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Federal

May 2, 2014

The too-hard basket: economic ideas that just won't go away

Before you discard the Commission of Audit, reflect on this. Some of its proposals have been made by reviews before -- including a Labor-led review. Should we think twice?

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Cut the rate at which the age pension rises each year. Scrap Family Tax Benefit Part B. Make truckies pay congestion charges. Crack open the pharmacy industry. These are just some of the proposals in Tony Abbott’s Commission of Audit; cue the outrage.

But hold on. All these have been suggested by root-and-branch budget reviews before, and some of them in a review by Labor. So while Treasurer Joe Hockey might not touch these controversial proposals with a barge pole come budget day, could they be worth looking at?

Crikey has found the “too-hard basket” ideas from this Commission of Audit by comparing its recommendations to the last Commission of Audit in 1996 (when Liberal MP Wyatt Roy was just six years old). The ’96 review was instituted by freshly elected PM John Howard and run by Bob Officer. Coalition stalwart Maurice Newman was a commission member, so there’s a common theme already. We’ve also looked at the Labor-run 2010 tax review carried out by then-Treasury chief Ken Henry.

These reviews had different aims; the 2014 one is about spending, Henry’s about tax. But we’ve found a certain amount of common ground — not least, that governments tend to largely ignore these reviews because so many recommendations are politically unpalatable. So here are some recurring big ideas for the Australian budget …

Crimp the age pension

The age pension is benchmarked at average male weekly earnings, a higher rate than average earnings or inflation — so it rises nicely each year. The 2014 review recommends benchmarking it to average weekly earnings (which are lower). Henry didn’t go that far, saying “it will be necessary for governments to regularly review the appropriateness of this measure” (i.e. benchmarking to average male weekly earnings). The 1996 review said the benchmarking to average male earnings posed “real dangers to Commonwealth finances”, and the government should consider benchmarking the pension to average weekly earnings. Both the ’96 and the 2014 reviews said the age pension costs were unsustainable.

Pare back Family Tax Benefits

The current system of giving cash to families has two parts — A and B (there’s more here). The 2014 review says Part B, a top-up payment for families with only one parent working, should be scrapped, with extra money funnelled to sole-parent families through Part A. Henry said the same: “Current family payments, including Family Tax Benefit Parts A and B, should be replaced by a single family payment”.

Rationalise childcare payments

The system has two ways of paying parents for childcare fees, one of which is means-tested. The 2014 report recommends combining these into a “single, means-tested payment”. Henry said combine both into a single payment.

More road tolls 

The 2014 review says there’s “significant scope to expand road user charging, particularly for heavy vehicles, to reduce congestion and increase funding from those that directly benefit from road use”. It recommends “mass-distance location charging reforms”, i.e. variable tolls based on a vehicle’s weight, distance travelled and location. Truckies might hate it, but Ken Henry agreed; the Council of Australian Governments “should accelerate the development of mass-distance-location pricing for heavy vehicles”. All vehicles should face congestion charges for driving on congested roads, Henry said. Labor ran a mile from that recommendation. Now it’s popped up again.

More fees for Medicare

Duck for cover: the 2014 review wants “co-payments for all Medicare funded services”, e.g. $15 to visit a GP ($5 for concession card holders). It’s an old theme for the Coalition; the 1996 report called for “measures to control the growth in expenditures under Medicare programs” via “greater use of price signals” and “a system of means tested co-payments”.

Cut back the Pharmaceutical Benefits Scheme

Same deal. This provides free or subsidised medicines. The 2014 review wants co-payments increased for all medicines; general patients would pay $5 more. The 1996 review also called for “price signals” and means-tested co-payments on pharmaceuticals.

Deregulate pharmacies

Under state laws, only registered pharmacists can own pharmacies. Supporters say that means pharmacy owners are in it to promote community health rather than make money, and opening up the sector would lead to ownership concentration. Big commercial entities want to be allowed to own pharmacies, arguing prices would fall.

The 2014 review recommends “opening up the pharmacy sector to competition, including through the deregulation of ownership and location rules”. Prepare for a stoush if Abbott acts on this. But the idea has form. The 1996 review recommended:

“Contestability in retail pharmacy should be improved by allowing non-pharmacists, including large retailers such as supermarkets, to own pharmacies dispensing PBS drugs and by allowing pharmacists to own an unrestricted number of pharmacies.”

Privatise Defence Housing Australia

Those bureaucrats staffing the profitable DHA, which manages (a lot of) residential properties for Defence staff, should watch out. Both the 2014 and 1996 reviews called for DHA to be privatised (read about it here).

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The fact that any budget proposal is found in the Coalition’s 1996 and 2014 reviews doesn’t mean it’s a good idea or will happen. It’s more an indication that the idea has enduring appeal in Coalition and business-minded circles (Tony Shepherd is the brains behind the 2014 review). And it’s a hint the proposal may happen under a Coalition government, at some stage.

The ’96 and 2014 reviews are similar. They both argue the budget is unsustainable, spending is too high, and the government should pare back/privatise services. Both call for a reassessment of federal v state responsibilities, and bemoan the costs of health and the pension. Both call for major changes to higher education (a lesser role for government, higher student fees), but via different routes. Both want to overhaul the public service. The 1996 review called for eyewatering cuts to government programs (10-20%).

Interestingly, the 1996 review called for superannuation tax perks to be reined in — John Howard did the opposite.

So will history repeat itself? John Howard’s post-Commission of Audit budget in August 1996 seriously slashed funding (as an aside, while the commission said Defence funding should be cut, Howard quarantined it).

Before the 1996 election Howard had promised not to cut health, education, etc, so to justify the slash-and-burn ’96 budget he came up with “core promises“. It remains to be seen whether some of Abbott’s 2013 election promises are “non-core”.

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