July 30 Edition
Budget Night was May 12, 2015. We now await economic and activity data reporting to see how successful it was. Interestingly there are some early indications the small-business stimuli might be working.
Parliament has risen so we are in for a few quiet weeks. Parliament comes back on 10th August - so we can expect things to warm up at that point!
There is a real sense that we are now seeing policy paralysis about balancing the Budget from all sides. It really is getting pretty sad. Happily, it seems Leader’s Retreat / COAG meeting has made just a small step towards change - a good thing indeed. A couple of the Premiers are now showing Mr Abbott just what leadership should look like!
-----
Here is some other of the recent other news and analysis.
General Budget Issues.
Australia’s top tax rate is “way too high’’ and the taxation system is compounding the headache of bracket creep as a disincentive to earn, Joe Hockey has conceded as he gave his strongest indication yet he is “aiming’’ to take tax cuts to the election.
Ahead of a special federal and state leaders’ summit this week in Sydney on taxation and the federation, the Treasurer said tax reform was “absolutely essential’’.
He pointed to the economic paralysis in Greece as a warning to nations that they “cannot stop undertaking reform’’ and said one of the first steps in Australia “has been to try to reduce government expenditure’’.
Graham Bradley, former Business Council of Australia president, told The Australian “a holistic review of tax in Australia is the most important unfinished business of not only the current government but successive governments going back to the Howard era’’.
-----
- Jul 20 2015 at 12:00 AM
- Updated Jul 20 2015 at 5:11 AM
The Abbott government plans to take a sweeping package of tax cuts to the next election, increasing pressure on this week's historic meetings with state and territory leaders to deliver a breakthrough on the goods and services tax.
After effectively committing to delivering future income tax relief, Treasurer Joe Hockey also challenged state premiers to front up to the political challenge of reform, suggesting they have become complacent about taxpayers' funds flowing from Canberra.
"The Commonwealth raises most of the tax revenue, hands it to the states – the states will be more precious about the taxpayer money they receive if they go through the hard politics of having to raise the money in the first place," Mr Hockey said.
-----
Date July 20, 2015 - 8:44PM
Economists have warned that the Abbott government should not cut taxes again until its budget is in surplus or it raises more revenue, after Treasurer Joe Hockey said he would like to take tax cuts to the next election.
But the Grattan Institute's John Daley has warned Mr Hockey's plan could put the budget in more trouble because his government has ruled out serious proposals to increase revenues at the same time.
He says the plan to cut taxes without raising new sources of revenue appears to assume that those tax cuts will be funded by future surpluses.
-----
Date July 20, 2015
Senior writer
The Abbott government should strike a quarter of a trillion dollar "grand deal" to increase the GST to 15 per cent and remove all exemptions, in return for personal income tax cuts and greater spending on pensions, health and education, the peak accountancy body says.
Ahead of a meeting between the Prime Minister and state premiers this week, new modelling by Chartered Accountants Australia New Zealand to be released on Monday reveals increasing the GST this way would raise $256 billion over four years.
Households could then receive $171 billion in permanent tax cuts, pension and welfare boosts to fully compensate low income households for the impact of higher prices.
This would leave $94 billion to abolish inefficient state taxes and fix state and federal budgets.
-----
The Australian Financial Review
Suddenly, the Labor position that even root-and-branch tax reform should not even think about the GST has been left behind. Fresh from delivering the political formula to sell electricity privatisation, NSW Premier Mike Baird on Monday proposed lifting the 10 per cent GST to 15 per cent, in part to make up for shortfalls in state government health funding. Rather than outright opposition, South Australia's Labor premier Jay Weatherill, said he was "open to this discussion" if ways could be found to compensate low income earners. The ACT Labor chief minister Andrew Barr similarly welcomed Mr Baird's proposal. And former Victorian Labor Premier John Brumby said increasing the GST was the "least worst option" to deal with the states' unsustainable fiscal position. The outright opposition of Victorian Labor premier Daniel Andrews and his Queensland counterpart Annastacia Palaszczuk is now untenable.
-----
by The Australian Financial Review
Today's special retreat of Australia's heads of governments was proposed by Tony Abbott as a way forward out of particularly acrimonious COAG meeting in April. The stumbling block then was Western Australia's unhappiness at its shrinking cut of GST revenue just as the collapsing iron ore price was crunching its royalty collections. But WA simply magnified the problem facing the rest of the nation - expectations of government services that were wildly inflated during the temporary bonanza of the our biggest ever export price boom. The entire national debate has struggled to accept this excess spending problem since Treasurer Joe Hockey's ill-fated first budget. But this is what the prime minister needs the premiers to square up to in the next two days. They all need to put politics-as-usual to one side and focus on making our federal system of raising taxes and spending fit the times.
