The Coalition can play down the massive cuts in education, health and pensions that won’t happen until after the four years covered by this budget

When talking spending cuts or increases all politicians will use whichever measure best helps their argument. They might use nominal dollars or inflation adjusted figures. For looking at the changes in expenditure the government has made, an effective way is to compare the budget forecasts with the previous year’s predictions.



Each budget estimates expenditure and revenue over four years. So looking at the 2013-14 budget enables us to see what the former ALP Government intended to spend in the years up to 2016-17. This year’s budget goes out to 2017-18.



The Budget breaks down expenditure into 14 areas that are broadly aligned with government portfolios – such as health, defence, education, industry, employment, social security.

Comparing predicted expenditure across the two budgets certainly highlights changes in expenditure such as the government’s decision to give the Reserve Bank $8.8bn to boost its reserve fund:



Unlike that cash injection, which was a one-off, the impact of the government’s decision to “reprioritise” foreign aid increases over time. The government will increase funding in nominal terms, but the increase is only in line with inflation and is massively below that promised last year by the Gillard government:

A similar difference is clearly apparent with the higher education expenditure:

From 2015-16, the government is changing the funding model for universities – shifting to a “demand driven system” which allows universities to set their own course fees. The government will also reduce the subsidies provided under the Commonwealth Grant Scheme.

By 2016-17 this will see an 8% reduction in funding compared to that promised in last year’s budget, and according to the budget papers a 4.7% decrease in real terms from 2014‑15 to 2017‑18.

If universities are to continue providing similar services, the difference in funding needs to be met via higher student fees.

There are also changes to the Higher Education Loan Program (Help), which will see the interest on the Help be set at the 10 years bond rate yield rather than the inflation rate.

Judging by the past 20 years the interest rate students will pay will more than double:



The changes will see fees for university courses and thus students’ debt rise significantly over time. Overseas evidence suggests demand for such courses may not significantly drop because students still believe the advantages of a degree outweigh the future cost (partly because this might be true and partly because people often discount future costs).



But it is a case of the government in effect privatising its debt by placing a greater burden on students.

It’s not just university funding though that has been cut. Vocational education expenditure falls not only compared to what was expected last year, but also in actual dollar terms:



The main reason is the axing of the “tools for your trade” program. The government has replaced it with its trade support loans programme (a Help style scheme for apprentices). While cutting the tools for your trade program saves the government $914m over four years, the trade support loans program costs only $429m.



The government promised to introduce the loans program in its election campaign. Nowhere, however, not even in its election costings, did it say it would scrap the tools for your trade program. During the election campaign it also promised that the loan would be “interest free”; now however it will, like the Help, be paid back at the 10 year bond rate.

Surprisingly, given the commentary about schools and health funding, there is next to no difference between the funding for schools and for hospitals in last year’s and this year’s budget.



This is because the decreases will all occur after 2017-18. At that point the budget reveals the government will change the “indexation arrangements for schools” [ie end the Gonski funding model], and hospitals. It will also remove “funding guarantees for public hospitals”.



All up this means cumulatively $80bn less in such funding going to the states.



Until then Christopher Pyne can state quite accurately, if misleadingly, that “spending on school education will increase by $3.5bn over the next four years”.



After then either the states will either have to cut health and education services or they will have to raise revenue. Rather cowardly, the government is playing dumb over these implications. Every minister has been programmed to reply to any question on the issue with the comment, “it’s a matter for the states”. But clearly it is about forcing the states to demand the GST be raised.

Another area that surprisingly doesn’t see any changes to expenditure is that for aged pensions, disability support pensions and veterans pensions. This is due to the indexation of those pensions not changing until 2017-18. And also because the proposed “tightening” of the disability support pension (DSP) is not actually projected to produce any savings.

Joe Hockey talked before the budget of the ALP putting a “tsunami” of expenditure beyond the four years of the budget; in his first budget Hockey has done the reverse – all his massive cuts in education, health, pensions don’t actually happen until after the four years covered by this budget.

That isn’t the case for assistance to families with children. As I noted last week, the indexation for the single parents pension begins in July, and the other cuts to Family Tax Benefit see overall assistance to families fall over the next four years:

The one area of reduced government spending that it is very happy to talk about is related to asylum seekers. For this we need to shift from the actual budget papers and look at the Department of Immigration’s portfolio budget statement.

And here we see an interesting observation. The government is claiming “stopping the boats” will save $2.5bn over five years. But interestingly it has budgeted to spend more on processing and stopping asylum seekers than was promised in last year’s budget.

The predicted increase in spending on processing asylum seekers from last year’s budget was noted last week by the Greens’ Senator, Sarah Hanson-Young. The government’s claimed $2.5bn saving comes by comparing the budget not with last year’s but with the figures announced in February following the mid-year fiscal and economic outlook.



The government would argue that ALP’s estimate was woefully inaccurate and optimistic. And they may well be right, but it does show that when it comes to announcing savings and expenditure, we need to pay close attention to the maths political parties use to reach their conclusion.