Today’s announcement by the federal government scrapping the 0.5 per cent increase to the Medicare levy to fund the National Disability Insurance Scheme (NDIS) is good politics but bad policy says a QUT financial economist.
Dr David Willis from the QUT Business School said while it was a ‘feel good’ move from the government it was not wise in the long term.
“While we can all cheer that a proposed tax will not go ahead - not a tax break as it is being sold - we need to consider if this is the right policy prescription,” said Dr Willis.
“The NDIS is a structural change to expenditure so is fundamental and permanent while the proposed Medicare increase was meant to alter the tax and receipts part of the budget to permanently finance the scheme.
“An increase in revenue that has allowed the government to not go ahead with the Medicare increase, is cyclical and none permanent and rises and falls with national income and the boom and bust of the trade cycle. Therefore we have once again proposed a permanent expenditure to be paid for out of a hoped rise in revenue to fund it which is rather wishful thinking even in the short term.
“Revenue is like a bonus which is unexpected and nice to have. It is something you would use to buy a car but not use to pay for school fees on a long-term basis as you can’t predict bonuses, or in this case revenue, ongoing.”
Dr Willis said if the government wants to spend the new increased revenue in a prudent fashion it should be used for one-off projects like road and bridges or other infrastructure projects that increase efficiency or even pay down debt so the expenditure matches the income.
“Presently we are running a large debt and deficit and yields are paid out of revenue. This is not an issue while interest rates are low,” he said.
“However, rates have already started rising in the USA and will do so around the world in the next 12-18 months. So any spare revenue will start to be taken up with additional expenditure and depending how much rates rise, financing may become an increasing challenge for the government.
“Therefore we are now making the same errors are we did under the Howard years, introducing fundamental and permanent changes to expenditure - the baby bonus and first home grant are just two of many example) - that is not paid from permanent changes to income but out of cyclical revenue.
“As revenue falls in a slowing economy or costs rise as rates rise, the ability to fully fund the NDIS will leave only two choices, either to cut the amount offered and whom can claim or to increase debt and deficit to fund it going forward.”
Media contact:
Amanda Weaver, QUT Media, 07 3138 9449, amanda.weaver@qut.edu.au
After hours: Rose Trapnell, 0407 585 901, media@qut.edu.au
