A budget of suicidal heroism

Heavy slashes into health and social services, totalling 88 per cent of spending cuts in the next four years, are what this budget is all about. No government has ever risked so much on such deep welfare rationalisation.

The thing that wasn’t leaked from this most leaked of budgets was the extent of the cuts to health and welfare.

An average of more than $6 billion a year is being cut from health and social services programmes -- $25.8bn over four years, from dozens of programmes. It goes far beyond what the Commission of Audit recommended, and is one of the biggest reductions in Australian health and welfare spending in history.

It turns out that this is what the 2014-15 budget is all about, not the budget repair levy, or the infrastructure spending, and it will undoubtedly be the big story in the weeks ahead, as the enormity of it sinks in.

Almost $30bn is being cut from government spending over four years, starting with $1.9bn in 2014-15, of which 88 per cent is coming out of health and social services. The rest comes from education, industry assistance and a huge cut ($7.6bn) to overseas aid.

And the really remarkable thing is that this great big cut in health and welfare spending does not translate into a big reduction in the deficit, and that’s because most of it goes on paying for the Coalition’s election promises.

Of the disappointingly small $4.1bn reduction in the deficit for 2014-15, from the $33.9bn estimated in the mid-year fiscal and economic outlook statement in December to the $29.8bn forecast today, $2.3bn, or 56 per cent, comes from cuts to health and welfare. Only 20 per cent comes from the new taxes.

But this builds over time. In 2016-17, the budget turnaround produced by this budget, compared with last year’s MYEFO, is $7.1bn. All of that comes from health and welfare cuts in that year.

What the political cost of these cuts will be only time will tell, but it must represent a huge risk for the 2016 election -- almost an act of suicidal heroism, assuming you agree that health and welfare spending need to be cleaned up. Unlike the budget repair levy, the cuts are permanent, and will continue to bite as the next election approaches unless future budgets wind them back.

No government in my memory has so risked its survival to a second term to provide such a deep and lasting rationalisation of health and welfare spending.

Two things perhaps demonstrate the risks: the cuts were not leaked even though everything else was, and the Treasurer, Joe Hockey, barely mentions them in his budget speech, almost as though he’s hoping no one notices. He singles out a few of the cuts for mention, such as indexation of the pension assets test and increasing the pension qualification age to 70, which doesn’t affect this budget.

I count 89 specific cuts to health and welfare transfers in this budget across a number of portfolios, including Treasury and Veteran’s Affairs, as well as Health and Social Services, adding up to $2.3bn in 2014-15 and rising to $9.5bn in 2017-18.

And they were certainly not flagged during last year’s election campaign, even though it’s clear from the extent and detail of the cuts that the Coalition must have been working on them for some time before the election. 

The spending cuts dwarf the two revenue measures that were comprehensively leaked: the temporary budget repair levy raises just $3.1bn over four years and the return of fuel excise indexation $4bn.

In fact the levy was probably needed more to give some meaning to the “share the burden” rhetoric than actually to raise much money. The cash is useful, of course, but it really just covers the Direct Action climate policy.

As it is this budget will produce cries of pain and outrage across the country; without taxing those on $180,000 a year another 2 per cent the losers would march on parliament, as they did in 1978.

Apart from that the infrastructure spending is welcome, although about half of it represents recycled tax from state-owned enterprises that must be sold for the money to be available, in the form of 15 per cent top-ups from the Commonwealth.

Apart from that -- not much. This budget is, overwhelmingly, a welfare tidy-up.