Australia's political system failing to deal with falling living standards, report finds
The Grattan Institute sounds warning that voters’ expectations are out of step with reality due to politicians’ reluctance to act in areas such as productivity
Gareth Hutchins
Wednesday 15 June 2016
The Grattan Institute has sounded a warning that Australia’s political system is failing to deal with the country’s deteriorating living standards, falling education standards and poor productivity growth.
With just weeks to go before the 2016 election, it said Australia’s politicians were still creating expectations among voters that far exceed what government can do, while failing to act on the things that government can control.
The Grattan Institute’s chief executive, John Daley, said Australian incomes have been falling for the last five years, in line with the prices of the minerals that make up more than half the country’s exports.
And commonwealth budgets haven’t come close to balancing for eight years, so the interest on our accumulating debt now consumes 4% of government income, which is as much as the commonwealth spends on public hospitals, he said. He said neither side of politics looks capable of doing much about it, but failure of reform nerve over the past 15 years should not obscure the fact that reform could make a big difference.
A new Grattan report called Orange Book 2016: Priorities for the Next Commonwealth Government has collated the last seven years of the Grattan Institute’s reports. Its experts on economics, health, higher education, energy, transport and cities have all contributed.
They provide policy recommendations on the most contentious issues in Australian politics, including negative gearing, the GST, superannuation, corporate tax cuts and the age pension, which they hope will be used as a resource by whoever forms government.
“Our political system is not dealing well with these challenges,” the report said. “[But] a growing evidence base shows which reforms would work ... our politics can implement this reform agenda by using the evidence that has been assembled, robustly articulating the public interest, and staring down interest groups.”
Daley said budget repair was a “major priority”, but the next government must accept that to repair the budget it would have to contain spending and boost revenues. He said revenue increases should try to minimise the additional distortion of additional taxation, while limiting the effect on those least able to pay.
“Consequently, the commonwealth’s highest priorities should be to target superannuation tax breaks to the purposes of super, to restrict negative gearing, and reduce the capital gains tax discount,” he said.
The report also outlined ways to reduce costs, in transport, education and health, saying reforms to the Pharmaceutical Benefits Scheme could reduce waste by $320m a year. It said other large potential cost reductions were to increase the age of access to the age pension and superannuation, and to target the age pension better, particularly by including more of the value of owner-occupied housing in the means test.
It ended by criticising one of the main impediments to genuine budget repair – “government rhetoric”, which increasingly promises a return to surplus “over the long term”, which is often interpreted in this context as 10 years. “In practise, this amounts to a promise that the next government will make the inevitably difficult decisions of budget repair,” the report said.
“If current governments are not prepared to make tough choices, there is little reason to believe their promise that future governments will do so.” The Turnbull government’s budget is structured around a 10-year tax cut plan, with the full benefits of the tax cuts not likely to kick in until the 2040s.
The Labor party has structured its budget around a 10-year plan, saying deficits will be slightly worse than the Coalition’s in the short term but will improve over the decade. Both parties have vowed to return the budget to balance by 2020-21.