Wednesday, May 13, 2009

So how was it for you?

So how was it for you? Did the earth move and fireworks fly? Or was the whole thing a massive anti-climax? After the barrage of pre-budget leaks there were no significant surprises in Wayne Swan’s second budget with the exception of the announcement that the eligible age for the age pension would increase from 65 to 67. It was a bolt from the blue, and was greeted with an outburst of laughter in the parliament. Then came the detail that it would be phased in over time from 2017 until 2023, so that people already over 57 won’t be affected at all, and those over 50 will only be partially affected. As far as surprises go, it wasn’t exactly a showstopper. Nevertheless, it will leave some people with the feeling that the goal posts have been shifted.

While the future viability of the pension is important, the immediate needs of today’s pensioners are more important. The increase of $32.49 per week for single pensioners is in line with expectations and anything less would have been a monumental breach of faith. But it still doesn’t ensure a decent standard of living in retirement. As much as we would all like to guarantee pensioners a much more substantial income, the real solution for the long term is to continue building up the superannuation system. For the first time since compulsory superannuation was introduced, concessions and benefits have actually been reduced. While the reduction of the allowable salary sacrifice contribution for high income earners arguably only impacts on people who will most likely be wealthy in retirement anyway, the supposedly temporary reduction in the co-contribution payment for lower income earners is a negative step which undermines the purpose in having superannuation in the first place.

The superannuation system remains in need of further improvements in order to deliver on its purpose of providing adequate retirement incomes for most Australians. By achieving that, the age pension would perform its proper function as a social safety net, and with fewer people relying on it there would be scope for it to be a little more generous. Of course, the superannuation system is included in the current Henry review of taxation, and it is to be expected that some reform will come out of that, although it remains to be seen if the system will ever be allowed to fulfill its potential and realize the long term vision of Paul Keating.

The opposition is focusing on the record budget deficit, and the long term debt which arises from that deficit, warning that we will be paying it off in future generations. Worse, they are questioning the optimism of the Treasury predictions for a strong recovery to 4.5% growth for an extended period of time after the recession ends. If they are right, it would be reasonable to expect the deficit, and the debt, become even bigger than forecast. But that’s the trouble with forecasting… none of it is certain. Just look at last year’s figures projecting a surplus of over $20 billion and only a minor economic slowing but no recession. None of them were even remotely accurate, so in these strange days who’s to say just what might be in store by this time next year?

In that light, the important thing is to keep people in jobs, and to support the needy. Despite the enormous deficit, I suspect this budget may not be enough to do that, especially in the light of international conditions.

No comments: