There has been much written and said about the Abbott Government’s first Budget.
Praise for the Budget has recognised that the structural reforms, and the solutions to systemic deficits and growing debt, help lift economic growth over time and put public finances on a sustainable footing.
In fact in just the last 48 hours, the head of the OECD has recognised that our Economic Action Strategy is the right policy for the times.
Criticism of our strategy has been political in nature and has drifted to 1970s class warfare lines, claiming the Budget is “unfair’ or that the “rich don’t contribute enough”.
The criticisms alleging “budget inequality” are not new.
The gap between rich and poor has often been used to attack governments when all other avenues have been exhausted.
But I would argue the comments about inequality in Australia are largely misguided, both from an historical perspective, and from the perspective of the Budget.
Over two decades, uninterrupted economic growth has served us all well. Australia has enjoyed an economic revolution.
Official data shows average real household disposable income has gone from $540 per week in 1994 to over $820 per week now – that means the average Australian household is almost $290 per week better off today in real terms than they were around two decades ago.
And this growth has been broadly based across society. Household wellbeing across the community has grown significantly in the last two decades.
And while much focus has been on the “rich getting richer”, the more accurate story is the fact that everyone is getting richer as a result of economic development.
Few countries can tell this story.
I admire Australians’ egalitarian concerns for fairness. We all want a society that protects the poor and strengthens the weak.
The government is open to criticism and debate about our Budget. However, we owe it to the community to set the facts straight and articulate the reasoning behind our decisions.
Tonight I want to address the claim that the Budget is unfair and exacerbates inequality. This misguided cry is made on the claim that not everyone is asked to contribute equally and that in the future some people will pay more for government services or receive less in payments.
For example, concerns about the demise of universal health care or higher education accessibility are unfounded. They invoke mantras that reopen debates that were had, and lost, some thirty years ago.
Universal health care has not been free to the consumer since before I was born. In 1960 a five shilling co-payment was first brought in for the Pharmaceutical Benefits Scheme.
Higher education has not been free since Labor introduced fees in 1987. I remember because I was there!
Access to government services and payments has never been uniform across the community.
The truth is governments have never been able to achieve equality of outcomes. Some governments try but they always fail. Only in a closed economy, based on old style socialism, can a government hope to deliver uniform equality of outcomes.
We have moved on.
As a result, Government can only hope to provide equality of opportunity. Even then, as each day passes, forces such as personal empowerment and personal choice, reduce our capacity to equalise opportunity.
This should be welcomed and embraced because it reflects a strengthening of the power of individuals in the community rather than a centralisation of wisdom in government.
For example in recent time disruptive forces like the internet and mobile telephony have transformed our communications. And, of course, technology providers like Microsoft and Google have changed our access to, and use of, information.
They, and many other similar advances in society, have changed the role of government in people’s lives.
Government does not have all the solutions. It cannot provide all the answers.
So let us focus on what government can do - that is, it can help get people to the starting line with a similar opportunity to succeed. But let us recognise that, even then, governments are increasingly compromised in their ability to achieve equality of opportunity.
Private demand is a powerful force for change.
A good example of this is the determination of newfound Silicon Valley billionaires to step in to the domestic United States school education system to train teachers in computer coding so that children as young as eight years of age develop the skills for a future career.
Some governments try to ignore the change, arguing they have neither the money nor the skills to change the curriculum at the behest of private sector demand.
Other governments, like the Cameron Government in the United Kingdom, recognise reality. From September this year they are making computer coding compulsory for students as young as five years of age.
I say this only to make the obvious point that the most difficult challenge for a society is to manage change.
Government will never move as fast as the private citizen.
So the starting point is to be realistic about what government can do.
In our view it is the responsibility of government to provide equality of opportunity with a fair and comprehensive support system for those who are most vulnerable. After that it is up to individuals in the community to accept personal responsibility for their lives and their destiny.
Our first Budget is based on the premise that it is fair to expect those who have the capacity to pay, should accept more personal responsibility for their cost of living, the cost of raising their children, their health services and their education.
It is nonsensical for government to continue to spend money at existing levels with the knowledge that this spending will not be sustainable and that in the years to come we will not be able to adequately assist those in genuine need.
This is unfair to those who most need our help and unfair to future generations who must pay the bill.
And it is unfair to keep a system intact that is clearly not encouraging participation and personal responsibility.
Our welfare system is unsustainable in its current form and it is not well targeted to those who really need our assistance.
