The Abbott government has burned much of its political capital for little gain with budget measures characterised by “obvious inequity”, the former Liberal leader John Hewson has argued.



Hewson made the forthright comments about the disproportionate impact of the budget on the poor while launching a new report that points to rising income inequality in Australia.

“Even though the Abbott government were at pains prior to the budget to argue that ‘fixing the budget’, one of those dot points that they took to the election, would be done by sharing the burden of adjustment, the electoral backlash was driven by the obvious inequity of many of the budget measures that were proposed,” Hewson said during an event at Parliament House in Canberra on Wednesday.

“The budget proposed in simple terms a cut of some 12% to 15% in the disposable income of the lower-income groups, single-income families, families with children, but only less than 1% cut in disposable incomes for those on higher incomes.

“Moreover the government has burnt much of its political capital for little gain, in my view, in terms of ‘fixing the budget’, especially when the unfunded challenges of meeting some of those very large expenditure commitments in the out years still persist.”

Hewson, who led the Liberal opposition from 1990 to 1994, suggested some alternative budget ideas he argued would achieve the desired changes in a more equitable way.

He said better targeting of the aged pension by means of reformed asset and income tests would have been more palatable if the pension had also been increased for those who genuinely qualified under those revamped rules, and if superannuation tax concessions that “overtly favoured the rich” had also been reduced simultaneously.

“Super concessions cost roughly the same as the aged pension, but are increasing faster than the cost of the aged pension. An example of the conspicuous benefit to the rich is the concessional tax on superannuation contributions, such that it costs a person on an annual income of about $20,000 about $118 to gain a $100 benefit, whereas somebody on an income of $250,000 only has to spend $62.50 to get the $100 benefit.”

Hewson said the decision to let universities to set their own course fees would have been more defensible if the government had simultaneously shifted overall funding from the institutions to students by way of a voucher system, encouraging providers to compete on price and quality.

It was “hard to defend” the government’s decision to maintain fringe tax benefits on cars, he said, and the paid parental leave scheme should be made “significantly less generous with the savings more effectively and equitably redirected to more means-tested child care”.

Hewson questioned the extent to which the government had considered the consequences of its budget decisions.

He said the proposed $7 Medicare co-payment was driven by a long-running economic argument that a price signal is needed to reduce unnecessary GP visits. “Then how do we dress this up to make it look good? Let’s give $5 of the $7 to a research fund,” he said.

Addressing the broader issue of egalitarianism, on which he said Australia prided itself, Hewson warned that “the land of the fair go” was disappearing and called for an “inequality impact statement” to accompany all major policy proposals to cabinet.

The wealthiest 20% of households in Australia now account for 61% of total household net worth, according to the report published on Wednesday by the research body Australia21 in collaboration with the Australia Institute, a progressive thinktank.

By contrast the report said the poorest 20% account for just 1% of the total household net worth.

“In recent decades the income share of the top 1% has doubled, and the wealth share of the top 0.001% has more than tripled,” it said.

The report was produced following a roundtable meeting of 34 participants at Parliament House in January hosted by the Labor MP Andrew Leigh, who said Australia must address the “growing gap between the haves and the have-nots”.

The report called for tax reform, with a focus on negative gearing, superannuation tax concessions and capital gains tax, and said all pensions and benefits should be no lower than the poverty line and should be indexed to average wages.

It suggested a national conversation about inequality and an inquiry by the Productivity Commission into the impact of the phenomenon on economic efficiency and growth.

The report stressed the importance of properly implementing the Gonski reforms and to address educational disadvantage and for investments in early childhood development. It also suggested more job creation programs in priority areas.

The report said perfect income equality is not a realistic goal but equality of opportunity "is generally agreed to be desirable in a fair society".

"At the other end of the income distribution, the bottom 20% has relied on government payments for three-quarters of its income,” the report said.

“Australia’s unemployment benefit (currently called Newstart) is the lowest of all Organisation for Economic Co-operation and Development (OECD) countries. Many government benefits have barely kept pace with inflation over recent decades. Partly as a result, one child in six in Australia lives in poverty, and the unemployment benefit is now 20% below the poverty line."

Hewson said greater inequality led to greater stratification of the community, with adverse effects on trust, self-image and equality of opportunity for disadvantaged groups, and there was mounting evidence that inequality impeded productivity and economy growth.

Hewson said big miners, big polluters and the big four banks were examples of rent-seeking behaviour or privileged companies seeking to use their powerful position to obtain economic gain at the expense of others. He said there was a strong community mood to address issues with political funding, lobbying and influence.

The economist Ross Garnaut said in the report the increased weight of money in the Australian political process "has enabled changes that would have been political poison a generation ago".