PRE-BUDGET

DEFICIT

TONY ABBOTT AND THE COALITION

FOR THE INFORMATION OF HONOURABLE MEMBERS MARCH 2012

INTRODUCTION
Just last week the Leader of the Opposition declared he would be elected Australia’s next Prime Minister. It’s now time for Tony Abbott to come clean on his plans for the budget. This document indicates that as the Government is returning the budget to surplus in 2012-13, the Liberals would plunge it in to deficit. On the analysis below, Opposition policies would put the budget $9 billion into the red in 2012-13. Even though the Opposition would be in deficit in 2012-13, they are still touting a long shopping list of multibillion dollar promises on a weekly basis. The Opposition’s budget position will go from bad to worse when their aspirational promises are added to their existing commitments. In the last few days we have learned that Tony Abbott’s $70 billion worth of cuts will be kept a secret until after the election. Mr Abbott needs to come clean with voters about where those cuts are coming from. And, while the Leader of the Nationals – the man who would become Australia’s Deputy Prime Minister – thinks their policy development has never been better, their shadow Finance spokesperson has said that all of their policies are still yet to be finalised. Is it any wonder the Coalition cannot say when they will return the budget to surplus, or deliver additional tax cuts, or rule out cuts to services? At the last election they got it wrong by $10.6 billion and their costings firm was fined for professional misconduct. It’s time for Tony Abbott to replace hubris with honesty and come clean with the Australian people.

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A $9 BILLION DEFICIT IN 2012-13
In the year the Government is returning the budget to surplus, the Opposition’s policies would have a negative impact on the budget of over $10 billion, with the budget $9 billion in deficit in 2012-13.

Figure 1: Impact on Underlying Cash Balance (2012-13)
$4,000 $2,000
$0 -$2,000 -$4,000 -$6,000 -$8,000 -$10,000 ($m) Government Opposition

Table 1: Impact of Opposition Policy Commitments

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ASSUMPTIONS
Repeal of the Clean Energy Future (CEF) Package The estimate assumes that all elements of the CEF package are repealed, but that the tax reform elements and pension increases are retained. Trebling the tax-free threshold means millions of Australians will no longer have to file tax returns. The CEF reforms also significantly simplify the tax system. It is therefore assumed that the Opposition would not return the tax-free threshold to its pre-CEF rate. The Government is delivering increased payments to pensioners as part of the CEF package. It is assumed that these payments will be retained by the Opposition and that they will not cut pensions. Reinstating 30% Private Health Insurance (PHI) Rebate The Opposition have committed to unwind the means testing of the private health insurance rebate. Mental Health Package Tony Abbott announced a $430 million mental health package on 21 April 2011. The estimate assumes that the funding is evenly spread over four years. See: http://www.tonyabbott.com.au/ Life Saving Australia The Opposition Leader committed to funding for life saving clubs on Australia Day 2012. See: http://www.tonyabbott.com.au/ Nauru Immigration Policy The Department of Immigration and Citizenship has released costs for the Nauru policy on the Department’s website. The estimate assumes that the capital costs for establishment are spent in the first year, with the operating costs evenly spread over four years.
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Chronic Dental Disease Scheme (CDDS) The Opposition continue to block the Government closing the CDDS, confirming their support for the existing scheme. Repeal of the Mineral Rent Resource Tax (MRRT) and associated measures The MRRT spreads the benefits of the resources boom to all Australians. Repealing this package would mean that 2.7 million small businesses would miss out on tax breaks, 3.6 million low income workers would miss out on the low income superannuation contribution, and regional Australia would miss out on a regional infrastructure fund. The estimate assumes that all elements of the MRRT package are repealed, except the superannuation guarantee increase from 9% to 12% for which the Opposition have previously indicated support. Adjusted Coalition 2010 Election Commitments Having avoided scrutiny throughout the 2010 election campaign, the Coalition’s election costings were finally submitted to the Treasury and Department of Finance and Deregulation after election day. The completed costing found a $10.6 billion black hole of errors across the forward estimates. And the firm hired to ‘audit’ their costings was fined for professional miscounduct. The adjusted estimates account for these errors, and remove a number of savings that are no longer available to offset Coalition spending commitments, for example: • • The Green Car Innovation Fund has been closed The Renewable Energy Future Fund has been exhausted

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A $70 BILLION BLACK HOLE
The Opposition themselves have admitted they have a $70 billion black hole. It is clear the issues with the Opposition’s costings do not stop at the end of the 2012-13 financial year. “We need to identify up to $70 billion over the next four years.” ANDREW ROBB – NEWSRADIO – 16 AUGUST 2011 There is a range of spending proposals and liabilities the Opposition will need to fund before they even get to the start line. These promises will punch a deeper hole in the budget – and they are incurred even before their “aspirational” policies are accounted for, none of which have been offset by the Coalition.

