2 October 2003

Why Costello's $7.5b surplus is a burden, not a boon

Underneath the rhetoric of fiscal rectitude, the Government's fiscal strategy is the same as the mug householder - to retire debt at any cost. For instance, the dividends forgone from the sale of half of Telstra are greater than the interest saved on the retirement of debt. The leaseback arrangements from the sale of Government property such as the Foreign Affairs headquarters are far more expensive than the previous situation in which the Government owned the buildings.

In order to meet these self-imposed burdens, Commonwealth taxation has increased from 23.5 per cent of GDP in 1996 to 25.4 per cent of GDP in 2003 after adding back in the proceeds of the GST, which is a Commonwealth tax that replaced the wholesale sales tax in 2000.

But as a result of this policy, households have an additional burden. As the Government undermines Medicare (eroding the real value of the scheduled fee for medical consultations so that fewer doctors bulk-bill), underfunds public hospitals so that more patients are forced to use private hospitals in order to get timely elective surgery and education funds are switched from government to private schools to encourage the middle class to shift their children from government to private schools, the burden of debt is shifted from the Government to households.

This cost shifting (along with the housing bubble caused by permissive monetary policy) has contributed to the explosive growth in household debt, from $290 billion in 1996 to $660 billion now.

The 2002-03 $7.5 billion surplus should be seen as a burden rather than a boon. It is money that has been taken from the income-expenditure stream unnecessarily because it could have been used to create extra economic growth and jobs.

The latest exercise in cost-shifting is the medical insurance levy. Doctors are going to have little choice but to pay up. That will make the declining value of the scheduled fee (PDF) even less attractive. As a direct result of government policy, then, bulk-billing will fall even further and that can fuel further claims that Medicare is hopelessly broken and should be scrapped outright.

Actually spending the surplus to plug the growing gap between rich and poor would interfere with the Howard government's re-election drive.

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