The Government Should Implement These Audit Commission Proposals

The report of the National Commission of Audit is a broad reaching document which goes to the heart of the Federation, to the benefits Australians feel they are entitled to, and what might be referred to as the social fabric of Australia.

The commissioners grouped their report into 64 base recommendations but within those there are a large number of further recommendations.

Some of the recommendations, as Joe Hockey said yesterday, are “courageous” and some of them, he says, are simply common sense.

But equally some of them show that the Commission has a big-business bent with little embedded flexibility for the government going forward and a view that the Government should’t be involved in any economic activity where the private sector might be interested.

Having said that though there are some recommendations that the government should jump on to immediately. Let’s have a look.

Pension and Entitlements

Australians are living longer so the Commission’s recommendation that we should work until 70 seems a reasonable age. The commission wants to raise the pension age to this level by 2053 which seems achievable given life expectancy for children born since the turn of the century and now is moving into the late 80’s early 90 years area.

But the pension age is just part of the story. Access to benefits – and the means testing of this access – is also important.

In principle the means testing of the family home as a way to measure pension entitlements should go ahead, with two important caveats.

The drop in the Commission’s proposed threshold from $750,000 to $500,000 between married and single could cause problems. It’s a better bet that at retirement, if a couple is still together, then that should be preserved if one of them dies. Imagine having to sell your house worth $680,000 because your partner has passed on.

Equally it would be good to see an improvement in the types of reverse mortgages offered to older Australians and which the commission seems to be relying on, so pensioners can live off their homes.

Superannuation is also part of the pension equation and the accelerated move in the preservation age to 62 years of age is to be applauded.

Health care

There are some big issues with the value of the co-payment of $15 for seeing a doctor. It seems quite high, given a visit to the doctor is not free. Australians pay the Medicare levy to cover it already.

But the cost of health care will rise as the population ages, and the number of workers to retirees is projected to drop from around 5 now to 3 in 2057. Some co-payment will be necessary – but in 2014 dollars $15 seems a little high even with the reduction for frequent visits and for pensioners.

On that basis the government’s proposed $6 payment is a good start and could probably be increased a little over the coming years.

All Australians who can afford it should have private heath cover, so requiring wealthy Australians to have private health insurance seems a sensible step so that we can stick to the Australian ethos of helping those who really need help.

Family Tax Benefit Payments

The changes to the family tax benefits part A and part B are going to be controversial but as Commission chair Tony Sheperd told the Senate hearing this morning, as a nation we need to “protect the bottom” and that means that those on higher incomes need to pay a little more.

So to this extent preserving the current rate at which Family Tax Benefit (FTB) Part A starts to cut out of $48,837 and then accelerating the cut-out to zero to $99,000 rather than $112,000 looks fair.

As Tony Shepherd also said before the Senate today, each of the different government programs in isolation can have a strong case for their retention made on and ethical basis but “we simply can’t afford all of them”.

The commission’s report noted:

Addressing vertical and horizontal equity is a key rationale for the provision of family payments. Vertical equity is the concept that people with lesser means should receive greater assistance, while those with a greater capacity should shoulder a greater financial burden. It suggests that assistance be targeted to families who need it most, with less or no assistance going to families on higher incomes who are able to provide an acceptable standard of living for their children without additional support.

Horizontal equity is the concept that people with similar capacity to pay should pay a similar amount. Taking into account the costs of their dependent children, families do not have the same financial capacity as an individual or couple on the same income without children. Tax should be paid in proportion to a person’s capacity to pay.

For this reason it’s sensible to go ahead with the abolition of FTB part B and replacement with a supplemental part A payment.

Privatisations and Government support

We are tying up two areas of recommendations here as we see them as ideologically related.

That is the privatisation of government owned enterprises and the accounting for the cost and by extension charging of government guarantees.

Clearly with a limited population and a remoteness from the big developed markets of Europe and the US and Canada there is a place for Government in providing services in an economy the size of Australia’s with a limited population. This can be via the establishment of entities such as Telstra in the past and the NBN Co now.

However there is also a very strong case for the selling off these assets and recycling the proceeds into new areas of need once the industry or business is established and functioning without the need for government support.

So with the need to balance the books it’s reasonable to privatise the Australian Postal Corporation, the Australian Rail Track Corporation, Defence Housing Australia, Medibank Private, Moorebank Intermodal Company and eventually NBN Co Limited. We aren’t so sure about the Royal Australian Mint though. Sure it just makes our money – but it makes our money.

Turning to government guarantees, Recommendation 4 in the report calls for the government to address the value of its guarantees and create a contingency reserve for them. Such a process would include the potential cost to government of the Financial Claims Scheme which explicitly guarantees all Australian deposits below $250,000 at any single banking entity. But it should also be extended to the implicit guarantees the government has provided the banking system – in particular the guarantee which it has effectively placed behind Australia’s too-big-to-fail banks. In doing so it could raise substantial funds which could be placed in the contingency fund the Commission suggests or used for other budgetary purposes.

Government bodies

Mass government layoffs are a grim prospect in the current economy. But the Commission has identified a number of government bodies that can be merged instead of abolished.

The inclusion of EFIC on the list of departments to be abolished is surprising, but in principle targeting a combination of administrative process across the government where synergies can be identified makes sense.

There are many more things we haven’t included and some that are downright daft. Happy to take your thoughts in comments.

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