Baby bonus cut:

The Federal Government has today made cuts to financial programs including the 'baby bonus' as it seeks to keep its commitment to returning the Federal Budget to surplus on track by the end of this financial year.

The Government has always maintained since its re-election in 2010 that it would return the budget to surplus by June 2013 after it ‘dipped in’ to the savings built up by the Howard Government in order to spend Australia’s way out of the global financial crisis. While economists and academics differ on whether returning the Budget to surplus is, of itself, a necessary economic policy objective, the Government and the Opposition have both seen the need to commit to a surplus from a political perspective.

The Government was forced in to today’s announcements because tax revenues have fallen by $4 billion compared with the expectation at Budget time in May. The Government says this drop in revenue is because of reduced commodity prices as well as reduced company tax collections as a result of the state of the global economy. The Opposition attributes much of the decline to a lack of confidence by business because of the mining tax and the carbon tax. There has also been a blowout in the asylum seekers budget this year of $1.1 billion so far.

Despite the cuts, the Treasurer, Wayne Swan says the Australian economy remains strong and the outlook remains positive.

“Economic activity is expected to grow at around its trend rate over the next two years, the unemployment rate is forecast to remain low and inflation is expected to be well‑contained,” he said in his Mid Year Financial and Economic Outlook Statement.

The major savings measures taken include:

• cutting the baby bonus from $5,000 to $3,000 for the second and each subsequent child saving $461 million over three years
• reducing the level of rebate the Government will provide for private health insurance saving $700 million over three years
• a freeze on education grants saving $500 million over three years
• company tax to be paid monthly rather than quarterly saving $8.3 billion in the next three years starting in July 2013
• return of unclaimed superannuation to the Australian Tax Office if the owner can't be contacted within one year (rather than 5 years) saving $675 million.

Mr Swan said that many families already receive strong support through the tax system, citing Family Tax Benefits and paid parental leave, and that the cuts to the baby bonus would bring it more into line with the costs of having children.

The baby bonus change will be introduced for babies born on or after 1 July 2013.

“The changes recognise the fact that families buy the big-ticket nursery items when their first child is born,” said Families and Community Services Minister, Jenny Macklin.

‘‘Most families don’t face the same upfront costs for a second or third child as they do for the first.

“Expensive items such as the cot, pram, change table and baby capsule are generally reused for younger siblings.”

Ms Macklin said it was important to make this change so that the family payment system “is sustainable into the future.”

But already the Government’s decision to cut the baby bonus has been criticised by opposite sides of the philosophical divide.

The convenor of the Women’s equity think tank, Eva Cox, has issued a statement saying the reduction in the baby bonus would disadvantage unemployed women and casual workers who are not eligible for paid parental leave.

The head of the Australian Christian Lobby, Jim Wallace, said the change would act as a disincentive to have children.

"People aren't going to be encouraged to have more than one or two children unless those financial encouragements are there through things like the baby bonus," he said.

The changes to private health insurance come into effect in April 2014 and follow a decision just five months ago in the Budget to means-test the private health insurance rebate for $2.8 billion in savings. The cost of all premiums will increase under the changes, although many taxpayers took advantage of a loophole and prepaid premiums for future years by 30 June this year.

From 2014, the rebate from the Government will be in line with inflation, and not 30 per cent of the premium increases. Historically, private health insurance premiums have increased at a rate greater than general inflation as the health and medical sector is a high cost sector.

If people opt out of private health insurance, it will place further pressure on the public hospital system.  

The savings announced today are designed to result in a surplus of $1.1 billion for this financial year and $2.2 billion next year (2013-14).  The deficit last year was $43.7 million.