-----
- Terry McCrann
- Herald Sun
- July 21, 2015 12:00AM
ON Sunday treasurer Joe Hockey floated the “thought bubble” of Keating-style manana tax cuts.
Speaking on the Ten Network’s The Bolt Report, Hockey said the government was “aiming” to take personal tax cuts to the next election.
That is to say, they would only “promise” them — there was no mention of even trying to make them L-A-W, law, tax cuts before the election, albeit to kick in some time after 2016.
Then on Monday his prime minister Tony Abbott backed New South Wales Premier Mike Baird’s “thought bubble” of a “great big new tax on everything.”
-----
The dam wall has begun to crack on the selfish denialism that pretends serious tax reform is not a necessity for Australia — but this is just the start in a process filled with dangers in confronting the malaise in our political culture.
NSW Premier Mike Baird is the most innovative political leader in the country, as his campaign on electricity privatisation proved. Baird’s GST initiative shows the impact that policy audacity can generate. His proposal is more than clever because it has flushed out other premiers who confront immense fiscal problems.
The key has been Baird’s linkage of a 15 per cent GST to finance the health/Medicare system out to 2030. He has tied the Liberal objective of GST reform to Labor’s most sacred objective of preserving the health model, one of the ALP’s proudest legacies.
This is the nexus that has broken the stalemate. Baird puts on the table the impossibility of funding future health needs. Guess what? He is talking not just his book but Labor’s book. It is a problem Labor deeply cares about. The responses from Melbourne and Adelaide proved this.
-----
Increasing or broadening the base of GST? Hiking the Medicare levy? Scrapping negative gearing? Who supports which measures as political leaders gather for the Coag meeting in Sydney
Wednesday 22 July 2015 06.00 AEST Last modified on Wednesday 22 July 2015 07.19 AEST
Tony Abbott will meet state premiers and territory chief ministers in Sydney on Wednesday to thrash out options for tax and federation reforms – but the prime minister has already praised a proposal to increase the goods and services tax from 10% to 15%.
Some of his state and territory counterparts have other ideas about how to meet budget shortfalls in health and education, which were exacerbated by Abbott’s cuts to long-term projected funding. Here is a summary of some big-ticket options and who favours them.
-----
Joe Hockey talks about wanting to go to next year’s election holding out the promise of tax cuts at the same time as the commonwealth is encouraging the states to raise their taxes. This is not tax reform: it is simply shifting the commonwealth’s budget problem on to the states. And even that will not yield enough to give the commonwealth the latitude to be thinking about tax cuts.
The biggest cut in last year’s budget was the $80 billion in expected health and education funding that was taken from the states. The newly elected Abbott government had set itself the objective of returning the budget to a strong surplus of 1 per cent of gross domestic product within a decade. It took on some tough recommendations from its National Commission of Audit, slashing the indexation of age pensions and demanding co-payments for visits to the doctor. However, it squibbed on others, such as forcing middle and high-income earners out of Medicare altogether.
The audit commission recommendations included in last year’s budget went only two-thirds of the way to delivering the $65bn in savings the commission had calculated would be required by 2023-24 to get the budget back on track.
-----
Date July 24, 2015 - 3:27PM
Benjamin Purvis
Australia's credit rating could be cut if political wrangling or an external shock such as a further decline in commodity prices mean the budget won't improve as expected, Standard & Poor's said Friday.
While the credit ratings agency affirmed the country's AAA rating with a stable outlook, it said that view was premised on the country maintaining "conservative budgetary policies" that would narrow the fiscal deficit.
"We could lower the ratings if Australia's budgetary performance does not improve broadly as we currently expect," S&P said. "Continued parliamentary gridlock on the budget could trigger this scenario, as could an external shock. The latter could come from further deterioration in Australia's terms of trade, for example, or from a sharp increase in the banking sector's cost of external funding."
-----
Date July 24, 2015 - 6:51PM
BusinessDay contributing editor
One of our more common fibs is the phrase "I don't like to say I told you so".
Everybody loves to say it, which is why the phrase inevitably is followed by "but".
So let me say "I told you so" on one issue and lay the groundwork to say it again soon on another.
-----
Date July 24, 2015 - 5:10PM
Economics Editor, The Age
Australia's AAA credit rating is at risk from parliamentary gridlock, one of the world's biggest credit ratings agencies has warned.
Standard and Poor's reaffirmed its AAA rating for Australia on Friday but said it could lower the rating if Australia's budgetary performance did not improve as it currently expects.
