Labor's me-too budget

May 17, 2008

The Rudd government's first budget, touted as a "Robin Hood" budget, takes very little from the "rich" and gives practically nothing to the poor and disadvantaged. In its fundamentals, it continues on from where the former Howard Coalition government left off.

It increases war spending and misdirects funds away from solutions to climate change. It maintains the inequitable system of federal funding for private schools and keeps the former Howard government's privatisation agenda largely intact.

In his budget speech Treasurer Wayne Swan introduced the grandly-named Working Families Support Package (WFSP). Worth $55 billion, its largest component was the pre-promised series of income tax cuts, worth $47 billion over four years.

A worker on $48,000 a year will receive a tax cut of $20 a week in 2008-09. However, with the second tranche of the 2007 tax cuts, which the current government is carrying over, those doing it tough on $180,000 or more a year will save $50 a week — with an extra tax cut of $41 or more from July 2009. For Rudd and Swan's "working family", the total tax savings in 2009-10 year will be less than $6 a week. It doesn't take a treasurer to work out who comes out on top.

However, Labor is keen to appear to slug high income earners with Swan arguing that they could afford to "play a role in the fight against inflation". Now, families earning more than $150,000 a year will no longer be entitled to the baby bonus. A similar means test was applied to Family Tax Benefit Part B when the highest paid partner's income reached $150,000.

While sounding like an equity measure, the means test will only affect the wealthiest 3% of tax payers — or around 16,000 families in total. In financial terms, the saving is very limited.


In fact, the new means test on family benefits is something of a smokescreen: it disguises the maintenance of a far larger inequity — a federal subsidy to superannuation. According to Brian Toohey in the May 14 Australian Financial Review, this subsidy is significant — $27.7 billion in 2008-09 rising to a projected $33.9 billion in 2010-11.

This subsidy, which benefits those in the highest tax brackets most, is not means tested. "Why do we need to contribute extra public money to high income earners who save anyhow, while we do not compensate low income earners for excessive tax on their compulsory super and its earnings?", asked Eva Cox in an article on the Centre for Policy Development website on May 8.

The second component of the WFSP is funding to make good on Labor's election promise to increase the childcare rebate to 50% of out-of-pocket expenses and to increase maximum deductions to $7500 per child. While this might sound like a big saving, this money will inevitably end up lining the pockets of private childcare operators.

Private operators dominate the market for childcare and there are no restrictions on the fees they may charge. While the increased childcare subsidy is likely to increase demand for places, it will do nothing to guarantee an increase in quality, affordable and accessible childcare places. The result will be competition for available places, which will inevitably push up fees.

If the government was serious about providing childcare for all who need it, there would be money for many more community-based centres run on a non-profit basis. Increasing subsidies will simply boost the profit margins of private operators.

Despite arguing the need for cuts to dampen inflationary pressures, Swan did manage to find more money for war spending. He had promised to increase military spending by 3%, but announced an increase of 4% a year for the next three years. By deferring the purchase of some $1 billion worth of military hardware, the government registered a "saving" when in fact real spending on defence continues to be more than spending on education — just as it was under the Howard government.

Even with the planned withdrawal of some combat troops from Iraq, Australia will still maintain 3000 troops in Iraq, Afghanistan, East Timor and the Solomon Islands in 2008-09.

Private school funding

Spending on education has only increased by 0.8%. Labor has maintained the inequitable and discredited socioeconomic status (SES) funding model, which delivers federal funds to private schools based on the postcode from which students are drawn (rather than family income).

The budget also cuts funding for public universities, failing to adequately compensate them for the cancellation of full-fee-paying courses for Australian students.

Plans to continue the Howard era policy on federal funding to private schools will mean that, in four years' time, they will receive more federal funding than public universities. "[B]y 2012 universities will receive $7.3 billion while private schools will get $7.7 billion", Anna Patty reported in the May 14 Sydney Morning Herald.

The Australian Education Union (AEU) also criticised the budget for failing to lift funding to public schools. "Lifting overall student performance and addressing student underachievement requires an immediate and significant investment to lower class sizes, to provide all students with more individual attention and to modernise our schools", said AEU federal president Angelo Gavrielatos.
"The government has missed its first real chance to address the damage caused by eleven years of under-funding of public schools under the Howard government … Government research shows that public schools need at least $2.9 billion in additional annual funding."

The budget commits $10 billion to patch together the decrepit public hospital system. But, according to Leo Shanahan and Nick Miller in the May 14 Melbourne Age, Swan plans to cut more than half a billion dollars over the next four years to health programs, including the Howard government's dental health scheme.

The decision to raise the threshold for the extra 1% Medicare levy (for those without private health insurance) from $50,000 to $100,000, will save many from unnecessary private health insurance. However the extra pressure this is likely to put on the public system is unfunded. The government is also continuing the Howard government's 30% rebate for private health insurance — a gift to the industry's profit margins.

Funding for 'clean coal'

Labor's "climate change" initiative is to provide more funding to unproven "clean coal" technology. "In implementing, commercialising and demonstrating new energy forms, in the coming year $35 million goes to 'clean coal', which does not exist, and nothing at all for commercialising large-scale renewable energy technologies, which are ready to roll out now. Over the next three years, $250 million goes to 'clean coal', while renewable energy commercialisation gets half as much, or $125 million", Greens Senator Bob Brown said on May 14.

Labor has made a few small concessions to those dependent on welfare. The eight-week suspension of payments after three breaches under Howard's Welfare to Work scheme has been wound back. However, pensions received no boost — apart from the annual $500 utilities allowance — and welfare quarantining for parents has been extended.

The qualification criteria for carers' payments was widened. However, Carers Victoria criticised the budget's failure to assist carers' increased costs. "Carers are doing it tough. The enormous contribution they make to the community and the economy should be repaid with respect and support", said Maria Bohan.

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