Why Australians must pay to plug Government’s budget hole

IT’S time we stopped living in tax fantasy land, where we don’t have to actually pay for all those things we demand of government.

THIS is not a drill: Australia faces its longest run of budget red ink in history unless urgent remedial action is taken in the May budget.

Incoming governments get only one chance to fix the books and spill some electoral blood.

Joe Hockey must go hard or go home in his first budget. Peter Costello did an admirable job in his first budget. That was before the urge to splurge — which eventually gets every politician — became too powerful to resist.

JOE HOCKEY: Why everyone has to cop budget pain

FEDERAL BUDGET: See the latest stories at a click

FEDERAL BUDGET: Economists state there’s only two options

Remember the days when the budget was rolling in money? For almost a decade, Costello pulled bigger than expected budget surpluses out of his hat — much to the excitement of an admiring voting public who enjoyed pension boosts and tax cuts.

Those were the days when the mining boom was just getting started. China would hand us hundreds of billions of dollars of budget windfalls, of which the Howard government blew about half, and Kevin Rudd and Julia Gillard spent the rest. It’s a sorry fact that we’ve managed to come through the biggest mining boom since gold rush days and we’ve precious little to show for it.

Look, the cup is empty and there’s a hole in it ... Treasurer Joe Hockey explains the mess he inherited.

Rudd came to power famously promising “this reckless spending must stop” before going on a blockbuster spending spree to protect Australians against the worst of the global financial crisis.

We should be glad he did. Action was needed. But with the benefit of hindsight, too much was spent.

Labor failed to reign in the worst of the Howard government’s budget excesses. In fact, it came to power matching dollar-for-dollar the multi-billion dollar tax cuts Costello announced on the eve of election in 2007 in a desperate attempt to neuter Labor.

Despite admirable savings drives led by finance ministers Lindsay Tanner and Penny Wong, Labor couldn’t stop spending. It introduced a carbon tax that cost more in compensation than it raised. It designed a mining tax that raised next to no revenue — but had plenty of big spending promises attached.

Worthy policies like a National Disability Insurance Scheme and the Gonski education funding boost were put on the table but never fully funded.

Sure, Labor used a type of budget hypothecation to claim new savings measures — such as increasing the Medicare levy surcharge and means testing the baby bonus — would offset the cost of the new spending.

But when you’re knee deep in debt, no policy is ever really fully funded.

ARE YOU WILLING TO SUFFER TO FIX THE DEFICIT? COMMENT BELOW

Remedial action to fix the budget was needed before these big spending promises. The task is now that much bigger.

You have got to have some sympathy for nice guy Joe Hockey whose job is now to be Edward Scissorhands in chief.

Cutting’s a dirty job, but someone’s got to do it ... bring on Freddie-eral Treasurer Joe Hockey.

Hockey must fix the three structural holes in Australia’s budget left by a receding mining boom, an ageing population and expensive new social policies.

So, remember all those tax cuts and welfare cheques? Well, we’re going to need those back.

Bracket creep will do much of the hard work Hockey. Bracket creep is the phenomenon where every year more and more taxpayers get pushed into higher tax brackets thanks to their wage rises. Wages increase every year, but income tax thresholds are fixed. Earn just dollar more and boom, you’ve gone up a tax bracket.

Treasury says the average wage earner in 2024 will be paying an average tax rate of 28 cents in the dollar up from 23 per cent now thanks to bracket creep.

Not only will you be paying more tax, get set to work for longer before you are eligible for the age pension. Prepare to pay more to visit the GP and receive fewer family tax benefits as Hockey wields the knife.

Hockey has indicated he will try to spread the pain as much as possible. We’ll all have to do some heavy lifting.

And that’s fair enough too.

It’s time we stopped living in tax fantasy land, where we don’t have to actually pay for all those things we demand of government.

It’s time we all chipped in to fund the services for the disabled they deserve and the investments in human capital — that’s education to you and me — that will equip our young people with the skills they will need to survive in our new economy.

The pain starts in May.