Friday, 30 December 2011

Josh Frydenberg hopelessly wrong on some key budget and economic facts

Oh no – the Liberal Party is showing that the lack of understanding of the budget, the bond market and economics is broadly based, even among the new blood in its ranks. This time it is Josh Frydenberg, the Member for Kooyong who shows he cannot read the budget papers, nor understand economics and the bond market, with his Op Ed article in today’s The Australian.

The link to the article is here: .

From that article, Frydenberg suggests:

  • “But as a party we will not and must not compromise on those fundamental issues that go to the heart of what the Liberal Party stands for: lower taxes, smaller and more efficient government, freedom in the workplace and an individual's freedom to choose.”

As I have written before, the current facts show:

Total government receipts (tax, dividends, fees and the like) was 21.6% of GDP in 2010-11, the lowest level since 1973-74. Josh – that is lower than for EVERY year of the Howard and Fraser governments.

The tax to GDP ratio fell to 20.0% in 2010-11, the lowest since 1978-79 and is a whopping 4.2% of GDP below the record tax to GDP ratio raked in by the Howard government in 2004-05 and 2005-06. That's a lesser tax take of around $60 billion for one year that was taken from tax payers during the peak period of the Howard government. As mentioned elsewhere, it is easy to register a budget surplus when you tax the living daylights out of the population.

These facts should embarrass Freydenberg who then suggests:

  • “Menzies said of the Liberals, "we are a tax reduction party", understanding that "real tax reductions would be the best of all incentives to increase effort, earnings and production".”

Funny that when the Howard Government was elected, the tax to GDP ratio was 21.8% (1995-96). At the end of his term, the ratio was 23.7%. When Fraser was elected, the tax to GDP ratio was 20.3% and at the end of his term the ratio was 21.7%.

Freydeberg goes on:

  • “Tragically, the Rudd-Gillard governments have become addicted to spending, squandering the strong fiscal position bequeathed to them in 2007. In just four years they have taken government spending from 22.9 per cent of gross domestic product to 26.2 per cent. “

That 26.2% is wrong – the MYEFO Table D1 shows that spending to GDP was 26.0% of GDP in 2009-10. Whatever. Freydenberg for some reason then ignores the outcome for 2010-11 spending to GDP ratio was 24.7% and further “forgets” to mention that the government spending will be 23.6% of GDP in 2012-13 - around 1.5% of GDP below the average of the last 30 years. In the 12 Howard Government Budgets, spending to GDP averaged 24.2% of GDP: and only in 3 years out of 12 of the Howard Government was the spending to GDP ratio lower than the Gillard Government is projecting for 2012-13.

Freydenberg then suggests:

  • “In addition to expanding government debt, increasing taxes and bloating the bureaucracy with more than 20,000 new public-sector employees.”

This is wrong. According to the ABS, between June 2008 and June 2011, the number of Commonwealth public servants rose by 6.0% - from 237,100 to 251,400, a rise of 14,300.

There was some hope that the new blood in the Liberal Party would have some understanding of economics and markets. This dreadful Op Ed article is dashing that hope.


  1. Facts have no place in our political discourse Stephen.

  2. Why does the Australian publish these pieces by politicians? They rarely are informative or interesting and shed no further light on the policies, such as they are, of the particular party that the writer belongs to.

  3. Thanks for your research Stephen

  4. No disagreement whatsoever with your broader point Stephen, to wit, that the current lot in the Liberal Party are deplorable. But I do question the validity of exclusive reliance upon "%-of-GDP" figures to make your case. Especially the projected, yet-to-be-realised 2012-13 spending as %-of-GDP figure.

    I particularly question this reliance on %-of-GDP stats in light of the *retrospective*, "substantial increase" in the level of GDP over history made under the Rudd government, thanks to the ABS adoption of the new 'System of National Accounts'. By my amateur reckoning, a retrospective GDP increase of around 4.5% - most convenient indeed in context of the politics and economic reality at the time viz GFC and the pledge to restrict spending growth to 2% of GDP or less. More here