Hockey to swing axe on public sector

More than 200 spending programs will be slashed in next week’s federal budget as Joe Hockey vows to shrink the size of government in a “big, structural change” to save billions of dollars.

Agencies will be closed and thousands of staff retrenched over the coming months in a drastic overhaul that will start with the loss of 3000 positions in the Treasurer’s own portfolio.

The axe will fall in major portfolios including environment, transport, industry, agriculture and indigenous affairs.

Mr Hockey told The Australian that spending cuts would do the “heavy lifting” in fixing the deficit, despite growing criticism of looming tax hikes including a lift in fuel excise.

“Revenue is not doing the heavy lifting in this budget,” Mr Hockey said.

As foreshadowed in The Australian yesterday, fuel excise will be increased to raise an estimated $2.4 billion over four years, amid accusations that the move would be another breach of Tony Abbott’s election pledge to keep taxes down.

The decision is another hit on top of an income tax increase likely to apply to incomes over $180,000 despite warnings from Liberal MPs against the idea.

Mr Hockey said there would be a “massive, massive cut” to government payments as a percentage of the economy over the coming four years and he hit back at concerns he might act too slowly on spending cuts.

“There won’t be any suggestion that we’re doing nothing when you look at the budget,’’ he said.

“It’s not a do-nothing budget, I can assure you, because there are a number of structural initiatives. Obviously, when there are structural initiatives, they take time. But where we can we have started initiatives on the first of July this year or next year.”

Westpac chief economist Bil  Evans yesterday forecast only “modest” savings measures in the budget, regardless of the ­government’s rhetoric, while Barclays chief economist Kieran Davies tipped a “slow improvement” in the budget balance.

Mr Hockey insisted that there would be spending cuts to achieve a surplus of 1 per cent of GDP by 2023-24, but he said “broken” systems in health and welfare would make it hard to ­enforce rapid change in those areas.

“My main concern is that we have a credible path back to surplus, a credible path to 1 per cent of GDP by 2023-24, a credible pay down of debt and a credible growth strategy for the medium and long term for the Australian economy,” he said.

The cuts to more than 200 programs illustrate the scale of the savings measures to be included in the budget on Tuesday night. Programs will be scrapped or scaled back and merged with other activities in order to cut ­administrative costs, making more federal job losses inevitable.

The Australian Taxation Office, in Mr Hockey’s portfolio, will have to retrench about 3000 staff between now and October and similar impacts are expected at other agencies and departments.

“The only way to reduce the size of government is to have structural change,” Mr Hockey said.

“And the only way to really have an impact on attitudes in the public sector is to get rid of programs.

“You can have lots of small programs that involve a massive amount of red tape with very little outcome.

“What we’ve got to do is refocus the energy of the public sector in Canberra.”

The plans appear to risk ­another broken promise if the government enforces redundancies at major agencies, conflicting with Mr Abbott’s election policy to cut the public sector by 12,000 jobs using natural attrition rather than forced retrenchments.

Finance Minister Mathias Cormann dropped the policy of natural attrition two months after the election, when he claimed that thousands of redundancies under Labor meant the Coalition plan had to be reconsidered.

The decisions will escalate the political attacks on the Coalition as Bill Shorten warns of cuts to basic services and the main public sector union predicts up to 25,000 job losses from the recommendations of the National Commission of Audit.

Former treasurer Wayne Swan accused the government of attempting a “fiscal fabrication” by adjusting growth forecasts to produce much greater budget deficits over the next few years and provide an excuse for breaking election promises.

Treasury’s budget update before the election forecast $63bn in deficits over four years, but Mr Hockey revised this to $123bn in his first budget document last December.

“They’ve doubled the deficits over the forward estimates by $68bn through decisions they’ve taken including by giving tax cuts to big polluters and big miners and not continuing with revenue measures which stop tax evasion by multinational companies,” Mr Swan said yesterday.

The former treasurer has defended Labor’s record by saying the previous government had been hit with blows to tax revenue at a time when the Coalition blocked attempts to make savings.

“Right through that period they continued to argue the problem with the budget was spending, it wasn’t revenue,’’ Mr Swan said.

“And then suddenly — hey presto — it’s become a revenue problem because they’re in a tight political situation.”

The ATO was already cutting jobs as a result of decisions made late last year to reduce its 25,000 headcount by about 900 by June. The budget will set an additional target of 3000 positions.

Mr Hockey said the redundancies would not pose any risk to the ATO’s ability to raise revenue and he expected his ministerial colleagues to make similar cuts to their departments or agencies.

“I’m taking my bit in my portfolio. I’m asking (others) to reduce the size of government,” the Treasurer said.

Redundancies will also result from the closure of agencies or parts of departments.

“There are a number of agencies that are going to be abolished,” Mr Hockey said.

“There are agencies that are going and there is some consolidation in the public sector.”