“Business as usual is not a viable option for Australia”. The Commission of Audit’s much anticipated recommendations released today are significant and fundamentally rework access to the age pension, access to health care, family benefits, and the efficiency of Government and the services it delivers.

The central message is; if you don’t absolutely need something from Government, you’re not going to get it in the future.

Key recommendations from the Phase 1 recommendations include:

Pensions

Australia will spend around  $39.5 billion on the age pension in 2013/2014 with expenditure growing at around 7% every year.

• Changing the age pension indexation arrangements to a new benchmark of 28% of Average Weekly Earnings.  Currently, increases in the Age Pension are linked to Male Total Average Weekly Earnings.
• Tightening eligibility by:
  • Linking eligibility to 77% of life expectancy. The age pension eligibility age is scheduled to increase to 67 by 2023.  If eligibility was linked to 77% of life expectancy as recommended by the Commission, the eligibility age will be 70 by 2023.  People born prior to 1965 would be excluded from the change.
  • Replacing the current income and assets test. The single income and asset test would be based on a combined measure of employment income, business income and deemed income on assets. The test would include a portion of the family home – for example, the value above $500,000 for single pensioners and $750,000 for couples. The reason for the change is simple. Under the current rules, a single person who owns a $400,000 house and has $750,000 in shares ($1.15 million in total assets) would not be eligible for the pension, while a similar person with a principal residence worth $2 million and $100,000 in shares ($2.1 million in total assets) would be able to claim a pension at the full rate. The changes are not recommended to commence until 2027/2028.
    

Family

• Abolition of Family Tax Benefit B
• New single means test for Family Tax Benefit A (maximum rate of the benefit paid up to a family adjusted taxable income of $48,837 and then phasing out at 20 cents in the dollar until the payment reaches nil)
• Removing the Large Family Supplement and Multiple Birth Allowance

Superannuation

• Increasing preservation age to 5 years below Age Pension eligibility age
• Extending the current phased increase in the preservation age by an extra four years so the preservation age reaches 62 by 2027

Health care

• High income earners ($88,000 for singles and $176,000 for families) would be required to take out private health insurance for basic health care and would have no access to the private health insurance rebate. So, expanded private health insurance plans would, at a minimum, cover all services provided by Medicare and public hospitals and would have to pay for all health care expenses of the insured, including the cost of treatment in a public hospital.
• Co-payments for Medicare
  • General patients to pay $15 per visit (up to the safety net of 15 visits then $7.50 from that point forward).
  • Concession card holders to pay $5 per visit (then $2.50 once they have exceeded 15 visits).
  • Co-payments may also apply to emergency room treatments in public hospitals where the condition is not critical or life threatening.
  • Co-payments for some currently free Pharmaceutical Benefits Scheme medications and a lift in the current co-payment by $5 for others.  The general patient safety net would also increase to $1,613.77.  Concession card holders would not face an increase below the existing $360 safety net.

Working parents

• Paid parental leave scheme – Retains the 1.5% levy on large companies but scales back the scheme to cap replacement wages at Average Weekly Earnings (currently $57,460) indexed annually
• Child Care Rebate and Child Care Benefit replaced with one means tested scheme.  Scheme would cover in-home care and another types of available care (but parents would need to provide the carer’s name, tax file number and hourly fee paid).

Employment & Unemployment

• Requiring unemployed people aged between 22 and 30 without dependents to relocate to areas of higher employment to access benefits
• Minimum wage capped at 44% of Average Weekly Earnings

Business incentives & assistance

• Abolish the Export Market Development Grant amongst other grants
• Scaling back Austrade and Tourism Australia into a commercial arm of the Department of Foreign Affairs & Trade
• Abolishing sector specific R&D programs
• Abolishing the Farm Finance Concessional Loans Scheme
• Where a business has gone into liquidation without paying staff benefits, the Fair Entitlements Guarantee Scheme would be limited to a maximum 16 weeks redundancy payment and limit the wage base to Average Weekly Earnings
• Medical indemnity schemes that subsidise the cost of indemnity insurance to be scaled back

Privatisation

Privatise government bodies that operate in commercial markets across the short, medium and long term including:

Short term

• Australian Hearing Services.
• Snowy Hydro Limited.
• Defence Housing Australia.
• ASC Pty Ltd.

Medium term

• Australian Postal Corporation.
• Moorebank Intermodal Company Limited.
• Australian Rail Track Corporation Limited.
• Royal Australian Mint.
• COMCAR.

Long term

• NBN Co Limited.

Overall, the report recommends abolishing 7 Government bodies, merging 35, consolidating another 22 into the portfolio department, privatising 9, and reviewing another 26.

The ABC and SBS are under review.

What’s next? 

The second phase of the report is focussed on efficiency and infrastructure.  Among other elements it recommends the introduction of a road user charge.

It will be interesting to see what the Government adopts in the Federal Budget on 13 May 2014.