Government scraps baby bonus in deficit budget

The Federal Government has taken a swipe at so-called middle-class welfare by abolishing the baby bonus in a deficit budget that delivers almost no traditional election-year sweeteners.

Instead Treasurer Wayne Swan says there will be "targeted, sustainable" cuts to bring the budget back into the black in four years' time.

"We haven't approached this budget in relation to opinion polls.

We're in this for the long run - the long-run reforms," he said.

The centrepiece of Mr Swan's sixth budget is long-range funding for the Government's signature multi-billion-dollar measures to introduce a national disability insurance scheme and the Gonski school education changes.

Mr Swan has announced cuts worth $43 billion over the forward estimates, saying Labor has made a "choice [to] chart a pathway to surplus through responsible savings".

This year's deficit stands at $19.4 billion and the budget will remain in the red, posting a slightly improved $18 billion deficit in 2013-14, followed by a $10.9 billion deficit in 2014-15.

Balance returns to the budget in 2015-16 with a small $800 million surplus, described by analysts as a "rounding error".

It is not until the last of the four forward estimates years that the budget returns to real surplus territory - $6.6 billion in 2016-17.

"I couldn't live with myself if I walked in here and said that in the face of the biggest revenue write-down virtually in history, that I was just going to ignore it because it was politically inconvenient, or that we were going to dog the task of actually stumping up the money for doing the school improvement program, or that we couldn't really provide the peace of mind and stability that was provided for DisabilityCare Australia to be funded - I couldn't live with myself," Mr Swan said.

Savings The $5,000 baby bonus, introduced by the Howard government and widely criticised as "middle-class welfare", will be axed from March 1, 2014 - saving the budget $1.1 billion over five years.

The Government has instead moved to increase family payments (Family Tax Benefit Schedule A) for eligible families when they have a new baby.

Abolishing the baby bonus is likely to trigger strong criticism from the Opposition because, according to Government modelling, it will leave about 28,000 stay-at-home mothers who do not qualify for family payments with no government support.

It was introduced by former treasurer Peter Costello, who announced it by saying that parents should have one baby for the mother, one for the father, and "one for the nation".

The increased payments for FTB-A will be $2,000 for the first child and an additional $1,000 for subsequent children.

However, the eligibility requirements are much tighter than they have been for the baby bonus.

Currently the household income cut-out for FTB-A for a family with two children is about $112,000.

A mother can earn up to $150,000 a year before losing access to the baby bonus.

The Government predicts about 161,000 families would have received the baby bonus in 2014-15, and now expects that under the new system, 113,000 families will qualify for the boost to the FTB-A, and 20,000 families will take up the alternative paid parental leave scheme.

Mr Swan says the baby bonus was "not sustainable over the long term".

"Further reform in this area was imperative.

We understand there will be some people who will be unhappy about this decision," he said.

Other changes to family payments, including ensuring that families on FTB-A only receive the payment until their child finishes school, will save the budget around another $1.5 billion.

The Medicare safety net will also be increased, from $1,200 to $2,000 from January 1, 2015 - a measure that will save the budget $105.6 million over four years.

The Government is also going to phase out the net medical expenses tax offset to help pay for the NDIS, saving almost $1 billion over the forward estimates.

But, in line with much of Mr Swan's political rhetoric, many of the budget savings target the big end of town with changes to corporate tax arrangements.

A figure of $1.1 billion will be saved by lowering the cap on the tax incentive for research and development, opening it only to companies with annual revenue of $20 billion or less.

The Government is hoping to save $3.1 billion over four years by tightening corporate tax loopholes that currently allow large transnational companies to shift debts and profits among their subsidiaries to minimise the amount of tax they pay.

Another measure reduces the amount of exploration tax deductions mining companies can claim upfront, for a saving of $1.1 billion over the forward estimates.

"We have always put the interests of working Australians first," Mr Swan said.

"In this budget, we do so again."The price of a packet of cigarettes will also rise by 7 cents next March, after the Government changed the indexation arrangements, switching the link from the Consumer Price Index to average weekly earnings.

