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Tony Abbott

Has Australia’s PM Tony Abbott just committed the equivalent of George Bush Snr’s “read my lips, no new taxes” moment? As the video above from the Australian Labor party shows, he promised that he could “absolutely guarantee” that the tax burden would be less under a government led by him. Technically Mr Abbott may be able to claim that he has met his pledge with some Treasury estimates suggesting that the overall tax burden will fall if the Australian coalition government succeeds in abolishing Labor’s carbon tax, for example. The Green-Labor-led upper house, the Senate, is currently blocking its abolition. Overall, however, most Australian voters will also remember that promise about no new taxes and they’ll contrast that with a range of revenue-raising measures introduced by Treasurer Joe Hockey in what has been described as their country’s most radical budget for twenty years.

For those who haven’t been following events downunder the budget is comprehensive in scope with pain for nearly every voter. Here are ten of the more notable measures:

1. A three year “Temporary Budget Repair Levy” (not a tax obviously if it’s called a levy!) of 2% for three years on incomes over Aus$180,000.
2. Company tax rate down by 1.5%.
3. Fuel duty to rise again with inflation (Robert Halfon would be unimpressed) – this restart of reindexisation will raise $2.2 billion and will be earmarked for road improvement schemes.
4. A Aus$7 charge for every visit to the doctor and a Aus$5 increase in the Australian equivalent of prescription charges. The revenues from these charges will fund medical research.
5. The retirement age will be lifted to 70 (from 67) by 2035. Existing pensioners will lose Aus$1.3billion of concessions and, most significantly, the earnings link for pensioners will be abolished and rise only in line with inflation.
6. Limiting help for unemployed under-30s to six months in every 12.
7. University fees will no longer be capped.
8. Aus$5bn will be stripped from the aid budget by freezing spending for five years and then increasing it by inflation rather than in line with overall economic growth. In contrast there’ll be Aus$1.5bn extra for defence.
9. There will be large cuts in spending on renewable energy, carbon reduction programmes and the arts.
10. Tony Abbott is pressing ahead with his signature and rather expensive paid parental leave programme but has capped the cost at Aus$50,000 for six months. In his pre-election promises it was more generous.

The Australian Broadcasting Corporation (which will see its budget cut by 1%) summarises other measures here.

Many Australians do not see the need for these tough measures. This, after all, is a country that has enjoyed more than two decades of uninterrupted growth – partly on the back of a mining boom. According to IMF definitions its net debt as a percentage of GDP is just 12%. Britain’s rate is 90%. But Treasurer Joe Hockey explained why he was determined to act two years ago in a speech in London, to the Institute of Economic Affairs. His central theme was that the “Age of Entitlement is over”. He continued:

“The social contract between government and its citizens needs to be urgently and significantly redefined. The reality is that we cannot have greater government services and more government involvement in our lives coupled with significantly lower taxation. As a community we need to redefine the responsibility of government and its citizens to provide for themselves, both during their working lives and into retirement.”

That is what he’s done in his first budget as Australian Treasurer. Unlike in Britain where cuts were urgent and necessary to avert a fiscal crisis, Australia could have delayed. It hasn’t. The budget is a first attempt to redefine what citizenship should mean. You aren’t owed an early retirement or unemployment benefits for an extended period. You should help pay for your healthcare and your university education. The message is that government will refocus spending on essentials – infrastructure and medical research, rather than foreign aid and the arts.

The levy on top earners is particularly important politically. Talking to a leading Liberal Party member yesterday they said that they wanted to avoid the “Osborne problem”. We’re increased top earners’ contribution in a very overt way because we cannot afford to look like the rich are not paying extra when everyone else is.

Opinion polls suggest Mr Hockey is paying an early electoral price for these tough measures and the sense that he and Abbott have broken pre-election promises. The measures are in some ways similar to those taken by the Coalition here in Britain (the restriction of welfare payments to higher earners and freezing MPs’ pay for example). In some respects they go further than here – in cutting aid spending and introducing medicare charges, for example. But the overall cuts in Canberra’s spending (from just over 25% of GDP to about 24%) are modest in comparison and there is no equivalent of the VAT increase that British consumers have faced. This is more about redefining the relationship between the Australian citizen and their state – than averting an imminent fiscal crisis.

There is now the not-so-small matter of getting all of these measures passed. Messrs Abbott and Hockey may control the lower house of the Australian parliament. They don’t control the Senate.

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