Scott Morrison is on record as saying that no programs or services will be cut to pay for the tax cuts. The evidence, however, suggests that real government outlays will decline on a per capita basis, which would seem to mean that services will contract.
In Parliament last Thursday, the PM Scott Morrison was asked “What programs and services will be cut to fund stage 3 of the Government’s tax scheme?” His one-word reply was “None!”.
The facts however suggest otherwise.
First, according to the Budget documentation total government expenditure over the four-year forward estimates period is expected to increase at an average annual rate of only 3.5 per cent in nominal terms. Assuming an average inflation rate of 2.2 per cent, this means that the Government is planning for an average annual increase of only 1.3 per cent in real government expenditure over the next four years. This is less than the rate of population growth which means that real government expenditure will be falling per head. By any standards that must mean a decline in at least some government services.
But it actually gets worse in subsequent years. The Treasury in its Statement of the Pre-election Economic and Fiscal Outlook shows nominal government expenditure increasing even more slowly after 2022-23 than before. In other words, the scale of expenditure cuts increase further to pay for the third round of the Government’s tax package.
Second, in order to better understand the nature of this expenditure restraint, let us look at what it means for a key functional area such as health. Over the four-year forward estimates period to 2022-23, the Budget shows health expenditure increasing at an average annual rate of only 2.7 per cent. Even if we assume that the rate of price increase for health is only 2.2 per cent, that would mean a real increase of only 0.5 per cent per annum – a substantial decline in per capita spending. However, the Government has itself authorised an increase in health insurance premiums of 3.5 per cent, and the industry argues that even this rate of price increase understates the extent to which health costs are rising. So if we use the Government’s figure of 3.5 per cent for the increase in health costs, then it is planning for a decline in the absolute volume of health services, not just on a per capita basis.
Of course, one reaction is not to believe the Budget figures. Instead, many of us have assumed that these expenditure plans, as reported in the Budget, will prove to be ephemeral and the expenditures will blow out. That is one of the reasons why we have queried whether the Budget can afford these tax cuts. However, on the other hand, if the Government does adhere to its policies as outlined in the Budget, then it would seem that real expenditures will decline on a per capita basis, and some important ones, such as health, will decline absolutely and certainly will not keep pace with legitimate demands.
This would represent a contraction in services never previously sought by this Government nor any other before it.
So can we believe Scott Morrison? You be the judge.
But to my mind, one of the sad aspects of this sort of subterfuge is that it increases the public perception that politicians cannot be trusted. Personally, I willingly accept that an elected government has the right to implement its policies, but the counterpart is that those policies are not based on subterfuge.
Michael Keating is a former Head of the Departments of Prime Minister & Cabinet, Finance, and Employment & Industrial Relations. He is presently a Visiting Fellow at the Australian National University.