Andrew Leigh

As the Abbott Government gets down to work on their second budget, ministers like Josh Frydenberg are already talking about making new and deeper cuts. But they wouldn't need to do that if they hadn't said 'no' to real and significant sources of revenue, as I explain in this op-ed for The Australian.

When you're in a hole, stop digging, The Australian, 27 January

As Australians continue to rage about the unfairness of the Abbott Government’s first budget, Treasurer Joe Hockey is preparing to hand down his second one in just four months’ time.

His new Assistant Treasurer, Josh Frydenberg, has flagged that spending may again be slashed in the 2015-16 fiscal plan. He seems determined to prove that this government’s entire economic strategy can fit into one four-letter word: cuts.

Then again, that’s about the nicest four-letter word Australians have been using to describe the government’s economic strategy.

Australians who have watched the government rip $80 billion from schools and hospitals, $23 billion from pensions, $11 billion from foreign aid, $5 billion from universities and $3 billion from Medicare in its first year alone will rightfully be worried about where Mr Frydenberg’s fresh round of cuts will come from.

But while the Assistant Treasurer is in a tizz trying to sell the idea that spending needs to be slashed further, he is ignoring the role his party’s own decisions have played in deepening the national deficit.

Since coming to office, the Abbott Government has thrown out significant sources of revenue like the carbon price and the mining tax. At the same time, it has added on exorbitant new spending on paid parental leave and the hollow Direct Action climate scheme. If Mr Abbott and Mr Hockey had made more sensible decisions on all these fronts, today’s budget outlook would likely be much less bleak.   

Look at the carbon price. Sure, it was an important environmental measure; after all, Australia saw the biggest emissions drop in a quarter of a century under carbon pricing.

But it was also an important economic policy, raising money that was then used to provide assistance to households, including through lower taxes. Ross Garnaut refers to the benefits of higher pollution taxes and lower work taxes as the ‘double dividend’ of carbon pricing.

Over on the Abbott Government’s balance sheet, the Direct Action scheme raises no revenue at all, and will actuallycost billions to implement. Oh, and experts estimate that it will achieve less than one-third of the mitigation needed to meet Australia’s bipartisan 5 per cent emissions reduction target.       

Then there’s the mining tax. Don’t take my word for it – just look at the Coalition’s own books, which show that repealing the mining tax will cost the budget billions of dollars.

The government rather cynically chose to leave its Paid Parental Leave scheme off the books in its first budget, citing ongoing negotiations with the states. But the National Commission of Audit priced it at $5.5 billion a year, rising to over $8 billion a year over the next decade.

This makes it three times pricier than our current equitable Paid Parental Leave scheme. And yet the Productivity Commission estimates that this change would have no impact on productivity or participation.

The bottom line is this: if the Abbott Government hadn’t scrapped the carbon price and the mining tax while splashing out on an unfair parental leave scheme and an ineffective carbon plan, the budget would be comfortably back in surplus in 2017-18.

That’s not even factoring in the $1.1 billion the government has given to let multinational companies like James Hardie shift their profits offshore.

So when Josh Frydenberg says that further cuts to essential services are needed in the next Budget, Australians should ask why this government’s first and only economic instinct is to get out the axe.

There are many ways to balance the books, but few of them involve paying companies to pollute, reducing the tax bills of mining magnates and spending tens of thousands on the highest-earning mums.         

By slashing spending in its first budget, the Abbott Government broke almost every pre-election promise it had made to the Australian people.

Instead of scripting Budget of Broken Promises II, Mr Frydenberg should be pressing his colleagues to reconsider some of their decisions that have worsened the deficit.

As the saying goes, when you find yourself in a hole, the best thing you can do is to stop digging.