SIMON BIRMINGHAM: Governments need to get back to their core business to rein in spending

Kerching! Yes, at this time of year that could be the sound of an old fashioned cash register. But it could even more easily be the sound of old fashioned government spending.

On Wednesday, the culmination of Albanese Government spending, wasteful decision making and a big change of luck came home to roost as the mid-year budget update showed Labor taking Australia back into a deep and prolonged budget deficit.

Back in 2022 Labor inherited an improving budget and a strong economy. Coming out of COVID, the hard decisions to turn off COVID supports had been made, while the lowest unemployment in 50 years reduced welfare payments and boosted tax receipts.

Conservative budget estimates meant it was all upside when the prices paid for Australia’s mining exports exceeded all expectations. Combined with the revenue windfalls of high migration and high inflation, Anthony Albanese crowed about delivering two budget surpluses, pretending that his Government had something to do with it.

What’s clear now is that the longer Labor has been in government, the worse the budget is getting. Independent economist Chris Richardson assesses that across the three Labor budgets they have made new spending decisions worth $104 billion.

Anthony Albanese and Labor should take responsibility for their role in creating this problem, but whoever wins the next election will need to take responsibility for trying to fix it. So, consistent with the luxury of a retiring politician who won’t have to implement these ideas, here are some suggestions for budget repair.

First, the sexiest topic of all, vertical fiscal imbalance. In and of itself, addressing the problem of the States being reliant on the Federal Government for a huge proportion of their revenue doesn’t automatically reduce spending. But done well, fixing this can reduce duplication and administrative costs, while creating stronger incentives for efficiency.

Right now, the Federal Government funds 40-45 per cent of the cost of public hospitals run by the States. It funds 20 to 22.5 per cent of the cost of State schools. These figures don’t include GST given to the States or other untied payments they receive. These are two of many separately legislated or contracted payments to the States, each with conditions that keep public servants at State and Federal levels busy doing things that don’t actually deliver healthcare or teaching or roads or other services.

It would be far preferable for States to be guaranteed a share of income tax or other revenue that made them solely responsible and accountable for delivery of their services, leaving the Federal Government to focus on its responsibilities such as defence, social security and foreign policy.

Related to this “stick to your knitting” approach to greater government efficiency is a much easier step for the Federal Government: end ridiculous and wasteful Federal grants.

Last week I learned that the local council owned heritage cinema in my neighbourhood is to receive a major refurbishment in part funded by a $2.43 million grant under the Federal Government’s Thriving Suburbs Program. Why on earth does the Federal Government have a Thriving Suburbs Program?

Imagine the council bureaucrats all over Australia writing their grant applications and sending them off so that the team of Federal bureaucrats can assess them, pick a few winners, apply grant conditions to them, which the local council types will then have to report against.

One of the biggest missed opportunities from the very early days of the previous Coalition government was to not embrace the decision of the High Court in the Williams case on school chaplains. The court didn’t find against Federal funding of school chaplains because of some issue around church and State, but it did find that the government was exceeding its powers to make such grants or payments.

This was a great opportunity to get the Federal Government out of funding local roads, parks, cinemas, lighting, security cameras, playgrounds and all manner of worthy things that should be delivered by State or local governments. But no, because the leadership at the time valued chaplains they legislated a workaround.

A future Federal government should repeal the workaround, get out of funding things they have no business in, and simply ensure that State and local governments have their own equitable funding streams to meet the needs of their communities.

Two more ways to help address Labor’s budget deficit are to reintroduce a cap on public service numbers and a cap on the amount of tax collected as a share of the economy. These were applied by the previous Liberal led government, with an exemption for the COVID emergency.

Even with COVID over, the Albanese Government has gone on a public sector hiring boom, with the budget showing an additional 36,000 public servants. Thankfully, a Dutton government is highly likely to reintroduce a public service cap, and say that there should be a limit to how much of Australians’ economic activity the government can scoop up in tax collections.

My final suggestion is consistent with my column last week in relation to childcare, or previous comments touching on aged care and other supports. Means testing. Rather than ballooning the size of government by endlessly pursuing “universality” for payments, governments need the guts to say that payments are for those who need them, not everybody. We’ve done it for decades in relation to the aged pension and should apply that attitude much more widely.

Of course there’s also government waste to always be eliminated, especially banning most taxpayer funded advertising campaigns. And there are huge opportunities for greater efficiency and targeting of payments or services from the use of data in the years ahead. But first and foremost, we just need a government that stops making matters worse through the endless sound of “kerching”!

Simon Birmingham is the shadow foreign minister