The Coalition’s Savings measures – what do they mean for you?

In defiance of the strategy, that won them power in 2007 and the obvious preferences of a large part of the electorate, Labor has adopted a markedly negative approach to the 2013 election, with a proliferation of attack advertisements and a party line selling, in effect, fear of the Coalition rather than aspiration for what a returned Labor government could do. Somewhere there are party strategists who made that decision, and in the future, there may be analysis as to why this approach was taken. It doesn’t appear to be having the desired effect and, failing a major upset in coming days (Tony Abbott swearing at a one-legged woman in a burqa, perhaps?) the Coalition looks likely to sail to victory.

There are two main problems with a negative approach to campaigning. Most obviously, it keeps the attention of voters focussed squarely on the party you don’t want elected, rather than on yourself. Ironically, it’s the approach that the Coalition has taken for all of the last three years – explaining why they’ve been able to get to the doorstep of an election without needing to clearly explain what they would do better.

The second problem is more pertinent; a campaign based on fear is easy to blunt.

In answer to Labor’s continual fearmongering about the Coalition’s planned cuts to health, welfare, job security, education and everything else, the Coalition has released a seven-page document outlining where they expect to get the money to pay for some of their signature policies. The charge that they are $30bn overspent is weakened, if not fatally, by this document that spells out $31bn of savings over the forward estimates. The document is available from Fairfax media here.

In light of the likelihood that the Coalition will be in power one week from now, what follows is a breakdown of the Coalition’s savings estimates document, with my admittedly poor analysis of what the outcomes might be for Australian society.

This is a political document

From the first line of the document, it is overtly political. This is not an audited financial statement but sounds more like a press release. Of the seven pages of the document, almost three are given over to attack rhetoric about Labor’s record. The document compares Coalition budgets (mostly in surplus) to Labor budgets (deficits) and criticises Labor’s approach to debt and taxes.

The bulk of the document is taken up with details on costings for the Coalition’s paid parental leave plan, and estimates of savings on the back of the two primary pillars of the Coalition’s approach to saving in a first term: scrapping the carbon tax and the mining tax.

The carbon tax package has been “terrible for the economy and terrible for the budget”. Spending exceeds revenue, so scrapping the package, except for the household compensation measures which will be retained, will return funds to the budget. The document goes into significantly more detail on this later.

The mining tax package similarly is described as “a disaster for the mining industry and a disaster for the budget”. The MRRT has raised at least $40bn less than projected, and a range of compensations and other packages funded from the mining tax have overspent revenue by $18bn. Abolishing the MRRT and associated packages will thus likewise return funds to the budget.

The document reaffirms that the Coalition doesn’t like the savings measures announced by Labor in the most recent budget, but will keep them all except for the changes to fringe benefits arrangements on vehicles. The savings document includes no cuts to hospitals or schools, no cuts to defence or medical research, and no change to the GST.

Paid parental leave schemes

The costings document goes to some length to describe the funding expectations for the Coalition’s paid parental leave plan. The overall cost of the scheme is quoted at $9.8bn over the forward estimates. Of this, the Coalition expects to fund:

• $3.7bn currently allocated to Labor’s scheme, which this will replace;
• $1.2bn in savings from public servants, who currently have their own entitlements and are expected to largely move onto the new scheme;
• $1.6bn in what the document describes as “Some increase in tax receipts and decrease in benefit payments owing to the higher remuneration mothers receive as a result of the Coalition’s scheme.” I would question whether the tax income from the existing scheme is being likewise used to offset the $3.7bn quoted as its current expense?

This leaves an outstanding amount of $3.3bn, to be funded from a levy on businesses earning taxable income over $5m/year. This levy is expected to raise $4.4bn, giving $1.1bn extra that the Coalition claims as a part of its overall savings.

Mining Resource Rent Tax

The Coalition expects to abolish a range of programs and compensations that form part of the MRRT. The mining tax is raising “hardly any revenue” so the Coalition counts all of these as budget savings. The document lists a variety of measures to be discontinued, most significantly the instant asset write-off. Overall, the savings from discontinuing these programs is estimated at about $5bn. Few, if any, of the programs listed, will have significant outcomes on the majority of Australians following a Coalition victory. If the MRRT is really generating no revenue but costing the budget in terms of compensation programs, then fears that the Coalition is abolishing one of its sources of revenue are unfounded.

The document does not, however, mention that the ATO estimates that revenue from this tax will increase over the forward estimates to about $6bn, which is currently included in Labor’s budget planning; the Coalition’s document appears to assume that the MRRT will continue to be ineffective at generating revenue.

