The crunching of Joe Hockey's numbers continues

Eighty-three days after Budget Night and the country was still crunching Australian Treasurer Joe Hockey’s numbers, as is demonstrated by this Inside Story of 5 August 2014:

The most comprehensive analysis of the distributional effects of the budget was undertaken by the National Centre for Social and Economic Modelling, or NATSEM, at the University of Canberra. Using Australian Bureau of Statistics data on the distribution of household incomes, NATSEM divided the community into five segments or “quintiles,” each made up of a little over 2.5 million households. It found that the poorest 20 per cent – those with $35,000 or less in disposable annual income – would forgo $2.9 billion over four years thanks to changes to family benefits, pensions and other payments. More than one-third of the budget cuts, or $6 billion worth, would fall on the middle quintile of households, those earning between $45,000 and $63,000. The wealthiest 20 per cent of households, meanwhile – those earning $88,000 or more after tax and benefits – would lose $1.78 billion, some 40 per cent less than the lowest income families.

Given that the most recent official ABS figures show that the poorest 20 per cent of households receive about 7.5 per cent of disposable income while the richest 20 per cent receive 39.5 per cent, it is clear that the impact of the budget in relative terms is much greater on low-income households than it is on high-income households. The poorest 20 per cent of households, which receive less than 8 per cent of total income, are the source of at least 16 per cent of the expenditure savings.

The impact on different income groups can also be gauged by considering which sectors the budget savings are coming from. In a speech to the Sydney Institute after the budget, Joe Hockey emphasised the fact the government will spend $146 billion – “35 per cent of the federal budget” – on welfare in 2014–15. That might be true, but this sector provides a larger share of the proposed cuts. Budget Paper No. 2 shows out of total projected expenditure cuts of $29.4 billion between 2014–15 and 2017–18, $15.4 billion, or 52 per cent, comes from programs of the Department of Social Services. (This compares with revenue measures estimated to raise an extra $8.7 billion over the period, not including fiscal drag.)

Even more striking is the budget’s impact on spending on the unemployed. Support for the unemployed costs around $10 billion annually, or less than 2.5 per cent of the budget. Of people receiving the two benefits – Newstart and Youth Allowance (Other) – around 37 per cent are under the age of thirty; given that Youth Allowance recipients are paid less than Newstart recipients, we can conservatively estimate that payments for this group account for around 0.9 per cent of the budget. From next year, unemployed people under twenty-five will get Youth Allowance rather than Newstart, and people under thirty will wait up to six months before getting unemployment benefits, and will then have to participate in Work for the Dole to be eligible for income support. The projected savings from these changes amount to about $2.8 billion over the period 2014–15 to 2017–18, or about 9.5 per cent of the total budget spending cuts. In other words, unemployed people under thirty receive less than 1 per cent of total budget spending but are the source of close to 10 per cent of total expenditure savings.