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Magazine of Socialist Action in Australia

Budget: New approach – same results

Workers and the poor to pay for Australia’s economic woes

The government’s approach to this year’s federal budget is markedly different to last year. Whereas last year Abbott and Hockey told us there was a “budget emergency” and that they needed to “end the age of entitlement”, this year they say that the budget is about “families” and “fairness”.

By Socialist Party reporters

If you look behind the Orwellian language however you find that, just like last year’s budget, this one is similarly designed to make workers and the poor pay for Australia’s economic woes.

The backdrop to this year’s budget is the falling price of iron ore. This has resulted in the big mining companies paying much less in tax to the government compared to previous years. The budget estimates that at least $20 billion less will be collected over the next four years.

This shortfall has contributed to a $41 billion deficit, and in an attempt to close this gap the government has announced a series of measures. The core aim of all of these measures is the protection of conditions for big business.

First and foremost the biggest cuts included in last year’s budget remain, including a $30 billion reduction in school funding and a $50 billion reduction in health payments. Abbott has also scrapped his proposed Paid Parental Leave (PPL) scheme. This yet to be implemented policy has freed up about $10 billion.

Prior to being elected Abbott said that PPL was one of his signature policies. However in recent weeks he has not only scrapped his PPL plans but has made moves to stop so-called “double dipping” – whereby parents are eligible for the limited government payment plus any payments that are available at a workplace level.

The previous scheme was designed to accommodate both payments, an acknowledgement that that the government scheme alone was inadequate. Abbott has not only refused to honour his promise on PPL but he has gone further by winding back entitlements altogether.

The biggest single budget saving, in terms of money already being spent, is $2.4 billion that will be cut from pensions. The government will either remove or reduce the part pension for at least 320,000 retirees by making changes to the asset test. While the changes are aimed at those with assets over $540,000 now, they are the thin edge of the wedge. Already some commentators are calling for more changes such as the inclusion of the family home in the asset test.

The government announced an ‘extra’ $3.5 billion for childcare but this amount is contingent on the Senate’s approval of reductions in family tax benefits. If allowed to go ahead these cuts to family tax benefits would add up to nearly $5 billion. At the same time many poorer families will be eligible for less care as harsh new ‘activity’ tests are introduced.

The so-called ‘big ticket’ item in this year’s budget was the $5.5 billion in tax cuts and accelerated depreciation for small businesses. Small businesses will have their company tax rate reduced from 30% to 28.5%. At the same time they will be allowed to write off equipment purchases of up to $20,000 for the next two years.

This measure is an attempt to stimulate spending but it is also designed to shore up the small business constituency – a key electoral base for the Liberal Party.

While small businesses are getting tax breaks, and taxpayer funded subsides to big businesses are being maintained, ordinary workers are being forced to pay more. The bulk of the improvement to the budget bottom line comes from ‘bracket creep’ – a process whereby wage increases lift workers into higher tax brackets.

The Financial Review reported that for every $1 the government saves in cuts it will take $2 extra via higher taxes. The average worker will be slugged an extra $1200 in tax a year with the average income tax rate rising from 21.7% now to 27.4% over the next 10 years.

While taxes on individuals will rise 8.5%, taxes on companies will rise a mere 0.3%. In short the government is seeking to take more from working class people while giving them less in the form of benefits and services. This is in order to improve conditions for businesses – the section of society that already makes profits at our expense.

The government claims it will save $1.5 billion by “cracking down” on ordinary welfare recipients but there are no serious plans to crack down on corporate tax cheats or indeed the billions of dollars of corporate welfare paid out. While the approach of the Abbott government is different compared to last year the results are the same – they want to see the “age of entitlement” over for everyone – except their rich mates.

While the measures being taken against ordinary people are bad enough, there is scope for things to get worse. By making working people pay more, the government hopes to return the budget to surplus in 2020. This however is predicated on extremely optimistic growth forecasts that rely on stability in the world economy and continued growth in China.

A more significant slowdown in China, or even another crisis engulfing the Eurozone, would see those hopes come crashing down.

Interestingly, while the tabloid press has followed the government’s cues by dishonestly claiming that ordinary people will not be worse off, the financial papers have complained that this budget does not go far enough. As the mouthpieces of the big business elite, the financial papers would have preferred that the Liberals made even more cuts and brought the budget back to surplus even quicker.

For them a budget surplus is required in order to provide economic stability, and so that company tax rates can be reduced even further. While Abbott would have liked to oblige, his dilemma is the political situation.

Abbott tried to implement a more naked big business budget last year but he was met with backlash and a series of protests. While Labor, the Greens, and the cross-benchers passed many of the measures, they were forced to bend to the popular mood and oppose some of the harsher proposals.

With gritted teeth the government has scaled back its ambitions to slash pensions, introduce a co-payment fee to see a doctor, and force young people to wait for the dole. This budget represents a change of tack whereby the cuts being introduced have been chosen more carefully so as to not provoke a reaction and in an attempt to wedge the opposition parties.

The benefits that have been dished out are aimed specifically at shoring up their electoral fortunes. It is not ruled out that the Liberals intend this to be the last budget of this parliamentary term. As Abbott has been able to claw back somewhat in the polls it is possible that he calls an early election either late this year or early in 2016. This would be an attempt to take advantage of Labor’s weaknesses and his (albeit very limited) new found fortunes.

Regardless of which major party wins the next election workers and poor people will still face the same problems. At base the rich are getting richer at our expense. Both the major parties are facilitating this process.

Far from accepting the idea that ordinary people should make sacrifices, we need to build a new political movement that fights to distribute society’s wealth in an equal and democratic way. That is the type of movement, and the type of society, that the Socialist Party is striving to build.