The effect of abolishing the MRRT on the average household will be minimal, both directly and indirectly. The MRRT has not contributed to inflation or household prices, and there is no indication that business confidence will be greatly improved by its removal. There may be a few mining and resource projects that go ahead that might otherwise not, but these are generally not great contributors to employment nor revenue to Australians.

Carbon Tax

The Coalition expects to return $7.5bn to the budget from the repeal of the carbon tax and associated compensation programs. Most of the programs specified are aimed at sheltering specific businesses and industries from the effects of the carbon tax and mitigating its effects on employees and communities affected by it. Effectively they are industry transition schemes, including the Steel Transformation Plan, the Clean Technology Program and the Coal Sector Jobs Package. Five programs listed are well under $0.5bn each, in addition to the major savings from the removal of the Jobs and Competitiveness Program ($4bn).

Also disappearing will be energy market compensation schemes designed to assist energy companies in the transition to the carbon price ($0.5bn); the Climate Change Authority ($0.4bn) and “other measures linked to the carbon tax that is wasteful or will no longer be required”. This extra $1.5bn is not specified.

The effects of these abolitions and repeals on city-dwellers will barely be felt. The Coalition claims that without the carbon tax, energy prices will immediately come down. This is arguable at best; it has previously been shown that the majority of price increases in energy are the result of gold-plating practices and not the carbon tax; in fact, perversely, abolishing the carbon tax may actually lead to electricity price increases.

For people and communities in regional areas involved in coal mining, and those involved in power generation, the effects may be more substantial. Programs designed to help cushion employees who lose their jobs as power companies become more efficient will cease. If the companies were to immediately reverse any changes they had made and rehire their ex-employees, this might be appropriate, but companies will have no incentive to reverse any changes, while individuals will lose access to programs that might otherwise have helped them.

Basic savings breakdown

The last part of the document is a tabulated list of savings measures, the lion’s share being the carbon tax and MRRT savings listed previously. Also listed are some of the other big-ticket savings measures the Coalition has previously announced. They include:

• Re-phase superannuation guarantee increase – i.e. the legislated increase in the minimum superannuation contribution from employers will be delayed (or abandoned). This will save businesses and the government money but obviously will hurt the savings of workers. Still, for most people superannuation is a long way away and a very remote consideration.
• Not proceed with low-income superannuation guarantee. This super top-up scheme was designed to help stay-at-home mothers and other low-income workers by contributing up to $500/p.a. to your superannuation. Obviously, the abandonment of this scheme will come at a cost to low-income workers and the unemployed. It may be that many of those who will vote on Saturday are unaware of this scheme and its imminent implementation.
• Abolish school kids bonus – this is worth $4.6bn over the estimates. Obviously, if you have kids you should be able to afford to send them to school without taxpayer help.
• Reduce public service by 12,000. Some estimates have said that the Coalition may intend to go further than this, but 12,000 is the currently published number. The effects of this cutback will be, obviously, 12,000 more people unemployed, plus fewer staff to implement Coalition policy. But that will be OK as one of the KPIs of the public service going forward will be to cut red tape and administration requirements, year on year. We are all business analysts now.
• Reduce Automotive Transformation Scheme funding. This is part of Labor’s support for the automotive industry, contingent upon developing new cleaner technology. As the Coalition doesn’t believe in anything that opposes the introduction of that lovely, lovely plant food carbon dioxide into the atmosphere, this was an obvious one to go. Not that the automotive industry is really doing anything green with the money, this will just be another nail in the coffin of our car manufacturing sector.

That concludes our tour of the Coalition’s costings document. The actual impacts on households of many of these changes will not be keenly felt. The real effects will come in with a continued two-speed economy and stagnation of anything that isn’t mining, an unchecked increase in carbon emissions (but it’s probably too little, too late on that front in any case), hits to manufacturing (particularly automotive) and decreased support for parents of school-aged children.

We ought to be more concerned about the Coalition’s other intentions. Not mentioned are such other issues as the reduction of the tax free threshold from $18,000 to $6,000, the cancellation of Medicare Locals so the health system can go back to its smooth-as-butter conditions, the nobbling of the NBN or the sudden availability of cheap second-hand fishing boats to our local industry, as none of these count as savings measures.

The increase in the tax-free threshold was offset with increases in marginal rates for higher income earners, so it was revenue neutral, placing a slightly higher tax load on the wealthy. Obviously, this goes counter to the Coalition’s ethos and will be reversed. Labor’s attack strategy on the Coalition’s supposed budget black holes and threatened Cuts to Everything (TM) is flawed because it is so easily countered, and it ignores so many much more real implications of a Coalition victory.

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