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Federal Budget 2001Analysis | In a nutshell | Employment | Wages and industrial relations | Retirement policy | Education and training | Vocational education and training | Higher education | National cultural institutions | Information and communications technologies | Regional and rural telecommunications | Innovation | Post-GST | The doorstops Not so mean, but still pretty trickyIt's not what our message does to the listener, but what the listener does with our message that determines our success. Why don't people listen? 1994, Hugh MacKay AnalysisThis is the Tourniquet Budget - a bold effort to staunch the flow. Rather than seeking new recruits to the Coalition cause, the federal government has staked all on preventing more desertions from its core constituency - and wooing back those who have turned away in GST-disgust. There has rarely been a more blatant pitch to sectional interests. But the much-touted $1.7 billion welfare package relies on benefit cuts of more than half that amount, while holding back most of its spending for later years - despite rising unemployment. Older Australians and small business gain the lion's share of the government's pre-election largesse. There are major income boosts for self-funded retirees from a hefty lift in the tax-free threshold. The seniors health card will be available to another 50 000 older Australians. And there is a belated admission that GST compensation for pensioners was inadequate with an immediate tax-free bonus of $300. Small business will receive attractive tax concessions on vehicle purchases. Rural and regional Australians will receive additional services, both from confirmation of the post-Christmas, election-loss induced spending-spree and from further budget announcements: on regional education, the ABC and health. But the question is: are they still listening? Or has the horse already bolted? Is it too late to close the stable door? Overwhelmingly, the budget speech looked back to last year's GST introduction. A subdued treasurer chased his losses and sought repeatedly to justify the new tax; and to win back the support it cost the government. But budgetary backward glances spawn tough questions. Where, it will be asked, are the $12 and $13 billion surpluses forecast by this same treasurer just two and three years ago? On the face of it, prime minister Howard's great tax adventure has cost the government and the economy around $10 billion, with the projected surplus now slashed to $1.5 billion, from three times that amount just six months ago. While the surplus exceeds market forecasts, it would have been impossible without the unexpectedly high Reserve Bank dividend brought about by the Australian dollar's collapse. The budget may, in fact, be in structural deficit. To reduce the projected surplus by more than 80 per cent in just two years while growth has been strong, inflation modest and interest rates low is quite an achievement, but hardly one to boast about. With unemployment now projected to reach 7 per cent and tougher treatment of the unemployed foreshadowed, average wage and salary earners under 55 will find little to enthuse about. Indeed, it is they who must pay for the government's pitch to the elderly. For the government, the quest for the mainstream's votes will be a daunting task in the next six months. Funds for electoral sweeteners are demonstrably limited - unless the government has been 'tricky' in its budget numbers. Look for a small pot of gold to materialise around election time to fund tax cuts for middle Australia. The government will desperately need them. This budget alone is unlikely to give the Howard government a third term. Perhaps there are more funds coming in from the GST than these figures indicate. But with the budget predicated on optimistic next-year growth of 3.25 per cent, its forecast outcomes are by no means certain. There must be a real downside risk, especially if the United States leads the international economy downwards in the next year. And release before the budget of the Dunn and Bradstreet survey showing a 33 per cent rise in Australian bankruptcies can only heighten concerns about the veracity of the growth forecasts. Pushing the budget into deficit may be the only way to fund a tax-cut lifeline for the government in six months time. None of this, however, will delight the Opposition. Should they win the forthcoming election, they could find they have boarded a scuppered ship. A shrinking, or non-existent surplus will make attractive election promises and GST 'roll-back' difficult without inviting the age-old catch-cry: 'Where's the money coming from?'. Expect to see few firm policies from the Opposition much before the election campaign. In a nutshell
EmploymentThe treasurer's projections on employment are somewhat optimistic. With GDP growth forecast at 3.25 per cent and wages tipped to rise by 3.75 per cent, it is hard to see unemployment being held at 7 per cent. The tripling of bankruptcies, recent negative indications on employer hiring intentions and the downside risks from international economic contraction suggest a higher unemployment rate is more plausible. Wages and industrial relationsAverage wage growth of 3.75 per cent is forecast. This is above outcomes for the past two years. For individuals, wage increases will continue to vary considerably under decentralised wage-fixing. Industrial relations receives scant attention in the budget, but expect significant changes after the election whichever side wins government.