The Federal Government will spend $146 billion next financial year on welfare. This is 35% of the Federal Budget.
We spend more on welfare than we spend on any other single policy area including health, education or defence.
Payments are too broadly available to too many people. As a result, less is available for those most in need.
At the moment over half of Australian households receive a taxpayer funded payment from the government.
According to the OECD Household Income Survey, Australians in the lowest 20% of income had the highest reliance on Government for income of any country in the world.
They have less private income and more government income than Germany, France, the Netherlands, Finland, Norway or many other countries where government is much larger and the private sector smaller as a percentage of the economy.
This OECD survey illustrates that our income redistribution from taxpayers to tax receivers is more comprehensive and broader than any other country in the world.
To put it in perspective, around one in ten households (roughly 13%) rely entirely on the government for household income.
Thirteen per cent of young Australians receive Youth Allowance.
Over seventy percent of Australians over 65 receive the Age or Service Pension.
And more than one in twenty working age Australians receive the Disability Support Pension.
So we have a very comprehensive welfare system.
But it should not be taboo to question whether everyone is entitled to these payments.
In my 2012 London speech titled “The End of the Age of Entitlement” I stated Australia was projected to spend around 16 per cent of GDP on public social expenditure that year.
Since then these estimates have been revised upwards to spending of over 19 per cent of the economy.
We must recognise that this spending comes out of the pockets of someone. Either it comes out of the pocket of today’s taxpayers, or the pocket of tomorrow’s taxpayers who will repay this debt along with the interest bill.
This year the Australian government will spend on average over $6,000 on welfare for every man, woman and child in the country. Given that only around 45 per cent of the population pays income tax, the average taxpayer must pay more than twice this amount in tax to fund welfare expenditure.
In other words the average working Australian, be they a cleaner, a plumber or a teacher, is working over one month full time each year just to pay for the welfare of another Australian.
Is this fair?
Whilst income tax is by far our largest form of revenue, just ten per cent of the population pays nearly two thirds of all income tax.
In fact, just two per cent of taxpayers pay more than a quarter of all income tax.
Maybe these taxpayers would argue that the tax system is already unfair.
Company tax is our second largest source of revenue.
Less than one per cent of companies pay 62 per cent of all company tax.
In fact just 12 companies in Australia pay one third of all company tax.
These companies constantly argue that our tax system is unfair because our tax base is vulnerable to increasing global competition with significantly lower rates in the United Kingdom (21%), Singapore (17%) and Hong Kong (16.5%).
Our tax base is facing significant headwinds and that is why the Prime Minister promised at the last election to deliver a taxation white paper after widespread community consultation.
So with a compromised taxation system we must deal with the pressures on our spending programs….and they are growing.
As I said before, taxpayer entitlements must be focussed on helping those most vulnerable rather than providing widespread access to the many at a massive cost to the few.
Australians have shown they are prepared to contribute towards a social service where they see a direct benefit to themselves and their families.
For example in health care, just shy of 50 per cent of the population pay for private health insurance with hospital cover.
Contrary to common belief, this is not just a contribution by the wealthy. An astounding 5.6 million private health insurance policyholders have a household income of less than $50,000 a year.
On top of this, tax payers with an income over $20,000 pay more for their health care through the Medicare Levy. It goes without saying that generally the higher the taxable income, the greater the amount of Medicare Levy paid.
As it stands around one in five Australians already pay to see their doctor. For these patients the average additional cost was $28.60 per visit– or more than four times the proposed co-payment.
Our universal health care system is certainly not free. Over and above Australians’ individual contributions, Medicare costs the budget around $20 billion each year.
Today, there are 263 million so called free visits to healthcare professionals including GPs, but in reality taxpayers already pay a GP just over $36 for each standard consultation.
The public funded health system must be sustainable. If it becomes a second class service then that is unfair.
With Medicare growing at 7% each year, fewer doctors will participate in the poorer remunerated free primary care system and professionals will drift in larger numbers to the privately remunerated alternative system.
This would mean, over time, that better quality healthcare would only be available for those who are able to contribute privately.
That is why I welcome the statement from the Australian Medical Association that “in principle” they are not opposed to a co-payment. Our co-payment applies to all in society, with a ten visit cap for Concession Card holders and children under 16.
As it stands today, some critics claim it is unfair to ask a pensioner to pay $7 for each of their first ten visits to the doctor. At the same time those critics argue it is fair to have the very same pensioner pay $360 for their first 60 PBS medicines prescribed each year by that very same doctor.
