Federal budget 2013: expert reactions

By Ben Spies-Butcher; Cameron Gordon, University of Canberra; John Quiggin; Lin Crase, La Trobe University; Simon Marginson, University of Melbourne, and Zareh Ghazarian, Monash University

Australian Federal Treasurer Wayne Swan has handed down his sixth budget, facing an almost impossible task: how to reconcile an enormous revenue shortfall with big spending promises, all while keeping the voters happy in an election year?

Everyone has an opinion, but we have gone straight to the academic experts for insight into what the 2014 budget means for the economy, health, the environment, science and politics.

Our panel of expert reactions will be updated throughout the night as responses come in.

Further reading: Michelle Grattan covers the breaking budget news here. Phil Lewis, Professor of Economics at the University of Canberra, joined Michelle in the budget lock-up and shares his insights here.

Economy and business

John Quiggin, Professor, School of Economics at the University of Queensland

Facing virtually certain defeat, the Gillard-Swan government had the chance to set out a bold alternative vision that would have represented a challenge to its likely successor, and offered its disillusioned supporters a reason to return.

Such a vision would have started with bold ideas like the National Disability Insurance Scheme (NDIS) and the Gonski scheme, but would have presented Australian voters with the inescapable fact that, if we want such benefits, we have to pay for them through higher taxes.

Instead, the government has robbed Peter to pay Paul.

The students who benefit from the Gonski reforms at school will pay the cost in the form of larger classes and fewer course options when they reach university.

The NDIS is, at least, partly paid for through the higher Medicare levy, but much of the cost has been shoved on to the already impoverished states.

Overall, the government projects a reduction in the ratio of expenditure to GDP, even as these expensive commitments are added.

What was needed here was a challenge to voters to make a clear choice between better services, funded by higher taxes, and continued public austerity, allowing more private spending. The way to make this explicit would have been to raise top marginal tax rates and offer the states an increase in the rate of GST.

Instead, we have more of the same, most of which will either not pass Parliament or be repealed when the Coalition returns to office in September.

Ben Spies-Butcher, Lecturer in Economy and Society, Department of Sociology at Macquarie University

The Budget highlights an ongoing challenge for Labor, which has tried to pursue a sort of “low tax” social democracy. Australia has tried more than any other country to target assistance, promoting equity with very low taxes, but I think we are now seeing the limits of that strategy. We can have decent services or very low taxes – not both. The ongoing deficit is a sign of Australia's low tax base.

It is important Labor has committed to important new spending in education and DisabilityCare, and its welcome Medicare levy will increase marginally to support that spending. There have been some small moves to claw back the grossly inequitable tax concessions for superannuation and business.

But given the failure of the mining tax and without broader changes to increase the tax base the government is forced into a series of bizarre decisions, such as “winning the education race” by cutting higher education spending. And the deeply disappointing decision to leave Newstart so far below the poverty line – especially given more unemployed people are unemployed for longer.

The other trend is for governments to lock in their opponents through the budget. Howard locked Labor into expensive and inequitable tax cuts that have caused the structural deficit. Labor is now locking in spending for education and disability insurance – fortunately reforms that at least add to productivity and equity.

Education

Simon Marginson, Professor of Higher Education at the University of Melbourne

The budget is focused on short-term politics rather than long-term nation-building. This is inevitable, the sign of a government in trouble and an election four months away.

Even the two headline reforms – school funding and disability support – have been chosen so as to maximise the Government's reach across the electorate on 14 September. Both affect very large numbers of Australians. These are good and necessary reforms. Yet they have not been properly funded (a 10-year implementation is not authentic), and for this reason they are especially vulnerable to a change of government. The school reforms, in particular, are unlikely to survive under the Coalition.

If the government had put the reforms first, it would have funded them over a three- or four-year timescale and they would have been that much harder to remove.

Instead, its primary concern was to minimise the deficit, again for short-term political reasons. Yet, is there are fundamental economic or political difference between a deficit of $18 billion and one of $24 billion?

In tertiary education, it is fortunate that there were no further cuts to research funding. And that the government continues to fund growth in university places through the demand-driven system.

However, the previously announced $2.6 billion in higher education funding cuts (the “efficiency dividend”) were confirmed in the budget. This is a terrible decision. It ignores the expert advice provided by the Bradley review of higher education in 2008 and the Lomax-Smith base funding review of 2011. Both recommended substantial increases in the financing rate of government-funded student places.

The government now seems unable to treat higher education funding as an investment in national infrastructure, with spending targets determined by long-term national needs. Instead, it is following the previous Howard government, in treating higher education as a source of short–term fiscal savings.

The cynical politics underlying this is that there are less votes in the universities than in the schools or disability. Meanwhile, East Asia and Singapore, and most of North West Europe, are increasing their public outlays on higher education and research. We will fall behind.

The public funding of higher education in Australia at 0.7% of GDP (2011) is well below the OECD average of 1.1%. The difference is $6 billion per annum. Now we are to cut further.

