Audit commission urges Abbott to slash welfare, services

Painful cuts to welfare and basic services are being urged in the audit commission's plan to slash $70bn a year.

Painful cuts to welfare and basic government services are being urged in a five-volume plan to slash $70 billion a year from federal outlays that presents Tony Abbott with dozens of deeply controversial measures he will be challenged to reject.

The “formula for the future” from the National Commission of Audit outlines savage cuts to the age pension, unemployment benefits, family tax benefits, the Medicare Safety Net, the Pharmaceutical Benefits Scheme and other programs used by millions of Australians.

The audit report calls on the Abbott government to retreat from health and education and other services to avoid duplication with the states while warning against the cost of new initiatives like the National Disability Insurance Scheme, which it seeks to delay by three years.

It sets out 10 major asset sales including short-term proposals to sell Snowy Hydro and Defence Housing Australia, along with long-term plans to sell Australia Post, the Royal Australian Mint and the Australian Rail Track Corporation.

Sparking debate ahead of Mr Abbott’s meeting with premiers tomorrow, the report suggests giving states the power to raise income tax and dividing $50 billion in annual GST revenue according to the size of each state’s population, an idea vehemently opposed by Tasmania and South Australia.

The recommendations are far more severe than some of the proposals being aired by federal ministers to “share the burden” of budget reform, but the government is only planning to adopt some of the ideas in the May 13 budget and leave others for future debate.

Rejecting Mr Abbott’s signature paid parental leave policy in its current form, the audit commission calls for the payments to be capped at average earnings of about $57,500 a year.

This would limit payments to $28,000 for the wealthiest new parents, available to all with no means test, rather than Mr Abbott’s new limit of $50,000 announced in recent days.

Family Tax Benefit B, which goes to families with partners who do not work, would be abolished while Family Tax Benefit A would be drastically curtailed so the payments would start falling once a household exceeded $48,837 in annual income.

As revealed in The Australian today, the report calls for the family home to be included in the asset test that determines the size of the age pension.

The pension change would not take effect until 2027-28 and would only limit the payments to coupled pensioners with homes worth more than $750,000 in today’s dollars -- a proposal that Mr Abbott will reject in this term of parliament but which could shape debate in the next.

In a sign of how the government may go beyond some of the audit findings, Treasurer Joe Hockey has already signalled an increase in the retirement age to 70 by 2029, compared with the commission’s suggestion of 2053.

Unemployment benefits would be taken away from young people aged 22 to 30 who do not have dependents or special exemptions and are not willing to relocate to “higher employment areas” after getting the benefits for 12 months.

While few people would lose benefits immediately, Commission of Audit chairman Tony Shepherd said it sought to tighten eligibility for welfare and slow the growth in payments to those who remain eligible.

“Our general rule is to spread the pain across everybody from corporates through to the middle class,” Mr Shepherd told The Australian.

Mr Shepherd described the report as a “formula for the future” that was essential to prevent taxpayers being burdened with unsustainable spending.

While the measures are politically unpopular, those behind the report argue that those who reject the recommendations would have to find alternatives to achieve similar savings.

The federal budget on May 13 will respond to the report by accepting some of its proposals but also finding other savings to meet the central target, shared by the audit report and the coming budget, of producing a budget surplus by 2023-24.

Healthcare is a major target for reform in the audit report, which calls for a $15 co-payment on visits to GPs, compared with the government’s plan for a $6 charge, with the cost falling after 15 visits a year.

The Medicare Safety Net would be increased to $4000, beyond the reach of most families, and subsidies for medicines would be cut.

General patients would have to pay a higher co-payment, up from $36.90 to $41.90, for medicines that are subsidised by the Pharmaceutical Benefits Scheme.

The audit report shows that government spending would rise to $690 billion by 2023-24, compared with $409 billion today in a “business as usual” scenario that is central to the claim -- rejected by Labor -- that the nation faces a “budget emergency” and must slash services.

There are no detailed costings of individual measures, with those on the commission arguing it is hard to be precise, but the full suite of 86 recommendations is estimated to produce savings of $60 billion to $70 billion by 2023-24.

That amounts to an across-the-board cut of 10 per cent to all outlays.

While there is no formal estimate of how much the measures would cut future interest expenses on the commonwealth debt, it is understood the figure is about $20 billion a year by 2023-24. The annual interest bill is about $12 billion a year and is mounting steadily as deficits continue.

In addition to the list of asset sales, core government functions such as visa processing and welfare payments would be outsourced to the private sector.

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