Post by Banker on Sept 3, 2012 5:52:32 GMT 7
JULIA Gillard has ordered an open-ended search for savings to close a widening gap in the federal budget as Labor struggles to fund new promises costing tens of billions of dollars.
The spending review has turned its sights on major outlays, including welfare programs, out of concern that short-term measures such as a freeze on grants will be insufficient to balance the budget.
Cabinet ministers are being told to identify a "second phase" of savings beyond 2015 to finance the Prime Minister's latest promises, including widespread dental care, disability insurance and a plan to be unveiled today to increase school funding.
The long-term task is more challenging than the $33 billion in tax hikes and spending cuts outlined in this year's May budget, forcing the government's razor gang to reconsider options that were spared the knife earlier this year. The strategy is aimed at assuaging fears of a structural deficit while also serving the political objective of increasing pressure on Tony Abbott to outline a more detailed fiscal plan of his own.
No target will be set for the savings agenda until the government has received more Treasury advice on the outlook for tax revenue in the wake of sharp falls in commodity prices over recent months, The Australian was told yesterday.
"The decisions that need to be taken to lock in the surplus will be taken," said a senior government source.
"If the task is bigger, the task will still be met."
Wayne Swan vowed yesterday that Labor would pay for its promises by cutting outlays if it had to, as he cited the means-testing of private health insurance last year as the sort of reform that could be needed again.
"We've made substantial savings to pay for substantial reforms, and we're ready, willing and able to do it again," he said in his weekly economic note. The first phase of the savings program is aimed at delivering on Labor's commitment to four years of budget surpluses that rise from $1.5bn this financial year to $7.5bn in 2015-16.
Macquarie Group economist Brian Redican estimated last week that if commodity prices did not recover the government would need to cut $10bn to meet its surplus targets.
A freeze on discretionary grants, revealed in The Australian last Thursday, has already put $2bn in spending under review while the government is mulling whether to extend an "efficiency dividend" that extracts billions of dollars in savings from the public service.
But these short-term savings are too little to pay for the latest spending promises given the $4bn cost of the six-year dental scheme and the $6.5bn or more required for the national disability insurance scheme on top of existing state and federal outlays.
While the Gonski reform plan for school funding would cost $5bn a year, Ms Gillard is not expected to endorse that figure in a speech to the National Press Club in Canberra today.
Government sources said there may not be a firm federal commitment on the cost of the school program once it begins in 2014 with a modest expense and a transition plan leading to full implementation in 2020.
Opposition Treasury spokesman Joe Hockey has capitalised on the budget shortfall to accuse Labor of hiding a "black hole" in the government finances, returning fire after more than a year of taunts over a Coalition plan to save as much as $70bn.
Coalition finance spokesman Andrew Robb said the Labor spending commitments were a "charade" because the policies were not due to start until beyond the next election without any detail on how they could be funded.
"We are seeing a series of grand promises being made without even a hint of where all the money will come from," Mr Robb told The Australian.
While it would be unusual for a government to list savings plans beyond the four years of the budget estimates, Labor is planning the "second phase" of savings in order to prove it can fund its promises and force the Coalition to reveal more of its plans.
"We are perfectly happy to have scrutiny of the government's costings and we'll meet any test of fiscal sustainability," the senior government source said. "We expect, however, that the same scrutiny will be applied to the Coalition.
"And it will not be viable for Tony Abbott or Joe Hockey or Andrew Robb to say they do not trust Treasury and they'll get an accounting firm to do their costings."
Mr Swan emphasised Labor's willingness to cut spending to pay for its new policy plans by pointing to the cuts it had delivered in the past. "We will continue to make room to deliver on the big investments our nation needs for the future," he said.
The Treasurer said the government had a proven track record of finding savings, including $33bn of savings in the last budget and more than $100bn in savings in the budgets before that.
"Many of the changes have improved the structural position of the budget so the savings will grow over time," he said.
Mr Swan cited the "good example" of the government's decision to put the means test on the private health insurance rebate, saving $2.4bn over the next three years.
