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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?

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).


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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16 thoughts on “The too-hard basket: economic ideas that just won’t go away

  1. paddy

    [Tony Shepherd is the brains behind the 2014 review]
    ROTFL After watching him being ripped to pieces by Richard DiNatale in the Senate Committee this morning, followed by another swift kick in the nuts by Sam Dastyari…
    I doubt Shepard has much resembling a brain left.
    (Not that he ever stood out as a “great thinker’ anyway.)

  2. JohnB

    Yes, Paddy, the Senate this morning was excruciatingly funny. First, it was pretended that almost all of the Conservatives were absent due to a claimed but discredited late invitation, then there was deliberate time-wasting and posturing by the few Conservative participants, who conveniently had to catch planes and departed before the main event.

    Ex-Auditor Tony Shephard was a mixture of avoidance and civility. His preferred stroke, in cricket parlance, was a straight dead bat return along the ground to the bowler.

    No runs were scored.

    Sadly, this report will disappear as quietly as the Henry Report. The discussion will cease entirely after the Budget is delivered later this month. We will be lucky to get 10 days out of issues which need a lifetime of at least a couple of years to gain traction, either for or against.

    It is possible that Howard’s methodical poisoning of the Republican debate 15 years back has defined the way that national policy is formed (or not).

  3. Cathy Alexander

    Interesting comments JohnB; there’s been a lot of criticism of the Audit Commission’s recommendations in the media, which is fair enough, but at times it has bordered on dismissal out-of-hand.

    Some of the recommendations touch on really big structural issues for the budget in the medium- and long-term, like health and age pension funding. Wouldn’t it be better to discuss some of the issues, rather than dismiss / ignore them as big-business attacks on vulnerable people? Yes, you can argue there is an element of that, but some of these issues do need to be talked about. And I doubt they will.

  4. Cathy Alexander

    And thanks for the heads up Paddy, I’ll see if I can dig up the footage (I watched it without listening due to wading through the ’96 review this morning). I was interested to see Maurice Newman on the commission of audit back in ’96 (he is heading up the govt’s business advisory council now). Certainly an influential figure in Coalition policy …

  5. JohnB

    Cathy, we have a lot of common ground between us.

    I recall the “Little Children are Sacred” report in the Northern Territory. This meticulous, well-researched report disappeared without trace and has since been wallpapered over by other reports and by short memoried news writers and politicians.

    On a broader scale, the Henry Report was a tour-de-force which was buried unceremoniously by the government of the day.

    The newspapers moved on.

    The public, most of whom wouldn’t have read a precis of the Henry Report, let alone understood even a dozen of the hundred issues addressed, have slumbered quietly.

    Now, from the other side of the non-discussion, comes the Shepard Audit, which is destined for the same treatment.

    Mainstream media, in all forms, has helped to bring about Joe Public’s short span of attention and inability to deal with substantial issues. The pressing question is not what reports/audits contain, but how to find a way to bring on the public discussion which almost certainly will not happen.

    The last time such a discussion took place and change resulted was John Howard’s post Port Arthur response to gun ownership. He forcefully and successfully took hold of the public debate, despite misgivings from all directions.

    Where is the public leader who will take even one issue from the 200 or so raised by Shepard and Henry and stick with it until it is resolved?

  6. bushby jane

    I thought this Audit was most notable for the issues which have been left out of it rather than what’s in it. What happened to the rort of tax deductible private use of Holdens and Fords?
    The other thing I don’t get is the supposedly scary rise in old age pension entitlement that needs addressing; why is there this huge rise predicted when surely in the future there will be a lot more superannuants aka self funded retirees as universal super kicks in.

  7. JMNO

    I have my reservations about these attacks on the age pension and about the assumption that everyone can work till 70. My parents worked hard, raised 5 children, budgeted carefully and still ended up on the full age pension. They owned their own house and car and I can tell you there was no chance of them living it up on the amount they received, even with discounts for utilities and bulk-billing for medical costs. It was even harder for my mother to live on the single pension after my father’s death as many of the costs are the same.

    For those who cannot get enough super or who don’t own their own home and end up on the age pension after a lifetime of working (all that casual work these days), why should they live in abject poverty?

    Also who is going to care for the frail aged parents, the grandchildren, do the voluntary work, take the caravan holidays to Queensland which fill all the caravan parks and enable the tourism industry to survive, if not for the over 55s?

    There’s a lot of necessary unpaid work being done out there that won’t be done if people are in work until 70, that is if they can get/keep a job.

  8. JMNO

    Further to your comments below the article about having a discussion, I think that is a good idea. However there isn’t a discussion of the full range of options, or even of the assumptions on which many of the proposals have been made. John Legge had an interesting article in The Age earlier this week about ABS projections on the future ratio of retired vs those in the workforce and his figures were very different and much less alarmist than those being bandied about by the Government. And many have challenged the view that our health and aged care spending is out of control. observing that it is lower than in many comparable countries. If costs are high, how about some mechanism for reining in medical specialist salaries for a start?

  9. Shaniq'ua Shardonn'ay

    The idea that the pension should be tied average weekly earnings is interesting. Is that average weekly earnings for a full time person or just average weekly earnings? If it is average weekly full-time earnings indexing the pension to it might provide some incentive for the pensioner demographic to pay attention to how much difference there is between male and female income.

  10. CML

    Cathy – there is no point having a discussion about the aged pension without including the elephant in the room. That is the outrageous superannuation tax arrangements for those over 60, and the fact that many with millions in super can so arrange their affairs as to collect a part-pension. And all the ‘benefits’ that go with it, just because they think they have an entitlement to it.
    Anyone who is honest about this, will surely admit that they ‘know someone’ in this situation. It is just another form of GREED!
    On the health front – as I’ve said elsewhere, if we all want universal cover and access under Medicare (which should be a no-brainer), then we should expect to pay for it in a fair and equitable way. IMHO that means a permanent rise in the medicare levy by what ever amount is required to cover this ridiculous co-payment nonsense.
    If we persist with the latter, then it will end up costing us much more in the long run as people ‘put off’ seeing their GP, because they can’t afford it. That then leads to a medical condition becoming more serious, requiring more costly intervention and reducing the possibility of a good health outcome. I would go so far as to say that in some cases it could lead to people becoming disabled for long periods, if not permanently.
    And guess what that means? The government then has another disabled person to support with a pension and on-going medical/health care. What a brilliant idea, NOT!!!