. As for promises, the days when people expected politicians to keep their promises are well and truly over.

    Whatever happened to turnbull’s promise to back Day’s 18C amendment bill? Oh yeah, that’s right, he broke that promise.

  8. the proposal outlined in this alternative budget – which achieves a balance simply by shaving spending – is very modest. There is no reason it could not be implemented.

    There are many reasons. Most importantly, you don’t have a strong leader with an unassailable mandate to resist the bleating from special interest groups. Several of the measures mentioned have been mooted and shot down. Others are clearly unworkable in any political environment at the levels you want – good luck slashing the ABC and SBS by 20%, or roads and housing by 100%.

    This is napkin economics at its most irrelevant.

  9. mundi

    Why target such little cuts. A budget with a some tiny cuts will be blasted as much as one that gut government spending 50%. Might as well just do it right the first time. This is a fantasy budget after all.

  10. Snoopy

    To balance the budget in 2016-17, the Commonwealth Government needs to cut spending by $1,400 per person.

    How much per taxpayer?

  11. Snoopy

    More than half of the cut should come by including the family home in the means test for the age pension. This would ensure that young people who can’t afford a house don’t pay taxes to fund older Australians with multi-million dollar houses.

    /shorten

    /de natale

  12. Snoopy

    A 20 per cent haircut for the ABC, SBS, arts and sports funding, heritage and national parks would cut government spending by around $25 per person. Taxpayers should not be expected to fund ‘the Weekly with Charlie Pickering’, the opera, or sporting events.

    Have Leyonhjelm and Dot yet shared their very cunning and super secret strategy to use the Constitution to ensure the Senate cannot stymie the government’s budget? See DL’s 2015 Budget night comments on Sky and Dot’s post budget comments at the Cat.

  13. Dr Faustus

    Agree with all of monty’s points on this.

    The main issue is the absence of credible leadership strong enough to explain the need for change and a clear plan to address the fact that we spend more than we earn. In the long run it’s either less spending, lower standard of living, or greater productivity, or a combination. Borrowing and taxing more both have finite limits – and, ultimately, at those limits there is something like Greece.

    Neither of the parties of government has such a leader – and there are none visible on the fringes.

  14. AP

    We just got a 50 billion work for the dole scheme and 12 dud subs to be delivered in 2060 when we’re all dead from old age anyway. There’s no appetite amongst the political class for any tough decisions that benefit the nation.

  15. duncanm

    Screw the haircut.

    How about the government start with $0 per taxpayer and justify every dollar above that?

  16. Natural Instinct

    Commonwealth Government revenue per person

    .
    GOVERNMENTS DON’T HAVE REVENUE

  17. gowest

    They know the problem is not enough tax revenue. Most of the tax is paid by the rich. Lots of rich have left and we are losing tax revenue because of our noncompetitive high taxes. We are their fly in fly out earning destination instead of their home base.
    PC Australia is too PC fix the problem with an obvious solution.

  18. nerblnob

    This is napkin economics at its most irrelevant.

    It can only be relevant if it starts a public “conversation”, debate, etc, whatever you want to call it.

    Which doesn’t seem possible in present-day Australia. Most of the media is still publishing eloquent denials that there is any problem, or that there might be but government debt doesn’t matter, or – look over there! LGBT** toilets Global Warming SSM tax haven equality refugees!

  19. I like the “$ spending cut per person” measure, very agile and innovative. Completely reverses the screechers method of “Errrmeergerd! There cutting eleventy trillion dollars from ‘elf and twelvety zillion dollars from skewls and infinity bajillionzillion from The Transgender Ballet Theatre Company”. Listing it all out one after another also highlights the absurd number of things we pay for.

    Scary thing is, this only balances the Budget. We’re still paying for the borrowing and saddled with debt.

  20. HRT

    For God’s sake David!

    Why on earth do you expect the troops to follow when the generals (under your plan) are leading from the rear?

    Hack into the benefits available to current and ex politicians and you will get the support you need.

    Refuse to do so and your plan will go over like a lead balloon.

  21. Tel

    What is it about capital accumulation that so deranges normally coherent persons into thieving bastards.

    Willie Sutton’s Law: Cos that’s where the money is.”

    You cannot take from people who have nothing… so your remaining option is to take from people who have something worth taking.

  22. Tel

    No ACTUAL services need to be cut.
    Just get rid of the total corruption and waste.
    The quangos and unnecessary red tape.

    When David talks about “regional pork barreling” that’s basically corruption… trying to nudge a marginal electorate with promises of a new hospital or sports stadium or whatever. I would guess a lot of “research” and industry “assistance” borders on corrupt as well.

    Then there’s massive duplication in education, roads, health between federal and state… none of which were supposed to be Commonwealth responsibilities in the first place. I’m sure a lot of pockets get stuffed in the bucket brigades as project funding gets passed up and down the complex ladder.

  23. Toiling Mass

    Labor (and , sad to say) the Libs will be too scared to make any cuts that the other guys can characterise as ‘mean’.

    And too many voters are desperate to believe that what they get is justified and affordable.

    The biggest obstacle is that your average voter does not have the slightest idea of how a budget or an economy works. They therefore allow themselves to be seduced by the siren song of various elevated experts who need them to stay docile and unweened at the breast.

    Cooooo…We are a low taxed country…Laaaaa…We feel your pain and only want to help…Ooooh…We can tax the wicked wealthy because their loss doesn’t affect you…Laaaaa…If there are any problems it is the other guys’ fault – they don’t love you like we do so join us against them.

    We need not just a political leader (as in a leader among the political class) but a real leader.

  24. alexnoaholdmate

    Monty’s analysis is correct.

    God, I felt so dirty typing that…

  25. Baldrick

    All very good points indeed DL, but after Turnbull’s DD election, all irrelevant, unfortunately.

  26. Alex Davidson

    Rather than getting distracted tinkering with the details, David would achieve more in the long run if he continually and relentlessly attacked the foundations of our present system.

    By any measure, taxation in Australia has never been higher. It is at an extreme – the other extreme being no taxation at all. One of those extremes is maintained through a double standard that sanctions theft when it is carried out on an industrial scale by government, but outlaws it when carried out by individuals; the other extreme outlaws theft regardless of who carries it out. One extreme treats citizens as subjects, and compels them to provide the government with details of their financial situation and many other private matters; the other respects our privacy and anonymity. One extreme requires a vast array of minutely-detailed rules and regulations; the other, relatively few concerned with protecting property rights and enforcement of contract. One extreme treats the government as the paramount owner of everyone and everything and uses force to achieve ends; the other respects property rights and is based on voluntary exchange, consent, and freedom.

    These are the sorts of arguments that need to be made when talking about the budget and taxation.

    Of course taxation isn’t going to go away overnight or perhaps forever, but it sure isn’t going to be reduced much, if at all, by proposals for minor adjustments, because that implicitly approves of the immoral system itself.

  27. CR

    So you are in some 700k home in some syd suburb which you bought for 25k 45 years ago in some dumpy inner city suburb no one wanted to live in back then.
    You work raise your kids retire. 10 years later house values put you over a 1mill limit and in your 80s you are forced out of your home. I don’t think so.

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