AND THERE’S MORE
Personal Income Tax Cuts The Opposition have committed to introduce broad-based personal income tax cuts, but have not provided any detail. Given that the Opposition has criticised the CEF tax cuts that are targeted to benefit low and middle income families, it could be assumed that they will focus their tax cuts at the higher end of the income scale. For context, the 2003-04 tax cuts had a cost of over $10 billion over four years. Aspirational Policies Proposed by the Opposition: The Opposition have also foreshadowed a range of policies under development that they regularly tout but have not bothered to cost, nor have they identified how they will fund them. Even if the Coalition were able to fill in their $70 billion blackhole, they still need to fund their aspirational commitments and promises. They will need to identify further savings to fund these measures.

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In total, these spending proposals run into the tens of billions of dollars, including: • • • • • • • • • A national dental scheme as part of Medicare Proceeding with a national disability insurance scheme Unspecified additional welfare to work programs A bigger naval presence in Northern Australia and in the Southern Ocean Extending the solar hot water rebate Big spending on road infrastructure within Sydney Another failed broadband plan to roll back the NBN Any additional costs associated with rolling back the carbon price, including any compensation arrangements to industry A possible second additional round of income tax cuts

The Nationals Policy Platform: In December 2011, The Nationals set out the policy agenda they intend to take to the next election. Out of 180 policies the Opposition committed to, amongst other measures, a $2 billion regional telecommunications fund, an un-costed increase to the private health insurance rebate for seniors to 40 per cent and removing indexation for HECS. In addition, The Nationals also committed the Opposition to: • • • • • • • Doubling the baby bonus Funding to redevelop a range of rail networks, including upgrading the Sydney to Brisbane coastal rail link and the inland rail network from Brisbane to Melbourne Building a range of new country dams Expanding zonal tax allowances Tax deductibility of water infrastructure Paying for carer superannuation A 30 per cent investment allowance for regional businesses

Further information is available at http://nationals.org.au/Policy.aspx. Additional Spending from Direct Action: If the Opposition remains committed to delivering a 5 per cent reduction in our carbon emissions, then Treasury has estimated that the costs of sourcing carbon emissions through direct action and restricting the use of international permits could see an effective carbon price of around $62 per tonne by 2020. That would represent a total cost of around $48 billion to the budget. Currently, the Opposition have not identified offsets for this spending that would be required to meet the bipartisan 5 per cent target. If applied to households via the tax system, this would mean a $1300 increase in tax per household each year.
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WHAT THEY SAY

RETURN TO SURPLUS
“One of our most fundamental commitments was to bring the budget back to surplus in 2012-13.” TONY ABBOTT – THE AUSTRALIAN – 25 AUGUST 2010 “We will do it as soon as possible. You’ve got to be measured on this.” JOE HOCKEY – 7 FEBRUARY 2012 “Well it just depends.” ANDREW ROBB – ABC24 – 6 FEBRUARY 2012

THE $70 BILLION
“We need to identify up to $70 billion over the next four years.” ANDREW ROBB – NEWSRADIO – 16 AUGUST 2011 “It is a massive amount of money. Therefore finding 50, 60 or 70 billion is about....” JOE HOCKEY – SUNRISE – 12 AUGUST 2011 “No, it’s not a furphy. We came out with the figure.” ANDREW ROBB – MEET THE PRESS – 4 SEPTEMBER 2011 “We identified $50 billion worth of savings prior to the last election, a lot of those are not available this time.” WARREN TRUSS – DOORSTOP – 9 NOVEMBER 2011

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TAX CUTS
“...more tax cuts will be in prospect.” “We will aim for tax cuts in our first term.” TONY ABBOTT – NPC – 31 JANUARY 2012 JULIE BISHOP – SKY – 1 FEBRUARY 2012

“I’m not going to go into the time frame of exactly when they’ll be delivered.” BARNABY JOYCE – DOORSTOP – 31 JANUARY 2012

THE REAL AGENDA
“We haven’t finalised any of our major policies.” ANDREW ROBB – ABC PM – 5 MARCH 2012 “I have never known in my time to be so far advanced in policy development as we are.” WARREN TRUSS – SKY – 28 FEBRUARY 2012 “Pensions, disability support, family tax benefits and childcare support, among others, create a cycle of dependency for millions of Australians. The dead hand of government with its Centrelink chequebook encourages many Australians to believe that there’s no other way of life than putting your hand out.” JAMIE BRIGGS – AFR – 7 FEBRUARY 2012

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PRE-BUDGET
DEFICIT TONY ABBOTT AND THE COALITION
Authorised G. Wright, 5/9 Sydney Avenue, Barton, ACT 2600 Printed by BlueStar, 90 Sheppard Street, Hume, ACT 2620

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