"Continued parliamentary gridlock on the budget could trigger this scenario, as could an external shock," it said.
The external shock could come from a further deterioration in Australia's export prices or from a sharp increase in the cost of overseas borrowing by banks.
-----
Health Budget Issues.
The commonwealth government is following the precedent of governments around the advanced world in seeking to strengthen its budget by cutting growth in health spending.
New OECD research shows average growth in health spending across the advanced world has come down from 3.8 per cent per person to 1 per cent since the global financial crisis, whereas Australia’s rate of growth in the latest year was barely changed from the pre-crisis average at 2.9 per cent per capita.
The change in health spending has been most acute in troubled European economies, with Greece, for example, going from an average 5.4 per cent growth per capita in the four years before the crisis to an annual 7.2 per cent contraction in the four years directly to 2013.
-----
The 2 per cent Medicare levy should be increased instead of lifting the GST to cover the nation’s burgeoning health spending needs, Victoria’s Labor Premier Daniel Andrews will tell this week’s COAG meeting.
Mr Andrews revealed he would push for a debate on increasing the levy — which went from 1.5 per cent to 2 per cent last year to pay for the National Disability Insurance Scheme — when state leaders meet Tony Abbott in Sydney on Thursday.
He said the levy rise could be sold to the public if the government guaranteed the proceeds would be spent on frontline health services and improving care for cancer and other conditions.
-----
State budgets are on track to be completely consumed by healthcare costs if physical and mental health continues its current deterioration, an assessment of emerging “megatrends” reveals.
The recently released book Global Megatrends, by CSIRO futurist Stefan Hajkowicz, says changing lifestyles to improve health is a “big juicy low-hanging fruit” that could massively bolster productivity and economic growth. He cites CSIRO research showing that healthcare now accounts for 20 per cent of state and federal government budgets in Australia and, on current trajectories, this would be 40 per cent by 2043.
“If this trend continues, healthcare will consume the entire budgets of Australia’s state governments — an unsustainable situation,” Dr Hajkowicz said. “The … system will break. We’ll have health haves and have nots and many people will not be able to access basic health services.”
Australia’s gym and fitness industry was currently valued at $1 billion, based on 2834 businesses with annual growth of 4.8 per cent. Despite this, the number of overweight people continued to rise.
-----
When Tony Abbott and the state and territory leaders sit down tomorrow to consider tax reform, the funding of health and school education will be at the forefront of the state leaders’ concerns.
Under the Constitution, health and school education are the responsibility of the states, yet these areas consume more than one-third of total taxation revenue.
The Prime Minister and Joe Hockey have signalled their desire for the states to take a greater share of the financial responsibility for these areas, but the Labor leaders have rejected any increase in the GST or broadening its base, leading to calls for new land taxes to meet the funding shortfall.
Total government expenditure was 27 per cent of gross domestic product in 1972, is presently 39 per cent and is projected to reach 50 per cent by 2050. This is unsustainable, particularly with the decline in our terms of trade.
-----
Date July 21, 2015 - 12:29PM
Companies & Markets Deputy Editor
Households struggling to afford the cost of private health insurance should brace themselves for more bad news.
The 'real' increase in the cost of premiums could hit as high as 10 per cent per annum over the next five years, new analysis by UBS insurance analyst James Coghill shows.
The data is troubling for customers, but also for insurers like Medibank Private, Bupa and nib, which are facing slowing revenue growth as customers shop around for cheaper deals.
Each year, private health insurers apply to the Health Minister to approve their premium hikes. Mr Coghill, in a recent note to clients, said these increases were expected to come in at the rate of about 6 per cent per annum in the coming years, which is already more than double the rate of inflation.
-----
Date July 21, 2015 - 8:18PM
Sydney Morning Herald State Political Editor
Premier Mike Baird's proposal to lift the GST to 15 per cent would still fall billions of dollars short of the revenue that modelling suggests is needed to cover escalating national healthcare costs.
Preliminary modelling Mr Baird is due to present to Prime Minister Tony Abbott's meeting of state and territory leaders on Wednesday shows lifting the GST to 15 per cent – without broadening its base – would raise an extra $36 billion by 2020.
However, after households earning below $100,000 are fully compensated for the rise and those earning between $100,000 and $155,000 receive back half the increase, the revenue boost is $18 billion.
This is $2 billion less than Mr Baird says needs to be raised in 2020 to cover an estimated $35 billion annual shortfall in national health costs by 2030.
