May 26, 2016

May 24 2016

by Stephen Koukoulas

When it comes to a discussion about government spending, Prime Minister Malcolm Turnbull and Treasurer Scott Morrison need to be a little self reflective and less the attack dogs on Labor’s alleged “big spending” plans.

Under the Coalition’s watch, government spending has surged to the point where between 25.2 and 25.8 per cent of the economy is accounted for by spending from the Federal government in the period from 2013-14 to 2019-20.

Also read: ‘Jobs and growth’? Both are stalling actually

Embarrassingly for Turnbull and Morrison is the fact, in Mr Morrison’s own budget papers from just three weeks ago, that in the last full year of the previous Labor government, government spending was just 24.1 per cent of GDP.

Indeed, in the last three years of the Labor government, spending was between 24.1 and 24.9 per cent of GDP. To put that in context, each 1 per cent of GDP is a thumping $17 billion.

With the Turnbull government spraying money around in an effort to gain political favour, it is little wonder the credit rating agencies are ready to pounce with a downgrade to the coveted triple A credit rating if anything else in the economy goes wrong.

In recent days, Turnbull and Morrison have ramped up their rhetoric about the Labor’s Party’s “reckless” and “cavalier” approach to spending on issues like education and health.

As noted, the hypocrisy of this claim with the current Coalition government one of the highest spending administrations in 30 years, is breathtaking.

Buried in the back of Budget Statement 10 is a table which includes the data on government spending, revenue and the budget deficit or surplus from 1970-71 through to 2019-20.

Also read: Why the budget deficit is largely irrelevant

Turnbull and Morrison and the travelling press packs for that matter, should have a close look at it each time either side of politics makes heroic claims about the size of government.

Now for a few cold, hard budget facts.

In the period from 2013-14 to 2019-20, that is the period presided over by the Coalition, government spending has risen from $360 billion to $501 billion. As a share of GDP, the average is 25.6 per cent of GDP.

Under the previous Labor government, the average spending was 24.9 per cent of GDP which includes the stimulus measures that prevented a recession in Australia as the rest of the world cascaded into the deepest recession since the 1930s Great Depression.

Which side is it, Liberal or Labor, that is big spending?

The election is still over five weeks away and economic policy, including decisions on spending and taxing will be critical in swaying voters which way to vote.

As the current policy promises stand, the broad theme is one where the Coalition is looking to cut the company tax rate in an effort to boost economic growth.

Labor, on the other hand, is looking to boost the economy through better education and health using the money allocated in the budget for tax cuts to fund this increase.

Also read: The pre-Election economics Turnbull must manage

It is a fascinating debate that at the moment has electorate split 50:50 on which way to vote on 2 July.

But rather than a cheap and largely fact free slanging match over big spending, big taxing government, the issues of company tax cuts versus education and health funding are important.

All these policies have some merit and the voters will need to decide whether company tax cuts will leave them and the economy better off in a decade or whether education for their kids and healthcare for their family are better for them and the economy.