The Government is also cutting funding to the Carbon Capture and Storage Flagships by $500 million over three years, as well as deferring $370 million earmarked for the Renewable Energy Agency.

It's also cutting about $270 million from a program designed to support coal mining jobs.

The Government has also increased the charge for 457 Temporary Work visas.

From this July, the cost of a visa will increase to $900, raising nearly $200 million over four years.

The Government has targeted the 457 visa program in recent months, saying it has concerns the system is being "rorted".

Spending Mr Swan says any new spending has been offset by savings measures but he insists there has been no savage austerity in drawing up this budget.

Funding a national disability insurance scheme is a major feature of the budget, with the Government committing $19.3 billion over seven years from 2012-13 for the national roll-out of DisabilityCare.

As previously announced, the Medicare levy will be increased by 0.5 of a percentage point from next July, a measure that has been supported by the Opposition.

The tax rise will only partly fund the scheme, providing approximately $20.4 billion between 2014-15 and 2018-19, when the NDIS will be fully operational.

Mr Swan says the NDIS means "there is something in this [budget] for the whole of Australia".

The Gonski school education plan is the other main package, worth $9.8 billion over six years from next year.

"I do reject the notion that there is nothing big in this budget," the Treasurer said.

He said the measures mark a "huge change for Australia".

There is also new spending of about $3 billion on infrastructure projects which also have private funding at their core.

The next phase of the Government's "Nation Building Program" will focus on the F3 to M2 "missing link" in Sydney, the Melbourne Metro and the Brisbane Cross River Rail.

The Government has also announced a boost of about $250 million to fund more university places and research infrastructure, but that will do little to appease the tertiary education sector, which is still bruised over the $2.3 billion cut announced last month to help fund the Gonski plan.

Cost blowoutsWhile there's a yawning hole in revenue, there have also been multi-billion-dollar blowouts in government programs - the largest of which has been managing the cost of the surging number of asylum seekers arriving by boat.

The price tag will be an extra $1.3 billion next financial year, with a projected cost of $3.2 billion over the four years to 2015-16.

The cost of development assistance associated with asylum seekers is also expected to be $431 million higher in 2013-14, with a total four-year cost of nearly $1 billion.

The Government has said the current arrival rate is "not acceptable in terms of the risks to human life, or the impact on the budget".

It has announced a review into the refugee status determination process to look for changes to improve the "efficacy" of the system and to ensure that "acceptance outcomes" for asylum seeker claims are consistent with other countries.

Reflecting the ongoing growth in health costs, the other most significant blow-outs include an extra $2.2 billion over four years for private health insurance payments and $2.1 billion over four years for larger than expected payments through the Medicare Benefits Schedule.

Family payments are also expected to cost an additional $1 billion to 2015-16.

Revenue write-downsThe Government has blamed much of the budget woes on massive revenue write-downs of $17 billion this financial year.

Since the mid-year economic review in October, the total revenue write-down has been forecast at $60 billion over the next four years.

"This year we face the second largest revenue write-down since the Great Depression," Mr Swan said in his budget speech.

Contributing to the write-down is a dramatic cut in the forecast price of carbon, with Treasury more than halving it from $29 per tonne to $12 per tonne.

That has been triggered by the collapse in the carbon price in Europe, which the Australian scheme will link to from 2015.

The budget has yet again slashed the revenue forecasts for the mining tax.

Treasury is expecting the tax to raise just $200 million this financial year, a fraction of the $3 billion estimate that was pitched only 12 months ago.

Over the first four years of the tax, Treasury's forecast has plunged from $13.4 to just $3.3 billion.

Mr Swan says net debt will peak at 11.4 per cent of GDP in 2014-15 and he projects it will fall to zero by 2022.

Treasury is forecasting lower growth next year at 2.75 per cent, followed by a 3 per cent rate beyond that.

It expects a steady jobless rate of 5.75 per cent for the next two years.

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