Robbing Peter to tax Paul

Joe Hockey’s health and education cuts will be extremely difficult to sell - and the sweeteners he relies on to win over voters are comparatively small.

Across numerous branches of government, the politics of selling this budget are predicated on a simple principle: don’t dwell on what you’ve lost, but look at what you’ve gained.

In some cases, that may almost work. The fuel excise increase, for instance, funds numerous road projects that among other things amount to an $11.6 billion jobs and stimulus package.

Staring at the bowser numbers ticking higher, motorists might therefore remember not just that the Abbott government has inflicted a little economic pain, but that Australia is entering an exciting phase of jobs, growth and the creation of lasting assets ... perhaps?

But the two areas that will prove much, much harder to sell are in health and education. Both areas are being radically reshaped towards user-pays (or partially pays) systems, but it is going to be far harder for voters to remember what they’re getting in return.

In principle, of course, there should not be a quid pro quo. The government is saying we cannot afford current expenditure growth because there is not enough tax revenue to cover it -- so cut it, end of story.

Perhaps future generations of historians will see the political mistake as being the offer of any quid pro quo at all to compensate aggrieved voters. But that is what the government’s sales pitch relies upon.

In health, here are some of the main things voters ‘lose’:

– A $7 per visit co-payment for Medicare services, worth $3.47bn over the forward estimates.

– Changes to the funding model for public hospitals, saving the budget $1.77bn.

– Freezing of indexation for Medical Benefits Schedule services, saving the budget $1.68bn.

– Co-payments for drugs under the Pharmaceutical Benefits Scheme, saving the budget $1.27bn over forward estimates.

Those reforms alone are worth $8.2bn to the budget bottom line, or put another way will cost voters, or state governments (in hospitals funding) billions.

And what do they get in return? A $20bn Medical Research Future Fund.

A what?

A $20bn Medical Research Future Fund. Yes, $5 from each of those Medicare co-payments will go into building a giant fund for medical research that no doubt has the backing of the research community, health economists and so on. That is, it probably makes sense to re-establish our expertise and intellectual property in a field directly relevant to an ageing population.

But can voters be made to care enough about all that to offset the pain of shelling out billions more a year to ‘co-pay’ for their health care? That’s a big political gamble. We shall see if it works, when welfare groups, unions, the opposition and no doubt many medical practitioners will line up to savage what are actually huge health cuts.

In education, the same principle is being applied. The government is radically changing the way post-secondary education is funded.

It will un-cap university fees, as well as un-capping the amount students can borrow (at the government’s long-term bond rate rather than indexed to CPI) to pay the fees.

Thus a law degree from the University of Melbourne, which is more likely to get you into a top law firm than a degree from a smaller uni, will cost whatever student demand dictates – and individuals will choose whether it’s worth borrowing heavily through the un-capped HELP loans scheme to fund such study.

At the same time, it will lower the repayment income threshold – it estimates that students will start paying back their loans when their incomes hit $50,638 from 2016.

Importantly, however, the cost of providing that loan – the 10-year bond rate at which the government borrowed the money – is the amount by which each graduate’s debt will increase each year, rather than CPI.

In any future credit squeeze, therefore, the student will pay the cost of the loan, rather than cover the ‘inflation’ on their loan principle for that year. All told, this is expected to save the government $3.2bn over forward estimates.

The government also saves money through another radical shift in higher education and training policy.

Whereas previously the HELP loans system covered degree-level study, the government wants it to cover other qualifications – higher-education diplomas, advanced diplomas and associate degrees.

Many of these qualifications are cheaper to provide than university degrees, so the government can fund a potentially larger number of students, but with a greater proportion in cheaper, more vocational courses.

In the short term, that will take more youngsters out of the unemployment statistics, and probably take some pressure off the universities where demand-driven funding has crammed hundreds of thousands of additional students in over recent years. Demand-driven education just got a whole lot bigger, but not all through universities.

These measures will save the government $1.13bn over forward estimates.

The other ‘major saving’ in the government’s education tables involves scrapping the over-generous (but much loved) ‘Tools for your trade’ programme. That was set to cost $914 million over forward estimates.

Across health and education, voters are going to ‘lose’ a lot. In return they’ll get a world leading medical research fund, and in education they’ll get more opportunity to fan out across a wider range of study/career paths with public assistance.

But can voters really digest all of that? Or will they just say ‘we liked what we had’?

The latter seems more likely – and Labor will be there to offer to give it all back to them.

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