My alternative budget 2018 -19

This is the fifth year I have presented an alternative budget in the Australian Financial Review. Each year I hope the government will implement enough of my recommendations to restore the country’s finances to a healthy state.

The budget in May needs to cut spending to deliver an immediate budget surplus and start the massive task of repairing the Commonwealth balance sheet (ie pay back the debt). Company tax cuts are a good idea, but unless the Government learns to live within its means they will merely prevent Australia from losing more of its international competitiveness. And once spending cuts are underway, more broad-based tax cuts will be achievable too.

And the Prime Minister would finally stand for something.

Government spending is too high

Current expectations are for a budget deficit next year of over $20 billion. That’s more than $700 of new borrowing, on top of our existing debt, for every man, woman and child in Australia. It will also be the eleventh budget deficit in a row.

This is borrowing to spend rather than invest. It’s a burden for the next generation, and it shows the Government is clearly not living within its means.

However, the expected deficit is not the result of low taxation. Commonwealth tax per person next year will be nearly $15,000 — higher than it has ever been. It is the result of ever higher government spending. Per person spending is already higher than it has ever been, and is set to grow.

So to eliminate the budget deficit, it is government spending that must be reduced.

How to cut spending despite Senate obstruction

The current Senate generally blocks spending cuts that require changes to stand-alone legislation. Thus spending cuts need to be achieved through budget bills, which the Senate has not blocked since the dismissal of Gough Whitlam.

This is a tough ask, because only $110 billion of government spending each year is authorised by way of budget bills. The remaining $370 billion of spending comes from the enduring authority of stand-alone legislation, such as the Social Security Act 1999.

Cutting more than $20 billion from government spending through the budget bills requires a rethink about the role of government. It also requires the abolition of government agencies in their entirety.

For instance, the Government need not remain involved in research. If research has a commercial purpose, it can be funded by business. If research is non-commercial, it serves a global, altruistic purpose and should be funded from voluntary contributions rather than compulsory taxation of Australians. Given this, eight Government research bodies, including CSIRO, should be defunded in the budget bills.

Government is also not responsible for culture. It is society that determines our culture, not Government. Thus the budget bills should defund eight bodies including the ABC, the Arts Council and the Sports Commission. We should also stop using borrowed money to expand the collections in our national museums.

And industries beyond the arts and sport can look after themselves as well. So the budget bills should defund Austrade and Tourism Australia, and should limit ACCC funding to its product safety and infrastructure regulation functions.

The budget bills can stop or pare back funding for a range of small, obscure bureaucratic agencies that do little of value. Similarly, funding for law enforcement agencies devoted to the war on tobacco and cannabis smuggling can be discontinued.

It is not the role of government to discriminate in the provision of services based on our ancestry. So the budget bills should defund four agencies providing services on the basis of indigeneity rather than need.

And funding for various agencies should cease to allow the Commonwealth Government to withdraw from areas of State responsibility.

Cutting spending on government agencies in this way will save $5½ billion per year, all achievable via the budget bills which do not require the Senate to be won over.

Government agency spending cuts achievable in the budget bills, to avoid Senate obstruction

Research: Defund CSIRO, the Nuclear Science and Technology Organisation, the Marine Science Institute, NHMRC, Cancer Australia, the Institute of ATSI Studies, the Family Studies Institute and the International Agriculture Research Centre

$2,250m

Culture: Cut national museums funding and defund the ABC, SBS, the Arts Council, the Film TV & Radio School, Screen Australia, the National Capital Authority, the Sports Commission and ASADA

$2,135m

Market interference: Defund Austrade and Tourism Australia and Cut ACCC funding

$613m

Bureaucracy: Defund the Digital Transformation Agency, the Public Service Commission, the Mental Health Commission, the Grants Commission and the Workplace Gender Equality Agency, and cut Human Rights Commission funding (limiting it to discrimination investigations), National Archives funding (limiting its gatekeeping role to documents with the top security classification) and AUSTRAC funding (limiting its scrutiny of transactions to instances of probable cause)

$199m

Drug crime: Cut funding for AFP and Border Force re cannabis and tobacco smuggling

$182m

Indigeneity: Defund Aboriginal Hostels Ltd, Indigenous Business Australia, the Indigenous Land Corporation and the Torres Strait Regional Authority

$121m

State responsibilities: Defund the Great Barrier Reef Marine Authority, the Director of Commonwealth National Parks, Safe Work Australia, the National Transport Commission, Infrastructure Australia and the Infrastructure & Project Financing Agency

$61m

Total

$5,561m

As well as defunding entire government agencies, the budget bills can also achieve large cuts to spending by reducing the allocations to government departments.

