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Reality check on the budget

The Commonwealth Budget to be presented tonight has been subject to more hysterical overreaction than any I can remember.  The forecast deficit of $12b – $18b is around 1% of Australia’s GDP,  Australian economic growth is forecast by the IMF to be around 3% in 2013 a slight slowdown from the previous year but forecast to accelerate to 3.3% in 2014.   That is plenty of growth in the current world. The US fiscal deficit is around 5.5% of GDP with a median forecast growth rate again of around 3%.

Australian unemployment has edged up a bit to be currently 5.5% while in the US rate it has hit a 4-year low of 7.5%.  Clearly unemployment in Australia remains a key concern particularly as we seem to be at the start of a period of sustained weak commodity prices.  Larger volumes of mineral exports – even at lower prices – and a weakening Australian dollar should limit the potential for a severe contraction. Australia’s continued growth will continue to be fostered by Asian developments.

It is interesting that the most contentious part of the Budget is the Government’s insistence on maintaining the disability services scheme and the Gonski educational reforms.  Yet these reforms seem to have bipartisan support from the Coalition parties.  This might change when Tony Abbott is Prime Minister but the main reaction of ther opposition is to seek to stir up fear.

Should we be complacent about a small deficit?  Partly this deficit reflects the unsustainable tax cut and handout policies of the Howard-Costello years. Times have changed  and so too must budgeting.  I am unconcerned about the deficit per se but am worriede a bit about the potential for the disability services scheme to explode over future years.  The opposition should be pressing the Government on this and on the details of the Gonski reforms.  Its not enough to throw a bit of emotional claptrap around about disabled people and spending more on schoolkids.    Yes these are worthy causes but how exactly will the increased spending help?

3 comments to Reality check on the budget

  • Michael

    It seems the government did the unthinkable and is altering the baby bonus. What next? Negative gearing available for buildings only and not land.

  • Oliver Townshend

    The NDIS will grow in cost as different groups press for eligibility. Current costs might be predicted based on current definitions of “disability”, but new diseases, or things that are currently considered borderline disabilities will edge their way in. To see examples of this, the NSW Life TIme Care plan (to cover those injured in a car accident but not covered by CTP), has grown and fought litigation as those injured in car accidents in unusual circumstances (eg trail bike riding in national parks), claim they should be covered. The levy for that plan is now a third of the CTP Green slip cost.

    The NDIS will become like the PBS and other similar health schemes, where someone will have to make a choice about what is and isn’t covered. What if there is a cure for a disability? I’m sure people won’t fall out of the scheme. HOw will it interact with CTP schemes, workers comp and other schemes across Australia? Somehow I expect we’ll see more cases like the public servant love tryst injury case.

    Finally of course, health costs continue to rise. How will these eat away at the NDIS?

  • It must be difficult for overseas visitors to reconcile what they see with their own eyes, with what they read about the incompetence of our government and the graveness of our economic circumstances.

    One way to reduce the cost of the NDIS (and the health system) is to introduce self-driving cars. Without people driving them they will be a lot safer, and the incidence of hospitalisation and disability will fall.