Retirement policyRarely has a budget focussed more on the retired. Despite prior denials, the treasurer has acknowledged the negative impact of the GST on retirees with very attractive concessions. There is an immediate $300 tax-free bonus. Many self-funded retirees will receive tax cuts of up to $50 a week. They will be exempt from income tax on annual incomes up to $20 000 [singles] and $32 000 [couples]. Skilful use of franked shares and allocated pensions by retirees can increase their gains still further. There could be no clearer indication that the treasurer got it wrong in last year's GST introduction than the decision now to backdate these changes to 1 July last year - an almost unprecedented step aimed at ensuring cash-in-hand for retirees before they enter the polling booth later this year. Many commentators have seen this as generational pork-barrelling on the grand scale. But by shifting the burden of paying for it onto wage earners, the government may create a new group of complainants among low-income Australians asked to pay vastly more tax than retirees on the same incomes. On the broad retirement policy front, those hoping for action on the superannuation system's many anomalies must await another day and another budget. The treasurer has obviously decided that this is a can of worms that he will certainly not open in an election year.
Education and trainingSome new initiatives, but more of the same is perhaps the way to describe budget outcomes for education and training. Previous programs set in place to support young people and to encourage vocational education and training are maintained and in some areas strengthened while the growing need for places in regional universities is recognised. Government schools will attract the greatest share of funding for specific schools initiatives from this year's budget receiving an estimated $238 million or 87 per cent of total funding. Literacy, numeracy and information technology remain an important focus of government commitment to school programs with $36.9 million to 2003 allocated to support the existing literacy and numeracy plan. An additional $184.3million will be provided to government schools, where the Enrolment Benchmark Adjustment is triggered, to foster the foundational skills necessary for successful innovation, such as developing students' scientific, mathematical and technological skills, encouraging schools-based innovation and creating supporting learning environments. A further initiative sees $34.1 million over five years committed to online curriculum development to offer Australian schools greater access to curriculum materials. Assistance for young people moving from school to work or further education and training continues through the Jobs Pathways Program with $95 million allocated over four years. New measures announced in the budget in response to the Youth Pathways Action Plan Taskforce will also benefit school leavers:
Education and training opportunities for Indigenous Australians, people with disabilities and those receiving income support have been boosted by the injection of some $119 million over four years to address low school retention rates in Indigenous communities through improved support for young people to stay at school; to improve opportunities for people with disabilities in vocational education and training and higher education; to fund state and territory training authorities for additional places for people receiving income support; to fund literacy and numeracy training and career counselling services for people on income support.
Vocational education and trainingThe government's proposal for a new Australian National Training Authority agreement will see an extra $230 million made available to states and territories to support training places in 2001-2003. Funding of almost $2 billion over the next four years has been allocated to the New Apprenticeships initiative in which almost 300 000 people are now placed:
Higher educationRegional universities will benefit from budget initiatives. Six hundred and seventy new places each year over the next three years will be made available to meet the demand for university places in regional Australia and to offer greater opportunities to rural youth. New places will be established particularly in areas of population growth and increasing demand, including areas on New South Wales, rural Western Australia and Queensland. As well as regional university places, an additional 2000 university places a year over the next five years with priority for information and communications technology, mathematics and science will be made available to address skills shortages in these fields. Two new loans schemes for students were announced. The Postgraduate Education Loans Scheme is introduced to promote lifelong learning and to encourage Australians to upgrade and acquire new skills. Overseas professionals who are Australian citizens or permanent residents and who are required to take bridging courses to meet formal recognition requirements of their profession in Australia will now be able to borrow up to the full cost of their course. Repayments through both schemes will be made in a similar way to the Higher Education Contribution Scheme. Initiatives for research include funding over five years for the Australian Research Council (ARC) to provide increased support for the Discovery and Linkage elements of the National Competitive Research Grants Program and to introduce new Federation Fellowships; $246 million over five years to upgrade universities' systemic research infrastructure; $337 million over five years for universities' project specific research infrastructure to support ARC and National Health and Medical Research Council project grants.