Politics and Society

Zareh Ghazarian, Lecturer, School of Political and Social Inquiry at Monash University

Out of his six supply bills presented to the House of Representatives, the 2013/14 Budget was perhaps the most difficult one for Treasurer Wayne Swan to prepare. The government faced a unique set of challenges, both in terms of the economic situation and the political climate it operated in.

On the economic side, the government had to somehow manage the need to keep spending on important policies while having less income than it planned for. The Treasurer's approach of outlining a ten-year plan was bold. Doing so gives the Labor Party's flagship policies of DisabilityCare and school funding reforms the best chance of long-term survival even if the government loses the September election.

The spending on infrastructure programs, while cutting back on some social welfare programs (such as the baby bonus), suggests the government and Department of Treasury still want to pump-prime the economy and stimulate growth in an uncertain global economy.

The other problem the government faced was a political one. After laying out plans for a surplus last year, the government has presented a deficit. The problem here is that it makes Prime Minister Gillard and Treasurer Swan easy targets for the opposition. Indeed, the Coalition will highlight this as yet 'another broken promise' and tie it into their broader narrative that the government can not be trusted.

The Budget is an opportunity for the government to reclaim the political debate. The prime minister and key ministers will be out selling their vision over the coming days.

The pressure will now be on opposition leader Tony Abbott to outline the Coalition's stand on economic policies when he takes the floor to respond to the Budget on Thursday night.

Environment and climate change

Lin Crase, Professor of Applied Economics, La Trobe University

A minority government was always destined to struggle with promoting the notion of a budget surplus on the one hand whilst trying to appease disparate interests on the other. It is also easy to see how the current political climate favours “ticking a box” on plans or schemes, as opposed to seeing them through to fruition.

Perhaps this is no more apparent than in the case of the much acclaimed, but now largely forgotten, Murray-Darling Basin Plan. The federal government can justly take some credit for managing to put in place a plan for restoring some environmental balance in Australia's most productive river system. However, it has done so at a significant cost to taxpayers, far greater than what was actually required.

Low cost options for taxpayers, like simply buying water rights, were deliberately stalled in preference to subsidies for irrigation farmers. The budget shows that these are set to continue with a price tag of about $1.8 billion being added to the billions already spent.

There is also a penchant for trying to engineer environmental outcomes and this also receives support in the budget. The idea behind these subsidies and so-called “works and measures” is that the chagrin of farmers would be kept in check while an opportunity was provided to test if the additional water made a difference to the environment.

However, in a peculiar twist, very little money will be on hand to actually undertake these tests. About $2 million per year is set aside to ensure the 'best available science' is available to support the use of environmental water. This is occurring at a time when NSW and SA have both indicated they will reduce funding to the Murray Darling Basin Authority, the body that sponsors most of the science in the basin.

It's hard to see how the sums available from the Commonwealth will be adequate given the size and diversity of the basin. Accordingly, there is a real risk that the unseemly and uninformed debates about how much water is required for the environment will be repeated and there will be no means of adjudging if the current water holding is being well used.

Taxpayers might feel justifiably duped by these arrangements – with such a large amount of money passing to a small number of irrigators, the least taxpayers could expect is some reasonable scientific assessment of the so-called environmental benefits.

Infrastructure

Cameron Gordon, Associate Professor of Economics at the University of Canberra

Infrastructure, if done right, is generally a long-term investment which generates a return in the future that is beyond what is spent today.

Infrastructure Australia has advised in the past that such spending should be done strategically, focusing on important network investments such as key rail and road corridors and communications hubs, increasing the impact and reach of spending through efficient funding mechanisms, such as public-private partnerships, and be tied with governance and regulatory reforms that allow for efficient use of any facilities ultimately built.

Past Commonwealth budgets have tended to take more a piecemeal approach than this, funding projects but not necessarily tying them into a larger program or strategy. Such projects tend to be local, of varying size, and meet pressing needs, such as remediation of black spots on highways. There are a couple of exceptions, such as the National Broadband Network (NBN) or the stimulus spending, the latter now unwinding, and some policy frameworks with little money attached.

This budget seems largely in step with that past pattern, with the greater share of funding going to expenditures that economists might term as current consumption.

A headline number was provided by the Treasurer in his address tonight — $24 billion on new infrastructure investment — but most of the talk was about spending on health, education and human services.

The headline health number (around $64 billion according to the Treasurer's address) is, for example, three times the headline infrastructure number.

This is not to say that this spending has no return. There is just much more of an emphasis on “human capital” rather than “physical capital”.

Urban road and rail were specifically mentioned, and the benefits of investment to lower urban congestion were claimed as the main reasons for such spending.

There are a couple of big projects, “transformational projects” as Swan termed it, like Brisbane's Cross River Rail and Melbourne's Metro. There is thus a bit more transit than is normally in a federal budget.

But much of the list consists of road projects in various cities that are not tied together into an overall network plan or with an overarching strategic vision.

Also a good portion of the infrastructure spending remains on the continuing rollout of the NBN. There was an explicit mention of private participation but no details.

Overall, there are not many surprises in the budget with respect to infrastructure. The Commonwealth has generally left much of the heavy lifting here to the States, which is a pattern that has prevailed for much of recent history.

The authors do not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article. They also have no relevant affiliations.