The budget bills should be used to cease government-provided foreign aid, other than short term disaster relief. Governments should only do things that private individuals cannot do themselves, yet private individuals can readily donate money for foreign aid. The Government should do no more than use its military and public health capabilities in the immediate aftermath of natural disasters. Once it moves beyond that, government‑provided foreign aid has a poor track record.

The Government should charge all family reunion migrants at least $45,000 each for entry, and skilled migrants $5,000. This can be done without requiring Senate approval, and the extra revenue would facilitate reduced taxpayer funding of the Department of Home Affairs in the budget bills. Imposing significant charges for entry to Australia would also encourage a more productive mix of migrants.

Through the budget bills, the Government should abolish the Departments of: Infrastructure, Regional Development and Cities; Industry, Innovation and Science; the Environment and Energy; and Communications and the Arts. These are essentially departments of pork-barrelling, interfering with industry, and duplicating state governments. Indigenous programs in the Prime Minister’s Department and sports programs in the Health Department can also be defunded through the budget bills.

For the Commonwealth public service that remains, a four per cent cut in operating costs should be delivered through the budget bills, in recognition of the continuing excessive growth of public sector wages. If public sector wages grew at the same rate as private sector wages over the past three years, they would be four per cent lower than they are today.

Details of these proposed cuts to spending in government departments, totalling $15 billion, are shown in the following table.

Spending cuts achievable in the budget bills, not subject to Senate obstruction

Abolish foreign aid other than short-term disaster relief

$3,860m

Reduce funding to Department of Home Affairs to offset extra revenue from charging all family reunion migrants at least $45,000 for entry, and skilled migrants $5,000

$2,086m

Abolish the Department of Infrastructure, Regional Development and Cities (transferring oversight of territories and transport safety agencies to the Department of Finance)

$2,600m

Abolish the Department of Industry, Innovation and Science

$975m

Abolish the Department of the Environment and Energy (transferring management of Antarctic Territory to the Department of Finance)

$937m

Abolish the Department of Communications and the Arts (transferring management of radiofrequency spectrum to the Department of Finance)

$602m

Defund indigenous programs within the Department of Prime Minister and Cabinet

$1,631m

Defund sport programs within the Department of Health

$28m

Cut four percent from remaining operating expenses internal to the public service (but exempting the Department of Finance in light of its additional functions)

$2,269m

Total

$14,988m

The proposals to cut spending in both government agencies and departments primarily reduce spending within the public service; not spending that merely passes through the public service. Thus the impact would be concentrated in the public rather than private sector, and in Canberra rather than the rest of Australia.

Around 34,000 public service jobs would be lost in Canberra, causing the unemployment rate in the ACT (currently the lowest of all the States and Territories) to rise.

There would be one-off cost of redundancies, but the budget would be put on a sustainable footing, and skilled public sector workers would become available for productive employment in the private sector. Commonwealth staffing would return to levels last seen in the early 2000s, although more than 200,000 Commonwealth employees would remain.

These cuts to government agencies and departments, achieved via the untouchable budget bills, would reduce annual government spending by $20½ billion. This would eliminate the budget deficit, including the impact on revenue of the Government’s company tax cuts.

Spending cuts to take to the election

Spending cuts beyond those achievable in budget bills should also be announced in the upcoming budget.

For such spending cuts to become law, the Senate would need to agree to amend stand-alone legislation, like the Social Security Act 1999. Getting the current Senate to agree to that is unlikely.

Yet announcing an intention to seek such spending cuts would present voters with a clear option ahead of the approaching federal election. For instance, knowing that the Greens oppose the cuts, electors in each of the States could then vote to remove six of the nine Greens Senators at the coming election, to deliver a Senate that would pass the cuts.

The spending cuts I propose should nearly halve the size of the Commonwealth Government, in line with costings I have obtained from the Parliamentary Budget Office and published at www.aph.gov.au/pbo.

Under my proposals, funding for health-care would be directed to patients rather than a complex web of doctors, pharmaceutical companies, health bureaucrats and insurance companies. Care for the poor and the chronically ill would improve, everyday Australians would control their healthcare through their own healthcare savings accounts, and taxpayers would reap savings from the elimination of gross inefficiencies and cronyism.

University subsidies and welfare for post-school study would be abolished. It is unfair for those without the benefit of post-school education to be forced pay for the post‑school education of others, although income-contingent loans would continue so that nobody was liable for upfront costs.