National Cultural InstitutionsAustralia's national cultural institutions will receive over $600m for the 2001-2002 financial year. This is largely unchanged from last year. No new activity of significance has been announced for the national cultural institutions, apart from a $4m loan to the National Gallery of Australia for refurbishment and building enhancements. The 2001-2002 appropriations are as follows:
The appropriations sound impressive, but include substantial funds for the repayment of the 'capital-use charge' which applies to collection assets and will be returned to the government's coffers. Funding of $18m has been allocated to the National Science and Technology Centre and includes funding for a new Smart Moves program to encourage young people to consider potential careers in cutting-edge fields such as communications and information technology. Other activities funded include the Educational Lending Right Scheme, the Public Lending Rights Scheme, and supplementary funding for the national Community Heritage Grants (administered by the National Library of Australia), the Australian Museums Online portal. The Department has increased the Book Industry Assistance Package by $950 000 and provided a special appropriation of $2.930 million for the Book Industry Assistance Program.
Information and communications technologiesThis year's budget contains no surprises or no new announcements for Information and Communication Technologies (ICT). The government had earlier this year announced two major initiatives that impacted on ICT.
Regional and rural telecommunicationsOn 15 May, Senator Alston announced a $1.63.1 million funding package to improve telecommunication services in rural and regional Australia. Issues addressed include timeliness of installations and repairs, mobile phone coverage and access to internet services. Some highlights of the package include:
While the package will moderately improve services, it is disappointing that no assistance was specifically targeted at libraries and information services in rural and remote regions of the country. If the government is serious about providing equitable service to electronic information, it cannot ignore a sector that provides access to these services. There is continued funding for key ICT programs including Networking the Nation and Building on IT Strengths. The forward estimates include the effect of the sale of the Commonwealth's shareholding in Telstra. The sale of the Commonwealth's remaining shareholding in Telstra is dependent on the passage of legislation through the parliament. The Government has committed not to introduce such legislation (2003 is speculated) until it is satisfied arrangements exist to deliver adequate services, in particular to rural and regional Australia. The immediate priority is to get more services into rural and regional areas, particularly in response to the Telecommunications Service Inquiry into the adequacy of service levels in rural and regional areas.
InnovationIn January this year the government released an innovation plan for the future called Backing Australia's ability. The strategy builds on existing support for innovation by boosting funding in key areas and introducing new initiatives. Backing Australia's ability provides $2.9 billion of additional funding over 5 years. Some highlights of the package include:
Post-GSTThe government's first post-GST budget is constructed on a framework of Treasury expectations: economic growth rebounding to 3.25 per cent; inflation falling to 2 per cent; unemployment rising to 7 per cent; and an underlying cash surplus of $1.5 billion to be funded with the help of a big dividend from the Reserve Bank Currency dealing. Forecasts rely on the United States economy not falling this year. The Commonwealth has guaranteed that in each of the transitional years following the introduction of The New Tax System, each state's budgetary position will be no worse off than had the reforms to commonwealth-state financial relations not been implemented. The Commonwealth pays the states transitional assistance (known as Budget Balancing Assistance) to cover any shortfall of GST revenue below the Guaranteed Minimum Amount (GMA). The GMA calculates the amount of funding each state would have had available to it under the previous tax system. Any shortfall in estimated GST revenue may result in increased expenses to the Commonwealth.
The doorstopsBusiness pundits, retirees, and superannuation organisation spokespersons were generally pleased with the Budget. Welfare organisations believed that there were wasted opportunities for welfare reform, and the issues facing aged-care were not dealt with. Opposition leader Kim Beazley said that the budget contains the clearest possible evidence that the GST has 'mugged' the economy, as growth is down and unemployment is on the increase. At the same time he said that this budget presents no vision at all for the future. Australian Democrats leader Natasha Stott-Despoja agreed on the vision thing, saying that the 2001-2002 Budget is not a budget for the 21st century. Stott-Despoja singled out the environment, education and training as being the areas least funded by the 2001 budget. Stott-Despoja argued that this budget only offers minimal compensation for problems of the government's own making. Australian Greens Senator Bob Brown yesterday described the budget as an extraordinary document reminiscent of the 1978 promise of 'a fistful dollars' by the then Coalition treasurer John Howard. Brown said that while the environment was mentioned in treasurer Peter Costello's Budget speech for the first time in three years, there is in fact no new money for the environment but rather 'simple trickery with the figures'.
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