By introducing a co-payment for Medicare we are able to build a $20 billion Medical Research Future Fund that in the next decade will double medical research funding in Australia.
This is fair.
We must find new cures and treatments to make our health system sustainable and affordable into the future.
Australia is making massive strides forward in medical research but at times we are missing the financial scale that will lift us from a clever partner for off-shore collaboration to a stand-alone initiator of life changing medical breakthroughs.
By contributing now through sensible savings in our health Budget we can become a global leader in medical research.
Our universities are overwhelmingly government funded but the only way they have been able to survive and grow is with international fee paying students and increasing taxpayer support.
But times have changed.
Australian universities are no longer just competing against the likes of Oxford and Harvard, although that remains the case. They are competing against universities in our own region like the Indonesian Universitas Terbuka (literally ‘Open University’) that has over half a million students enrolled.
New universities in China and India are emerging with similar large enrolments and significant balance sheets.
Any university of this scale brings massive financial firepower and clout.
Campuses with financial scale will, over time, attract the best academics in the world.
It is also the case that for too long we have been obsessed with equality of outcomes in education rather than an equality of opportunity.
Our reforms not only lift the capacity of our universities to be able to compete in the frenetic and intensely competitive global world of education, but they deliver equality of opportunity on a scale never previously provided.
Student loans will continue to be made available to students to ensure that they don’t pay a dollar upfront, making study more accessible to all regardless of their socio-economic background.
This is real and meaningful equality of opportunity.
No student pays a dollar up front for University which means that there is equal access to a degree and a campus notwithstanding your wealth or background.
And most importantly, for the first time, universities will be required to direct $1 of every $5 of additional revenue raised towards the Commonwealth Scholarship fund, to support access for students from disadvantaged backgrounds so they don’t miss out on a university education because Austudy or Youth Allowance is not enough to see them through.
Fairness is the key to our higher education reforms.
No longer will the brickie, the painter, and the chef be subsidising the degrees of the dentist, the doctor or the lawyer to the extent that they currently are.
With Commonwealth supported places available in relation to a wider range of institutions and qualifications, more students will have a chance to undertake further education than ever before.
So students studying bookkeeping or computing or early childhood services will, under our reforms, for the first time have equal access to Commonwealth support just as lawyers, doctors and architects do.
That is equality of opportunity at work.
By 2018, our reforms will see the Australian Government supporting over 80,000 more students in further education.
And for the first time we will provide financial assistance to apprentices with a Trade Support Loan of up to $20,000. This will assist them with everyday costs while they complete their apprenticeship.
At the moment our higher education system means that the 60 per cent of adult Australians who will never hold a degree are paying for 60 per cent of the degree that others will receive.
Whilst a taxpayer contribution for the overall community benefit is reasonable, graduates will earn around a million dollars more during their career than they would have if they had not gone to university.
So our reforms provide a much fairer system for those who fund and those who benefit from all forms of higher education.
Equality in the twenty first century must not become the last word…it should always be the first.
But governments must pursue equality of opportunity, not equality of outcome.
As the world becomes more competitive and global, as information becomes more immediate and comprehensive, as disruptive influences from outside our immediate community become more powerful, Governments will inevitably have less influence on people’s lives.
In health, it is more medical research combined with new technology and better global partnerships that will deliver better health outcomes.
In education, it is tomorrow’s employer who is driving the new standards in curriculum rather than public policy.
In welfare, it is self-sufficiency and personal empowerment that will help people off welfare and into productive employment.
It is not the job of government to manufacture the outcome from public policy in such a way as to ensure that every person is an equal beneficiary notwithstanding their personal effort or circumstances.
Some observations of inequality are based purely on outcomes with no regard to efforts or circumstance.
Everyone should know that they grow up in a country where it is possible, through hard work and diligence, to achieve their dreams.
Our duty is to help Australians to get to the starting line, while accepting that some will run faster than others.
We should all have the opportunity to contribute to society to the best of our ability rather than being subject to the lottery of our birth or the fate of our parents’ wealth.
In striving to achieve equality, it is not the role of government to use the taxation and welfare system as a tool to “level the playing field”. We must use the levers of government to help those who are vulnerable and frail.
A just and fair society never leaves anyone behind.
But a just and fair society must not seek to penalise those who aspire to be better.
We must reward the lifters and discourage the leaners.
Provided we ensure that those most in need receive the most support, our ambition must be for equality of opportunity rather than equality of outcome.
This is what the Budget sets out to do and this is what the Government is determined to achieve.