Chasing the Norm

Australian academic and blogger on politics, international relations, and culture

Trust Me – Tomorrow I’ll start the diet

A nice juxtoposition in this mornings paper:

What they Say:

Hockey Vows to slash $14b in spending

MALCOLM Turnbull will base his push for the prime ministership in next year’s federal election on a promise to axe government spending by billions of dollars a year.

And the Opposition Leader will blame Kevin Rudd’s economic mismanagement for the need to take a razor to spending, proposing cuts that on current levels would be worth at least $14billion a year – the equivalent of 70 per cent of the nation’s annual defence budget.

Mr Hockey refused to nominate which services would face the axe, but said there was a strong argument that government spending as a proportion of GDP should be no more than 24 per cent.

This financial year, spending is worth 28.6 per cent of GDP, with the government’s budget forecasts reducing the level to 28 per cent in 2010-11, 27.1 per cent in 2011-12 and 26.4 per cent in 2012-13.

What they do:

Coalition Votes down Health Means Testing

THE Senate has dealt a $1.9billion blow to Kevin Rudd’s health budget by rejecting plans to means-test taxpayer rebates for private health cover and increase levies on the non-insured.

The Coalition, the Greens, independent Senator Nick Xenophon and Family First senator Steve Fielding combined to defeat the three budget bills, which would have raised health fund premiums for more than two million middle- to higher-income Australians.

Manager of Government Business in the Senate Joe Ludwig appealed to balance-of-power crossbenchers ahead of the vote to pass the savings measure, which the Coalition had long vowed to oppose.

“This is a hard decision and one that was not taken lightly, but it is the right decision for Australia’s long-term economic future,” Senator Ludwig said. But the government offered no compromises, which sealed the package’s fate.

It’s easy to say you will cut immense amounts, but significantly harder to actually do so. In this case the Coalition had a case of spending that could be reduced with the cover of the Labor Government championing the bill, and in line with their major principles of individual responsibility (Private health insurance is a benefit above and beyond the norm, so those who want it should pay for it) and reducing government dependence and spending.

But they have chickened out for short term and almost pointless political benefit. No MP will keep his seat next year because of this vote, but Labor will be able to cut holes in their claims to financial competence by putting up similar bills and watching the Coalition act to keep high spending levels in place.

There’s also an intriguing claim by Hockey that Government spending as a GDP ration should be at 24% (which seems both his comfortable norm and his “emergency maximum level”). Theres no real reason why 24% should be the magic figure. There is the obvious argument that lower is better, but why 24%. It was the most common figure during the last 32 years, but hardly tracks to economic well being. (1)

Personally I think big cuts do need to be made to our welfare levels, but that should be a question of total spending vs need, rather than based around trying to hit supposed magic numbers. As the chart shows, some very successful economy’s have significantly greater Govt spending as a % of GDP, and some have quite a bit less. What’s more important is where and how that is spent, and the capacity of the country to pay for that spending.

When the coalition starts supporting the simple introduction of means-testing welfare and benefits for the middle class we will know they are beginning to be serious about cutting spending (I’m not sure the ALP is either, so we shouldn’t yet take their support for the bill as evidence of it). Until then Hockey is just using bluster and bullshit. But lets leave the final word to his predecessor as Treasurer in the Liberal Party: Peter Costello

don’t think that reducing expenditure to GDP ratios is easy. Every pressure in a democratic system is to increase spending. Resisting calls for increased spending on worthy causes (and all causes are worthy in the eyes of those who want it) is a daily struggle – week in week out, month in month out, year in year out.

(1) Whilst trying to find a good graph illustrating the difference I ran across this 2006 speech by Peter Costello claiming that “In the OECD Australia has the second lowest level of government spending as a share of GDP at 35.7%, lower even than the United States.”. Whilst the 2009-10 budget records a level of Government Payments as % of GDP at 24.2 for that year (Which also matches the figures Hockey cites for current spending at 28%.)

Update: The wise and civil Sinclair Davidson from Catallaxyfiles suggests this may include state spending, or counting the GST as Federal rather than State spending.

4 ResponsesLeave one →

  1. Looks like he confused a couple figures, as that was the USA government’s spending as a percentage of their GDP:

    http://www.usgovernmentspending.com/us_20th_century_chart.html

    I don’t think it’s anything more than that.

  2. You might be right, but if so it means his graph makers are also mistaken:

    http://www.treasurer.gov.au/ministers/phc/content/speeches/2006/images/005-7.gif

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