The federation should be respected and duplication avoided by getting the Commonwealth Government out of the school funding business. In fact, all grants from the Commonwealth Government to the States, Territories and local government, including GST revenues, should stop. State, Territory and local governments would then have to decide whether to charge for services or raise their own taxes.

Most of all, the welfare state should be scaled back, with welfare reserved for the poor rather than the middle class, and for citizens rather than non-citizens. These welfare changes alone would save more than $60 billion, or $2,400 per Australian, each year.

Government spending cuts requiring Senate agreement

Stop university subsidies, while retaining income-contingent loans

$7.7b

Stop Commonwealth intervention in schools

$19.1b

Introduce a means tested medical expenses subsidy to replace Medicare, Pharmaceutical Benefits, Commonwealth grants to States for hospitals and the private health insurance subsidy

$44.3b

Abolish other grants to the States, including GST revenues

$78.5b

Stop welfare for post-school study

$1.3b

Limit Family Tax Benefits to the poor

$3.8b

Abolish taxpayer-funded paid parental leave and limit child care subsidy eligibility to taxpayers earning less than $100,000

$3.2b

Make income and asset tests for welfare comprehensive (e.g. include the home in the age pension asset test)

$21.6b

Allow and require superannuation to be drawn down before claiming working-age welfare

$10.5b

Make most non-citizens ineligible for welfare

$13.1b

Abolish welfare supplements other than rent assistance

$7.2b

Abolish agencies protected by stand-alone legislation: the Research Council, the Clean Energy Regulator, ARENA, the Northern Australia Infrastructure Facility and the Australian Communications and Media Authority. Cut the Fair Work Commission following the paring back of its legislation. Limit agricultural research funding to levy revenue collected.

$2.7b

Total

$212.9b

Tax cuts to take to the election

By cutting annual spending by $20½ billion through budget bills, the Government would balance the budget.

But if the Government went further and took my proposals for more ambitious spending cuts to the election, it could also responsibly offer voters the biggest tax cuts in history. My costings for these tax cuts are also published at www.aph.gov.au/pbo.

The company tax rate should be immediately reduced to 20 per cent. This would beat the US rate although it would still be higher than the rates in many countries with which we compete for mobile foreign investment, like the United Kingdom and Singapore.

Deep, across-the-board personal tax cuts, worth more than $5,000 on average per Australian, would allow more of us to pay our own way rather than rely on government hand-outs. A tax-free threshold of $40,000 and flat tax rate of 20 per cent thereafter would help every taxpayer. Work and entrepreneurship would be rewarded, and those with global work prospects would be encouraged to make Australia their home.

Superannuation taxation should also be cut to reduce the government’s promotion of spending instead of saving.

Fuel tax should be abolished, given the unfair burden it places on those in regional Australia who enjoy little road funding, and on those in our outer suburbs who pay for their road use with tolls. Luxury car tax should also be abolished, particularly as we no longer have a car manufacturing industry calling for protection.

Alcohol tax should be abolished as it not a legitimate role of government to coerce us to live like monks and punish us when we don’t. The same applies to tobacco tax.

Unlike New Zealand’s comprehensive GST, Australia’s GST excludes various items regarded as essentials, like water. Given this, electricity should also be made GST-free. This would provide some relief for households from government-induced power price hikes. GST should also be removed from tampons and sanitary pads.

Cost of living pressures should be further eased by abolishing import tariffs.

This adds up to an election pitch to give back more than $8,000 on average per Australian.

New tax cuts to take to the election

Raising the tax free threshold to $40,000, cutting all personal income tax rates to 20 per cent, and abolishing the Medicare Levy

$136.0b

Cutting the company tax rate to 20 per cent

$17.0b

Abolish tax on superannuation contributions and earnings, with tax only on the resulting withdrawals

$22.4b

Abolishing fuel tax, car tax, alcohol tax, tobacco tax and import tariffs

$34.7b

Remove GST from electricity and from tampons and sanitary pads

$1.8b

Legalising cannabis, leading to increased GST revenues

-$0.3b

Total

$211.6b

The Politics

On its current course, the Coalition Government is set to lose office regardless of who leads it to the election. A key reason is the Coalition appears afraid to stand for anything.

A cut-through message that all Coalition politicians could proudly campaign on is slashing the public service in Canberra, living within our means, ending the entitlement culture, and delivering thousands of dollars of tax cuts into the pockets of everyday Australians.

The budget that I propose would see the Government wrest control of the agenda from the Senate and give voters something to vote for.

David Leyonhjelm is the Liberal Democratic Senator, first published in the Australian Financial Review 03/05/2018