The proposed increase in the Medicare levy and the new bank levy to meet growing welfare costs have launched Australia ideologically towards the higher-spending, higher-taxing economies of Europe, according to some of the country’s most prominent economic commentators.
But Australia still has a way to go before it reaches the spending levels of countries in Europe’s north, following a Budget that mostly managed to keep a lid on expenditure.
Richard Holden, Professor of Economics at the University of New South Wales Business School, said the $6 billion bank tax is “something of an ideological shift in the more European direction”.
Bank levies became popular in Europe following the Global Financial Crisis. Between 2009 and 2013, 13 European countries introduced compulsory bank levies.
Nicholas Reece, Principal Fellow at the University of Melbourne, said when all the political arguing and the headlines had subsided, “probably the most enduring element of this Budget” was the increase in the Medicare Levy to fund the National Disability Insurance Scheme.
“To the extent that (the Medicare levy rise) reflects some of the more generous social safety nets in Europe, it would suggest that perhaps this budget is perhaps a step more in the European direction,” he said.
He noted how UK taxpayers have part of their taxes “earmarked” for the National Health Service, an example of how support can be garnered for “difficult but necessary tax increases” to support social security measures.
Mr Reece said the longer-term trend for advanced economies – many of which are in Europe – was rising health expenditure prompted by an ageing population and growing medical costs.
John Daley, CEO of the Grattan Institute, said the 2017 Budget succeeded in slowing this longer term trend. Government payments are expected to hover around 25 per cent of GDP for the next four years.
“Over the last 10 years, the size of government has increased,” he said.
“On the government’s numbers, over the next few years it’s not going to increase any more.”
He said the introduction of the bank levy and an increase in the Medicare levy were a reflection of the Government’s attempt to raise revenue to close the gap on existing expenditure which was relatively small by European standards.
“We’ve got a size of government which is about 42 per cent of GDP – interestingly it makes us smaller than pretty much all of Europe,” Mr Daley said.
While the Budget limited expenditure overall, the share of spending represented by the welfare budget continues to grow.
Australia will spend $164 billion on social security in 2017-18. The following year it rises to $178 billion, growing both in raw amounts and share of spending.
Based on OECD figures, about one in every three dollars spent by state and federal Australian governments goes to welfare. In comparison, northern European countries such as Germany and Sweden spend closer to one in two. In the US, welfare spending is less than one in four.
SBS World News
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