Australian Asset Sales, Cuts to Welfare Urged to Lower Debt

Australia should privatize its rail and postal assets and cut family welfare payments as Prime Minister Tony Abbott seeks to meet election pledges to rein in record public debt, a report ordered by his government advised.

Australian Rail Track Corp. and Australian Postal Corp. are among 10 bodies that should be sold, the National Commission of Audit said in Canberra today as it identified measures that could save as much as A$70 billion ($65 billion) a year within a decade. Among recommendations, it called for the pension age to be raised, payments for doctor visits, and cuts to the number of government bodies.

“Australia confronts a substantial budgetary challenge,” the report said. “The fiscal situation is far weaker than it should be and the long-term outlook is ominous due to an unsustainable increase in expenditure commitments.”

Abbott and Treasurer Joe Hockey, preparing the Liberal-National coalition’s May 13 budget, face a A$123 billion shortfall for the four years through June 2017. Fiscal austerity comes at the same time mining companies are cutting back on projects, threatening to damp a recovery in domestic demand and pressuring the central bank to maintain low borrowing costs.

In the next decade, Australia should adopt fiscal rules including reaching a budget surplus of 1 percent of gross domestic product, substantially reducing net debt and keeping tax receipts below 24 percent of GDP, the commission said today.

Surplus Path

Abbott, who won power in September vowing to create a path back to surplus, is under pressure to keep his pre-election promise of not introducing new or higher taxes in the government’s first term. Hockey has flagged savings by ending what he calls “the Age of Entitlement” through the axing of welfare payments to middle-income earners.

“The important thing is the government doesn’t go too hard, too soon in the budget because the economy is only slowly getting its way back up to normal growth,” Craig James, a senior economist at a unit of Commonwealth Bank of Australia, said ahead of the Commission’s report. “There will be a focus on efficiencies in welfare and the public service.”

Hockey ordered the Commission of Audit on Oct. 22, charging it to identify efficiency and productivity improvements across all areas of government expenditure.

The independent five-person body is chaired by former Business Council of Australia President Tony Shepherd. The 5-kilogram document focused on potential cuts to the 15 largest spending programs, led by welfare, health, education and defense.

The report is “by big business, for big business,” opposition Labor leader Bill Shorten told reporters in Sydney. “Families get less while millionaires get more.”

Spending Problem

While the government won’t implement all of the report’s suggestions in the May 13 budget, Finance Minister Mathias Cormann told reporters in Canberra today that “governments can’t keep spending more than they raise in revenue.”

Snowy Hydro Ltd. and NBN Co. are among other Commonwealth bodies the government should sell, the commission said.

The audit recommends reducing the Family Tax Benefit payment and lowering eligibility thresholds for social security benefits. Higher payments for each government-funded visit to the doctor were suggested, while young people on jobless benefits for longer than a year should have to move to where work was available, it said. It suggested future growth in the minimum wage be contained to improve job opportunities.

Parental Leave

The coalition won power after six years of Labor rule, pledging to cut taxes while funding a new maternity-leave program. Abbott yesterday said he’ll lower the threshold for the Paid Parental Leave Scheme, giving full pay for six months to a parent up to a A$100,000 threshold, down from A$150,000 proposed earlier. The Commission suggested the payment should be capped at average weekly earnings.

The government has already announced measures to cut red tape, reduce the civil service by at least 12,000 positions, lower subsidies for automakers and cancel handouts to parents of school children. Its plan to scrap a carbon price and mining profits tax have been stalled by opposition lawmakers in the Senate.

Still, with Australia’s net debt projected in December to peak at 16.2 percent of gross domestic product by mid-2019 without policy changes, the country’s fiscal position remains stronger than most of the developed world. Australia’s sovereign debt is at a record A$319 billion.

Ruled Out

Moves to increase the goods and services tax and the pension age, from 67 to 70, have been ruled out by the government until at least after the next election, due to be called by 2016.

Abbott hasn’t ruled out introducing a deficit-reduction levy that would temporarily increase the top tax rate, saying earlier this week that the government was “mulling over” its budget decisions. The Commission said it is up to the government which of its recommendations it adopts and said “there is a big task ahead to restore the nation’s finances.”

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