Keating's budget strategy: son of Fightback


By Jennifer Thompson

The clamour of demands for action to cut the federal budget deficit and current account deficit has risen in the past month to a cacophony. Federal Labor faces the recurring problem associated with a period of economic upturn. This is a blow-out in the current account deficit.

The revamped Liberal Party has made much of the $21 billion budget cuts wish list leaked to the media on February 9, but behind their new sharing and caring image lies substantial agreement with many of the government's proposed options. In fact, many cuts canvassed in the government list bear a remarkable resemblance to those outlined in the Liberal Party's Fightback II.

This stage in capitalism's cycle of upturn and recession is trickiest to manage. This is where earlier governments have foundered on the rocks of high inflation and balance of payments crises. The trigger for the current demands for fiscal tightening was the release in January of the government's mid-budget review, predicting a blow-out in the current account deficit to around $26 billion — just under 6% of GDP.

Driving the government's agenda is the need to slow domestic demand and increase "national savings". The "national savings" catch phrase is really just a way of describing the further redistribution of wealth from workers to an investment pool for the use of big business. The intended effect would be to bring the current account deficit back to a "sustainable level", regarded by Reserve Bank governor Bernie Fraser as 3% of GDP, and to maintain foreign investor confidence in the Australian economy.

The government's strategy will be revealed in the May budget, which is likely to increase private savings through an employee superannuation contribution and to cut public spending. Particular targets for cuts are universal welfare payments — termed "middle class welfare" by opponents of the social wage — and payments to those least able to fight back.

There have been calls from unions and welfare organisations to increase taxation on high income earners and big business, but Labor's strategy is likely to be exactly the opposite. The government is running on the idea that it is counterproductive to tax high income earners because that only shifts savings from the private to public spheres. Leaning on middle and lower-income earners through user pays, inequitable taxation and spending cuts is considered more effective. Sucking up the wealth that ordinary people would have spent on buying a house or a car dampens domestic demand and increases revenue, thereby boosting public savings.

In a political climate that has made the introduction of a general consumption tax or higher income taxes on ordinary people very difficult, support for the proposed 3% employee superannuation levy has grown amongst government and business economists. The levy would divert the incomes of those at the middle and bottom into private savings, which undermines the old age pension and has little effect on high income earners, who mostly already voluntarily contribute to superannuation funds.

The ACTU's tacit agreement to the phasing in of such a levy has virtually guaranteed its introduction.

The alternative to user pays for services like health care and education is free services funded by a tax system which ensures that all people pay according to their ability to do so. If the government was really concerned about the upper and middle classes paying for services, it would simply increase taxes on these groups rather than introducing fees and means testing.

These items are "big-ticket" — it is estimated that tightening the income test on Austudy, means testing nursing home benefits and increasing patient contributions under the pharmaceutical benefits scheme will save over $700 million over four years.

Proposals being canvassed for higher education include tightening the means test for Austudy in the short term and abandonment of the policy of reducing the age of automatic independence to 22, while in the longer term changing all Austudy assistance to loans to be repaid through the Higher Education Contribution Scheme. HECS charges for all university tuition would be increased but more so for higher-cost courses such as medicine. Such measures would be combined with a reduction in government funding and encouragement to universities to seek alternative funds (such as full postgraduate fees).

Medicare is also a major target, with proposals for reducing payments for hospital care for higher and middle income earners and the introduction of co-payments for all services. The Financial Review pointed out that the key would be to extend the co-payment to pensioners, who are the largest consumers of medical services. The Institute of Public Affairs, which has urged budget cuts of $15 to $16 billion over two years, has calculated that a $5 co-payment with the introduction of a safety net would save the government over $1 billion per year. Much of the savings would occur because the system would discourage pensioners from making "unnecessary" visits to the doctor.

Other pensioners' payments are being particularly targeted. The leaked budget documents propose "developing options to neutralise the impact" of Labor's 1990 promise to maintain the pension at 25% of average weekly earnings. The "safety net" payments associated with introducing a $5 Medicare co-payment and increasing the costs of drugs would be included in the calculation of pension levels.

In addition, government spending on all pensions and allowances — a big ticket item associated with the most politically and economically marginalised sectors of society — could be cut by $805 million over four years if the bi-annual indexation of these payments is abolished.

It is only mobilisations of workers, students and welfare beneficiaries that will be able to challenge the view that we should be paying again for the failures of big business and its economic system. Students at the Australian National University, with the support of public sector workers, last year succeeded through protest actions in warding off the imposition of full fees for postgraduate courses. Other sectors could succeed with a similar strategy.

Despite the bipartisan support for these big spending cuts, unions and the ACTU leadership have taken no major action to defend the living standards of workers. Union bureaucrats have not wavered in their political support for Labor, despite the fact that it is totally compromised by 12 years of grovelling to big business. We need a political alternative that is prepared to mobilise ordinary people to defend their rights and living standards.

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