"It simply made no sense to continue to subsidise the health insurance of households earning more than a quarter of a million dollars a year," he said.
From The Australian 3/9/2012
The spending review has turned its sights on major outlays, including welfare programs, out of concern that short-term measures such as a freeze on grants will be insufficient to balance the budget.
Cabinet ministers are being told to identify a "second phase" of savings beyond 2015 to finance the Prime Minister's latest promises, including widespread dental care, disability insurance and a plan to be unveiled today to increase school funding.
The long-term task is more challenging than the $33 billion in tax hikes and spending cuts outlined in this year's May budget, forcing the government's razor gang to reconsider options that were spared the knife earlier this year. The strategy is aimed at assuaging fears of a structural deficit while also serving the political objective of increasing pressure on Tony Abbott to outline a more detailed fiscal plan of his own.
No target will be set for the savings agenda until the government has received more Treasury advice on the outlook for tax revenue in the wake of sharp falls in commodity prices over recent months, The Australian was told yesterday.
"The decisions that need to be taken to lock in the surplus will be taken," said a senior government source.
"If the task is bigger, the task will still be met."
Wayne Swan vowed yesterday that Labor would pay for its promises by cutting outlays if it had to, as he cited the means-testing of private health insurance last year as the sort of reform that could be needed again.
"We've made substantial savings to pay for substantial reforms, and we're ready, willing and able to do it again," he said in his weekly economic note. The first phase of the savings program is aimed at delivering on Labor's commitment to four years of budget surpluses that rise from $1.5bn this financial year to $7.5bn in 2015-16.
Macquarie Group economist Brian Redican estimated last week that if commodity prices did not recover the government would need to cut $10bn to meet its surplus targets.
A freeze on discretionary grants, revealed in The Australian last Thursday, has already put $2bn in spending under review while the government is mulling whether to extend an "efficiency dividend" that extracts billions of dollars in savings from the public service.
But these short-term savings are too little to pay for the latest spending promises given the $4bn cost of the six-year dental scheme and the $6.5bn or more required for the national disability insurance scheme on top of existing state and federal outlays.
While the Gonski reform plan for school funding would cost $5bn a year, Ms Gillard is not expected to endorse that figure in a speech to the National Press Club in Canberra today.
Government sources said there may not be a firm federal commitment on the cost of the school program once it begins in 2014 with a modest expense and a transition plan leading to full implementation in 2020.
Opposition Treasury spokesman Joe Hockey has capitalised on the budget shortfall to accuse Labor of hiding a "black hole" in the government finances, returning fire after more than a year of taunts over a Coalition plan to save as much as $70bn.
Coalition finance spokesman Andrew Robb said the Labor spending commitments were a "charade" because the policies were not due to start until beyond the next election without any detail on how they could be funded.
"We are seeing a series of grand promises being made without even a hint of where all the money will come from," Mr Robb told The Australian.
While it would be unusual for a government to list savings plans beyond the four years of the budget estimates, Labor is planning the "second phase" of savings in order to prove it can fund its promises and force the Coalition to reveal more of its plans.
"We are perfectly happy to have scrutiny of the government's costings and we'll meet any test of fiscal sustainability," the senior government source said. "We expect, however, that the same scrutiny will be applied to the Coalition.
"And it will not be viable for Tony Abbott or Joe Hockey or Andrew Robb to say they do not trust Treasury and they'll get an accounting firm to do their costings."
Mr Swan emphasised Labor's willingness to cut spending to pay for its new policy plans by pointing to the cuts it had delivered in the past. "We will continue to make room to deliver on the big investments our nation needs for the future," he said.
The Treasurer said the government had a proven track record of finding savings, including $33bn of savings in the last budget and more than $100bn in savings in the budgets before that.
"Many of the changes have improved the structural position of the budget so the savings will grow over time," he said.
Mr Swan cited the "good example" of the government's decision to put the means test on the private health insurance rebate, saving $2.4bn over the next three years.
"It simply made no sense to continue to subsidise the health insurance of households earning more than a quarter of a million dollars a year," he said.
From The Australian 3/9/2012