THE state government appears to have massively under budgeted the cost of its first big policy announcement, a suite of measures to ease cost-of-living pressures on families. Exclusive modelling for the Herald by the National Centre for Social Economic Modelling at the University of Canberra suggests the cost of boosting the energy rebate alone exceeds the $913 million claimed price tag of the entire package.
The package’s two main elements are a boosted rebate on electricity bills and a promise to cap future rises on a range of government fees and charges – including land tax and car registrations – to inflation. The government has refused to release detailed costings on either promise. The second promise alone could potentially drain revenue by hundreds of millions of dollars.
The centre’s modelling of the proposed energy rebate boost is based on a micro-simulation model of the income tax and welfare system. It suggests a total price of $940 million over four years.
A spokesman for the Treasurer, Eric Roozendaal, did not dispute the analysis and said the package was fully funded and fully costed.
The analysis shows that of the 2.84 million households in NSW, 1.06 million already receive the $161 annual rebate. Increasing the rebate for these households by $89 a year – to $250 a year as proposed – would cost an extra $94 million.
As well, extending the rebate to all households with a combined income of less than $150,000 would draw in another 1.32 million households not now receiving it. The cost of a $250 rebate for those households would cost another $329 million a year.
Altogether, the centre estimates the expanded scheme, once fully up and running, would drain an extra $423 million a year from the budget.
But because the scheme would be phased in – starting for existing recipients in July and for new ones in July next year – the total cost over the four-year horizon of the budget is minimised at $940 million.
This is still more than the $913 million cost of the entire package announced by the Premier, Kristina Keneally, at the weekend.
The package includes a promise to limit annual rises in a range of government fees and charges, including stamp duty, land tax and motor vehicle charges, to general consumer price inflation of 2.5 per cent.
Together these charges reap the government about $10 billion a year and revenue from them is forecast to rise more than 4 per cent each year, according to budget papers. Capping this revenue growth by only 1 per cent in any year would cost $100 million.
But revenue growth comes from both discretionary fee rises and natural increases due to population growth, more cars on the road and anticipated growth in property transactions.
Ms Keneally said on Monday the package would be funded using the surplus and savings measures but would not reveal where the savings would come from. She said details of the package had been sent to the new Parliamentary Budget Office for independent costing.
Administratively, it is unclear how the government proposes to cap increases in some taxes, such as land tax which is levied at a fixed portion of any rise in land value. Land values tend to increase faster than inflation.
Written with Sean Nicholls, SMH State Political Editor.
Read Sean’s Day Two story with NSW Treasurer’s response here.
Read the SMH Editorial here (scroll down to the second one).
Original link to story in SMH.