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Jonathan Pearlman
Saturday, May 17, 2014

World

Abbott slammed over budget cuts

The Straits Times | Jonathan Pearlman | Saturday, May 17, 2014

SYDNEY - Australian Prime Minister Tony Abbott has come under attack from all sides after delivering a belt-tightening budget that some analysts said "redefines the role of government in Australia".

Prior to his election last September, he had pledged no cuts to education, health, pensions or the public broadcaster and vowed not to raise personal taxes - but the budget on Tuesday breaks all these promises. There were extensive cuts to public spending, notably slashing A$26 billion (S$31 billion) from health and welfare over the next four years.

Mr Abbott faced angry attacks from state leaders over reductions in hospital and education funding, from retirees and low-income earners over welfare cuts, and from students and teachers over reduced funding for schools and universities. Aid groups said the A$7.6 billion cut to foreign aid would prove "devastating".

Attacked in Parliament yesterday, Mr Abbott insisted the measures were necessary to reduce Australia's growing debt. Net debt has risen to more than 12 per cent of GDP, though this is lower than that for most advanced economies. The budget aims to reduce that debt from A$50 billion this year to A$30 billion next year and to just A$3 billion by 2017-18.

"We take responsibility for fixing the problem, the debt and deficit disaster that Labor created," Mr Abbott said. "I think that is exactly what the people of Australia elected us to do."

But the budget marks a significant political risk for Mr Abbott, whose popularity ratings are already low and whose ruling coalition trails in the opinion polls.

Monash University social sciences academic Shaun Carney noted the government was "creating a new sort of Australia", saying its aim was to make government smaller and to cut welfare. "The removal of various elements of the safety net for the unemployed and the sick, the killing of industry assistance, the deregulation of university fees, the squeeze on pensions and family payments: all of these are about remaking the nation in important ways," he wrote in The Conversation.

Even the reactions of economists were mixed. Some said the government went overboard and risked curbing growth by trying to pay down debt which is not dangerously high. Others said it was better to reduce debt now while the economy was still strong.

Melbourne University economics Professor Mark Crosby said it was a "good budget" and that Australia needed to rein in welfare benefits for middle-income earners. He said Australia needed to insure against jitters in the Chinese economy or a worse-than-expected slowdown in the mining boom.

"The budget has taken a lot of steps... necessary to position the economy for the next five to 10 years," he told The Straits Times. "The economy is doing well enough that now is the time where you want to address the deficit and debt."

But the measures have set up a brewing conflict between Mr Abbott and the state governments, which run hospitals and schools but depend on federal funding. The budget reduces school and hospital funding by A$80 billion over the next decade.

The Premier of New South Wales state, Mr Mike Baird, who is from Mr Abbott's Liberal party, said the budget was a "kick in the guts". "It's cost shifting and it says to the state we have a problem, you work it out," he said.

The cuts have prompted speculation Canberra wants to pressure the states to push for a hike in the federally-collected consumption tax, the main source of state revenue. Mr Abbott is believed to want to raise the tax but such a move would prove unpopular.

Economics commentator Alan Kohler expressed surprise at the budget, which marked "one of the biggest reductions in... health and welfare spending in history".

"This budget is, overwhelmingly, a welfare tidy-up," he wrote in The Australian. "What the political cost... will be only time will tell, but it must represent a huge risk for the 2016 election."

jonathanmpearlman@gmail.com

This article was published on May 15 in The Straits Times.

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