13 September 2016
by Phillip Coorey

Coalition compromises on welfare cuts to win budget deal with ALP

The Coalition has scrapped plans to cut welfare payments by $1.3 billion as part of a deal with Labor to secure the passage of the omnibus budget bill and still deliver most – if not all – of the promised $6 billion in savings.

Following backroom talks led by Finance Minister Mathias Cormann and shadow treasurer Chris Bowen, sources said the government agreed to drop the largest of the 24 spending cuts in the bill – the removal of carbon tax compensation from the payments to future welfare recipients.

It is understood that the revenue will be recouped by cuts elsewhere in welfare. It is believed there will be a further paring back of the Family Tax Benefit end-of-year supplements which the government has wanted to abolish altogether since the 2014 budget.

The original plan would have cut the dole by abut $5 a week and also was fiercely resisted by welfare groups and the Labor left faction. Mr Bowen had begun negotiating change before the Left spoke out against the changes which would have affected only new welfare recipients after July 1 or existing recipients who transferred to a new payment.

The other contentious measure in the bill, a $1 billion funding cut to renewable energy agency ARENA, has also been diluted as part of the deal.

The deal was set to be approved Monday night by both the cabinet and the shadow cabinet and then put to both the Coalition party room and the Labor caucus for final agreement on Tuesday.

This would enable swift passage of the bill through both houses of Parliament, delivering the Turnbull government a much-needed legislative victory on budget repair.

Labor accord
Labor sources said the opposition realised that it, too, had to step up to the plate on budget repair and could not afford a repeat of the last election where its policies would have left the budget $16 billion worse off over the next four years than under the Coalition.

Treasurer Scott Morrison indicated that even though the government had made compromises, the credit ratings agencies would be happy because they were concerned about achieving bottom-line savings to reduce debt and deficit, not with the mechanism of how they were achieved.

"The ratings agencies have made their position crystal clear, and that is they accept and support the trajectory of reducing expenditure as a share of the economy and moving the budget back into balance," he said.

"The question they have is will the Parliament support achieving that trajectory? They have made it very clear that it is a matter of getting things passed and actioned."

The government made the passage of the omnibus bill its priority as both a commitment to budget repair and to test Labor's preparedness to back the savings it supported either directly or in kind during the campaign.

But the bill threatened to split the ALP with the Left, led by Anthony Albanese, especially hostile to the idea of cutting the dole, saying it would lead to the same backlash as when the Gillard government cut single parent payments.

Mr Albanese had argued that even the Business Council of Australia had argued the dole was too low. Labor sources said the compromises were negotiated without input from Mr Albanese or the Left. However, shadow minster Jenny Macklin helped design the compromise.

Debt reduction
Two weeks ago, Mr Morrison said that if the omnibus bill was passed it would reduce debt by $30 billion over the next decade.

But on Monday, the Treasurer remained insistent that there was no need to also increase taxes, as Labor proposes and as outgoing Reserve Bank of Australia governor Glenn Stevens said last week.

Mr Stevens said Australians had voted for higher taxes by locking in higher spending without sufficient revenue to cover it.

Mr Morrison said Mr Stevens was making the point that the budget needed to get back to balance.

"If the savings don't pass, then people will pay more taxes in the future. That's just a natural consequence of not being able to get things done," the Treasurer said.

He said the Coalition government had reduced taxes, not increased them, and he cited the company tax cuts and the personal income tax cuts contained in the May budget.

The legislation for both of these is also before Parliament.

This Wednesday marks one year since Tony Abbott was rolled for the Liberal Party leadership and amid much taunting, both external and internal, Prime Minister Malcolm Turnbull made a speech to Parliament to underscore his achievements.

"Strong economic leadership under my government is delivering more jobs and growth," he said.

Australia's annual growth rate of 3.3 per cent was higher than that of any of the G7 economies, and that unemployment had dropped from 6.3 per cent to 5. 7 per cent in a year, he said.