Why we need structural budget reform

Popular opinion has deified the Howard government for its run of surpluses. However, some of the medium term challenges facing the Abbott government come from the Howard government failing to make the most of the windfall gain of the mining boom to structurally reform Australia's budget.

The Rudd/Gillard Labor governments cannot be excused for their excess spending and failure to act on long term fiscal stability. However, the current budget problem has bipartisan origins.

While eliminating net debt and generating large surpluses were positive steps, Howard also used growing revenue to fund tax cuts and expand middle class welfare, while ignoring the challenges of an ageing population and rising health care costs.

There is no such thing as a free lunch. Although the government should return unneeded revenue to taxpayers during booms, it must also cut expenditure in anticipation of reduced revenue in economic downturns. This need is heightened by the fact government expenditure on welfare and unemployment benefits naturally increases during a slowdown. Of course, this picture becomes bleaker when added to the burden of a massive, poorly-targeted stimulus package.

However, sustainability of the budget must be assessed in the longer term. Viable small government isn't just a matter of decreasing tax levels; there also needs to be a sustained decrease in spending levels. To achieve this politically, the government must have a serious conversation with the public about the need for budget repair.

Incongruously, the Abbott government is pushing a huge increase in paid parental leave entitlements, contradicting their message of tightening the budget. Compounding their problem is their failure to win the help of other parties to allow for reform, evidenced in the Senate. This means they will struggle to pass the savings they have attempted to make.

If the Abbott government is serious about small government – as they have argued – they cannot afford to only reduce taxes.

The government is cutting the carbon and mining taxes, yet has been blocked in its attempts to cut linked spending like the schoolkids bonus and erase income tax cuts associated with the carbon tax.

If it wants to ensure sustainable budgets for the future, this government must do what Howard's Liberals could not, while also erasing the debt created by the Rudd/Gillard Labor government.

Sadly, early signs (such as the proposed increase in fuel excise and the temporary deficit levy), suggest that they lack both the ambition and ability to do this. This does not bode well for our future levels of taxation or hope of smaller government.

Tom Camp is an intern at The Centre for Independent Studies.