A plan of grand ambition, not austerity

The Commission of Audit has thrown all the balls in the air via a federal-state affairs shake-up. That will cause much debate and take some heat off the Abbott government.

The key political function of the Commission of Audit report released this week is to create noise. Lots of noise.

That is not to say that the exercise is not needed, or that the commission has done a bad job -- quite the reverse. Australia is due for such an exercise and the commission’s work is extensive, considered and in many instances non-partisan.

That said, the scale of this exercise is enormous and much more ambitious than the fat-trimming exercise launched by Peter Costello in 1996.

This document goes much, much further. As such, it will launch or reinvigorate dozens of important debates in politics that will take some of the media focus off the government’s current fiscal dilemma -- keeping in mind that the Abbott government’s dilemma is both a fiscal problem, and the unrealistic promises that were made about government services and spending before the last election.

Noise, then, is good for Abbott. The nation will fight over policy issues that yesterday were largely off the agenda. And in the meantime some of those debates, if leading to firm policy, will result in cost cutting that will lessen the dreadful dilemma that, until Thursday, was starting to cause real damage to the government.

The most extraordinary of the report’s recommendations is for a dramatic rebalancing of federal-state affairs. In essence, the commissioners want to give the states back tax powers that were surrendered (by agreement rather than in a constitutional sense) during the Second World War.

Specifically, the report argues that large chunks of income tax be given back to the states, starting with a 10 per cent ‘state surcharge’ -- possibly increasing if the states wish to do so.

With that large dollop of money would come large new responsibilities in health and education in particular. The move would do much to return Australia to a true federation of states, rather than weakened states begging Canberra for largesse.

The states would, at the same time, be handed back all their GST. The method by which this could be done, in political terms, is spelled out in the document. Recipient states (such as Tasmania) that would lose GST revenue to donor states (such as Western Australia), would simply be reimbursed out of federal coffers -- costing, at the start, $4.9 billion a year.

Presumably that top-up would diminish over time -- one suspects that Tasmania, South Australia and the NT would end up, many years hence, not getting any more than they could raise through GST, though that is not spelled out in the document.

Beyond that seismic proposal, there are many hot topics that will bring fierce criticism from Labor and the Greens, animated debate, and wonderful noise, noise, noise.

Pension change proposals have been pushed far into the future, so as not to offend oldies now. For instance, means testing the family home would start from 2027/8 and include, in today’s dollars, the portion of a home’s value above $500k for singles and $750k for couples.

In health, the commission would like to see wealthy Australians pay much higher Medicare levies - 1.5 per cent rising to 3.5 per cent for families earning $272k, for instance. Let the ‘class war’ arguments begin!

Smokers, it is proposed, will have to pay more for health insurance. While some libertarians might not like that, it would save a lot of money.

Also in health, a new ‘Phamaceutical Benefits Scheme Entity’ would be set up to more closely monitor where the wrong drugs were being favoured, and co-payments for drugs would increase.

On the ‘middle-class welfare’ front, the commission wants Family Tax Benefit part B scrapped, replaced with a more targeted single-parent supplement. This overturns the Howard government’s desire to give parents more choice about staying home, but does not disadvantage single parents who are forced to (at least some of the time).

More importantly (and an example of that non-partisan spirit), the commission wants the Abbott PPL scheme slashed in half - with the benefit cutting out at the average annual wage (not even the average full-time wage) of $57k.

That would save around half the $5.5bn scheme’s cost. But rather than save that money, the commission wants it spent on childcare support – a very sensible suggestion, as that would do far more for female participation in the workforce than the currently proposed ‘gold-plated’ PPL scheme.

Two important political hot-potatoes are essentially not dealt with in this report.

Firstly, funding to the ABC and SBS is not ‘slashed’ as some expected, but it is suggested their performance be benchmarked against one another, and against commercial media, to see if, one day, they should be slashed. Political problem deferred -- phew!

The second is the potential to raise uni fees. Though the commissioners would like the HECs and HELP systems to pay 55 per cent of the cost of degrees (currently it’s 40 per cent), they admit that may not be easy to achieve and conclude “further work is required” before a real plan for allowing uni fees to be raised is possible. Political problem kind of deferred.

This is a historic document that could change the shape of the nation. It is a good starting point for many difficult debates. And it is also a wonderful smoke screen for some of the pressing fiscal/services problems that the Abbott government could not have successfully solved - despite its pre-election promises - during this term of government.

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