-----
Date July 21, 2015 - 9:02PM
The Sydney Morning Herald's Economics Editor
Norman Lindsay called it the Magic Pudding. Economists call it opportunity cost. In the untiring campaign by some for an increase in the goods and services tax, a new magic pudding has been created. The trouble is, opportunity cost is real, but magic puddings aren't.
Why stop at eliminating state taxes? Why not use it to reduce a few federal taxes you don't like?
Put at its simplest, the concept of opportunity cost says that if you've got a dollar, you can only spend it once. This truth might be glaringly apparent, but it's surprising how often grown men (and, less commonly, grown women) forget it.
-----
The head of the doctors lobby Brian Owler says Medibank Private's hard ball negotiating demands are offensive and misunderstand the motivations of health professionals.
Referring to the market leading insurer's contract negotiation stoush with catholic provider Calvary Heatlh Care, the Australian Medical Association president said one of the 165 "highly preventable adverse events" that Medibank has said it will not pay for is maternal death associated with childbirth.
"Unfortunately, maternal death can and still does occur in a very small number of cases – as tragic as that is," he told the National Press Club in Canberra on Wednesday.
-----
Date July 22, 2015 - 6:58PM
Health and Indigenous affairs correspondent
Australia is heading towards a "US style" healthcare system, the president of the Australian Medical Association has warned, saying the cost-cutting behaviour of private insurance giant Medibank is "offensive".
Under current negotiations with hospitals, Medibank has dramatically reduced its hospital costs by refusing to cover what it deems as mistakes made by a hospital. It will also not pay the hospital if a woman dies giving birth.
"I find it offensive that a private insurer would refuse to cover the costs of that patient and hospital in such a tragic event," Dr Owler told the National Press Club on Wednesday.
-----
A push by state leaders to increase the Medicare levy has been shot down by the federal government while the NSW proposal to increase the GST without any associated tax reform was also given short shrift.
While Prime Minister Tony Abbott spent Wednesday with state and territory leaders seeking a long-term solution to fund public health, his ministers, led by Social Services Minister Scott Morrison, rejected outright a call by Queensland and Victoria to increase the 2 per cent Medicare levy to 4 per cent as an alternative to raising the GST. This would push the highest marginal tax rate to 51 per cent.
Separately, there was widespread concern within government at the prospect of increasing the GST solely to raise revenue rather than as a part of a broader changes to the taxation system.
-----
- ul 24 2015 at 6:45 PM
- Updated Jul 24 2015 at 6:45 PM
by Geoff Winestock
Health experts want Prime Minister Tony Abbott to rethink a decision to scrap a system of standard prices for medical procedures that is showing signs of slowing growth in hospital expenses.
The issue of how to curb hospital costs flared this week at the Council of Australian Governments where states demanded an extra revenue source to compensate for the Federal spending cuts.
For the past three years, federal funding for state hospitals has been based on an assessment of the efficient price for each hospital procedure determined by the Independent Hospital Pricing Authority. The efficient price of a tonsillectomy is $3,534 and a hip replacement is $20,957. Some hospitals charge considerably more.
-----
- Jul 23 2015 at 5:13 PM
- Updated Jul 23 2015 at 7:40 PM
by Geoff Winestock
State hospitals would be paid based on a cost-control system that sets an efficient price for every medical procedure under an agreement between Prime Minister Tony Abbott and the premiers that revives one of the Rudd government's signature policies.
Prime Minister Tony Abbott and state and territory political leaders agreed on Thursday to work towards a system where the Medicare system is used to cover treatments in hospitals based on efficient pricing.
Experts said the plan sounds like "activity-based funding", a system Kevin Rudd wrote into the federal-state hospital funding agreement in 2010. Hospitals were funded according to the specific procedures they provided such as hip replacements or heart bypasses. The price per procedure was set by an independent regulator who analysed all similar hospitals. That plan was scrapped in last year's budget. The amount of federal hospital funding was reduced and linked to each state's population.
-----
Pharmacy Issues.
GPs remain concerned about the expanding role of pharmacists and what they might be paid to do in the future, AMA president Associate Professor Brian Owler in an address to the Press Club.
In his address A/Prof Owler discussed issues facing GPs such as the Medicare rebate freeze – doctors have just launched an “anti-freeze” campaign to battle it – and public hospital funding.
He told reporters, in response to a question by News Corp’s Sue Dunlevy, that the AMA supported pharmacists “to be pharmacists” but remained concerned by support in the 6CPA for their role to change.
-----
It is going to be very interesting to see what happens to the polls and consumer confidence over the next 2-3 months. With the pollies away in their electorates things should be stable for a while. Last week, probably because of issues and Greece, China etc. easing off. we saw a good bounce - up a bit over 4%!
Enjoy.
David.