I was going to have a break from looking at the Coalition’s claims surrounding fiscal policy, budget management, tax and government spending.
But Opposition Leader Tony Abbott popped up today with this quote:
- “As the Howard government demonstrated prudent fiscal management is in the Coalition's DNA. It's what I learned during nine years in the Howard ministry, seven years in the Howard government and six years as John Howard's leader of the House of Representatives.”
Regular readers may know some of the fiscal facts, but I will repeat the key ones in looking at the Howard Government’s “prudent fiscal management”. I will, for the sake of context, make some comparisons with other governments.
Before kicking off, I must confess I don’t know what Mr Abbott means when he says “prudent fiscal management”. If it means being the highest taxing government in Australia’s history, Mr Abbott is absolutely spot on. It certainly was in the Howard Government's DNA.
Let’s look at the tax to GDP ratios for the last 4 governments over almost 4 decades.
GOVERNMENT | Average tax* to GDP ratio | Highest | Lowest |
Fraser | 20.8 | 21.7 | 19.7 |
Hawke/Keating | 21.8 | 23.3 | 20.0 |
Howard | 23.4 | 24.2 | 22.2 |
Rudd/Gillard^ | 21.6 | 22.8 | 20.0 |
* Does not include non-tax receipts.
^ Includes forward estimates to 2014-15.
On this measure, the Howard government stands out as a taxer without peer – its average tax to GDP is 1.8% of GDP higher than the average for the current Labor Government and even 1.6% of GDP higher than the Hawke/Keating years. In 2012-13 dollar terms, that’s a tub-thumping $30 billion in extra tax every year in the 12 Howard Budgets. A total of $360 billion worth of smackeroos.
And it is not just a one-off windfall in tax that proves this point. Going back to 1980-81, the Howard government holds the honour of having the:
- highest, second highest, third highest, fourth highest, fifth highest, sixth highest and seventh highest ever tax to GDP ratios.
Not bad given it was in office for only 11 and a half years.
In something to blow your socks off, since 1980-81, Labor has the honour of having the:
- lowest, second lowest, third lowest, fourth lowest, fifth lowest, sixth lowest, seventh lowest and eight lowest tax to GDP ratios.
What about government spending:
GOVERNMENT | Average spending to GDP ratio | Highest | Lowest |
Fraser | 24.2 | 25.8 | 23.4 |
Hawke/Keating | 25.6 | 27.5 | 22.9 |
Howard | 24.2 | 25.1 | 23.1 |
Rudd/Gillard^ | 24.3 | 26.0 | 23.6 |
^ Includes forward estimates to 2014-15.
The notable points on government spending was how high it was under the Hawke/Keating Government, although it must be noted that that government had to tackle two nasty global recessions and used Keynesian policies to deal with each one.
There was only one mild global recession for the Howard Government to confront and it is interesting to note that during period, its spending to GDP was at the high point of 25.1%.
It is also notable that the government spending levels under the current Labor Government and the Howard government are all but the same – and this includes the spending measures in the GFC inspired fiscal stimulus in 2008-09 and 2009-10.
Then there is the assessment of sovereign risk or fiscal management from the credit rating agencies. Never once did the Howard Coalition Government have a triple-A rating from all three major credit rating agencies – Standard & Poors, Moodys and Fitch. Never. Late last year, with Labor in government, Fitch upgraded Australia which meant for the first time ever, all three agencies rated Australia triple-A. That’s a pretty glowing independent endorsement.
For good measure, let’s have a look at how many Coalition Treasurers have been given the “World’s Greatest Treasurer” accolade. None. Labor have had two, Paul Keating and Wayne Swan.
I may have misinterpreted Mr Abbbott’s definition of “prudent fiscal management” and the fact that it is in the Coalition's DNA, but I'm sure he'll clarify what he means some time soon.
Love your work ;-)
ReplyDeleteGlad to hear you will be taking a break from this hack work which is clearly below your otherwise obvious talents.
ReplyDeleteJust one simple point on this measure which you seem to equate with fiscal responsibility. Wouldn't periods of high economic growth naturally lead to a higher tax to GDP ratios?
I thought you were a Keynesian?
Surely the definition of fiscal responsibility is about balancing the structural budget deficit over time. Something that the Rudd-Gillard government has clearly failed to do if you believe Treasury's analysis. In contrast, the Howard-Costello era the structural budget deficit until they lost their discipline right at the end of their term.
Forgot to add one more thing. I love how you include the next 3 years of Labor's promised spending! That is not comparing records, that is comparing a record with a fantasy.
ReplyDeleteBut if you are going to do that, can you please recalculate these figures with what Howard and Costello promised in their last 07-08 budget, at least we would then be comparing apples and apples.
Howard and Costello forecast spending at around 21.5 per cent over the forward estimates. This did not include the GST so you add in another 0.5% (at most) for that. In any case, much lower than Rudd-Gillard fiscal promises.
This would of course be a silly and unfair comparison given that Howard and Costello were forecasting before the GFC. But it is no more or less silly and unfair than your comparisons.
Spending to GDP is the critical number to measure financial prudence. I note that your comments on high spending were not much in evidence. High tax to GDP demonstrates good fiscal control when the economy was growing strongly - I remember the noise when tax cuts were being handed out and the implications for interest rates.
ReplyDeleteSerious and honest analysis would be appreciated