Only Labor can repair the budget bottom line

The Abbott government has demonstrated it would rather strip welfare from the unemployed than permit any threat to the inheritances of already well-off baby-boomers.

Only the Labor Party is ultimately capable of fixing the budget. This isn’t an indictment of the Coalition’s beliefs or the quality of its members, on the contrary. Instead it reflects two basic, timeless political tenets that have, inevitably, ­destroyed Tony Abbott’s first ­budget.

The first is that parties of the Left can in government cut spending and make free-market reforms with the support of parties of the Right from opposition. The second is the Coalition’s natural inclination to defend the privileges of its generally older, richer support base.

Fear of becoming a banana republic compelled Hawke-Keating Labor to slash real public spending in the late 1980s, sell Qantas, permit enterprise bargaining, and even introduce a GP co-payment. Rudd-Gillard Labor, for all its economic vandalism, reined in family tax benefits and pushed tens of thousands of single mothers on to the dole to save money with barely a political murmur.

By contrast, Joe Hockey’s laudable attempts to trim the rate of growth of health, education and welfare spending (not to mention Campbell Newman’s premature thrashing in Queensland) have foundered on the same predictable left-wing hysteria, however confected, that destroyed John Howard’s attempt at liberalisation of workplace laws.

Australia isn’t alone. It was Democratic president Bill Clinton who successfully enacted far-reaching and conservative welfare reforms. It was a hyper-liberal, ­reformist Labour Party that saved New Zealand from economic ­implosion in the 1980s.

All unjustified spending is bad but some is egregious. It is also the Coalition’s refusal to curb the egregious -- because of its voter base -- that has fatally undermined its budget repair strategy. In any crackdown on welfare, the first payments to go should be those to people who don’t need them in the first place. Tax-avoidance schemes and ­ineffective exemptions should be plugged before any rate of tax is lifted.

Yet the Abbott government has demonstrated it would rather strip welfare from the unemployed than permit any threat to the inheritances of already well-off baby-boomers.

Consider this. Households worth more than $2 million ­receive more than $500m a year in cash welfare (mainly age pension payments), according to ­NATSEM. Incredibly, $135m goes to those with more than $3m in assets -- people well within the top 5 per cent of the wealth ­distribution. Retirees in valuable homes who are cash poor could always sell or obtain a reverse mortgage to live comfortably, but that could see a reduction in their bequest -- a public-policy tragedy, from the Coalition’s perspective.

The Abbott government chose to ignore a Commission of Audit recommendation to include part of the value of retirees’ homes above $750,000 in the assets test, despite the fact at least one Coalition minister believes Labor would support such a principle.

The Coalition is trying to close some of the welfare and tax goldmines for the over 60s. The budget has flagged abolition of the absurd Seniors Supplement -- a $240m-a-year electoral bribe that pays $887 a year to pensioners who are too rich to even qualify for the age pension -- but it hasn’t been able to attract parliament’s support, doubtless hindered by an inability to call a spade a spade in public. The Liberals have fought hard for a long time to keep society’s most-comfortable on cash handouts. “We will scrap Labor’s assets test and scrap it immediately,” said Liberal leader Andrew Peacock before the close-run 1984 election against Bob Hawke, who introduced a pension assets test in 1985.

Superannuation is the Coalition’s other policy Achilles heel. In the twilight of the Howard government, in a remarkable act of base-bolstering at huge long-term cost to revenue, the Coalition allowed people to shift up to $1m into their super funds, providing a huge, arbitrary long-term tax cut to those who were neither expecting nor needing it.

Tony Shepherd, former head of the Business Council, and David Murray, former Commonwealth Bank chief, are not renowned social justice warriors, yet both have criticised the complex and vast array of super concessions that leak billions in revenue and do nothing to generate new savings that take pressure off the pension.

The Coalition could have extended the 15 per cent super fund earnings tax to all accounts (the over-60s pay zero), raised about $300m a year and aided simplicity to boot. Instead, it whacked an economically damaging 2 per cent budget repair levy on higher-­income workers that risks becoming permanent.

The budget does little to stop these fiscal obscenities and yet the Coalition wonders why it is failing. A Labor Party dedicated to restricting welfare to those who need it and plugging offensive tax would have more success. Sadly under Bill Shorten it offers little hope; its refusal even to permit ditching the Seniors Supplement is despicable.

Winning is the guiding aspiration of both major political parties. But their differing support bases and philosophies make left-wing parties better at managing and succeeding in fiscal crises.

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