The first budget of the Abbott government will hit the hip-pockets of all Australians while setting the path back to surplus.
Every Australian will be asked to share the pain when Treasurer Joe Hockey hands down the first budget of the Abbott government.
The May 13 budget comes eight months after the coalition’s election win on the back of a platform to clean up Labor’s “six years of debt and deficit”.
Mr Hockey is expected to forecast a deficit for the 2014/15 financial year of about $31 billion, with a projected return to balance in 2018/19 and a surplus of one per cent of GDP by 2023/24.
To get back into the black, the government is considering a temporary rise in income tax for the highest earners, a Medicare surcharge for bulk-billed GP visits and across-the-board cuts to the public service.
There will also be tighter access to the dole for under-30s and restrictions on eligibility for the disability support pension and some family benefits.
The new budget bottom line is a world away from the Pre-Election Economic and Fiscal Outlook produced by Treasury, which forecast a surplus of $4.2 billion in 2016/17.
The coalition’s decisions since the election, announced in the Mid-Year Economic and Fiscal Outlook (MYEFO), add an extra $10.3 billion to the deficit in 2013/14 and a further $3.5 billion over the following three years.
The main culprits are an $8.8 billion grant to the Reserve Bank of Australia, extra spending on offshore processing ($1.2 billion), schools ($1.2 billion) and a backlog of unlegislated superannuation and tax changes ($2.9 billion).
The government also earmarked $1 billion over six years for eight key road projects, co-funded by the states.
Mr Hockey and Prime Minister Tony Abbott have been laying the political groundwork for the pain likely to be inflicted, arguing it shouldn’t be seen as a “what’s-in-it-for-me” budget.
“I ask Australians not to judge this budget on what they get or lose today. This budget is about our quality of life for the years ahead,” the treasurer said.
The government will lay out a long-term agenda for savings, including lifting the retirement age to 70 years by 2035.
The National Commission of Audit has given the government a basis on which to argue the repair job is not just one for the next term, but the next 25 years.
The audit concluded that as the nation ages, the demand for health services and pensions will soar, while fewer people will be working and paying income tax.
Business groups accept there is a big repair job ahead but do not think a new income levy is the right approach, as it will lower consumer spending in the economy.
The opposition’s lines are well rehearsed.
Shadow treasurer Chris Bowen has labelled the budget one of “twisted priorities and broken promises”.
The so-called budget emergency has been concocted to soften up voters for savage cuts and tax rises that break the coalition’s election promise, Labor says.
It’s expected the government will continue Labor’s policy of forcing departments and agencies to find savings to achieve a so-called efficiency dividend, but defence will be quarantined from cuts.
Public sector jobs will be shed, but the overall number is not yet known.
Unemployment is expected to average 6.25 per cent during 2014/15, while inflation will be around two per cent.