Facts, Mistruths and Furphies

In the lead-up to the upcoming Federal Election there has already been an abuse of ‘facts’ dominating economics and economic policy issues. It is vital that the electorate is fully aware of the key facts ahead of casting their vote, so that the decision of the collective is soundly based and not the result of votes being cast on the basis of mistruths and furphies. One of the philosophical issues in the election campaign concerns the size of government. That is the big government versus small government issue and which side is better for jobs and growth. The Coalition has already been attacking Labor for being the party of big spending and big taxing. Launching the election campaign in May, Prime Minister Malcolm Turnbull said that at “this election Australians will have a very clear choice: to keep the course, maintain the commitment to our national economic plan for growth and jobs, or go back to Labor, with its higher taxing, higher spending, debt and de ficit agenda.” It was a well-worn attack of “high-spending, high-taxing big government” under Labor, but what do the facts show? One way to measure the size of government is to simply add the annual level of spending and revenue as a share of GDP to see how intrusive the government is in the economy. This indicates how much tax and other revenue is being pulled from workers, consumers and businesses and then how much the government is funneling back into the economy with its spending. This may not be a perfect measure but it is transparent and easy to understand. The good news is that Treasurer Scott Morrison’s budget provided a detailed update of the size of government and the facts show, interestingly, that the Turnbull administration is one of the biggest governments Australia has had. During the Labor Rudd/Gillard years between 2007 and 2013, government revenue plus spending as a share of GDP averaged 47.3 percent. Revenue was 22.4 percent of GDP, on average, while spending was 24.9 percent of GDP. The Turnbull government’s budget last week is framed around the size of government rising to 49.7 percent of GDP in 2016-17, rising above 50 percent in 2018-19 and then hitting 50.3 percent in 2019-20. This is three percent of GDP higher than the average of the Rudd/Gillard government, which of course included the massive stimulus package implemented as the global banking and financial crisis cascaded towards the Australian economy. In today’s dollar terms, three percent of GDP is around $50 billion. The last time the size of government was above 50 percent of GDP was during the Liberal government lead by John Howard in 2000-01 and 2002-03. The only other time when the size of government was above 50 per cent of GDP was in the period from 1983-84 to 1987-88 when the Hawke government embarked of a massive fiscal stimulus to dig Australia out of the early 1980s recession. These are the facts. Of course, these facts make no call over whether big government is worse – or better for that matter – than small government. This remains one of the hotly contested issues of the economics profession. The answer, almost inevitably, lies in the philosophical position of the researcher – small-government advocates are generally of the view that individual responsibility and free markets are superior to progressive policies that promote equality, fairness and government provision of services that the private sector would not necessarily provide. The claim from PM Turnbull that the Labor Party is about “higher taxing and higher spending” is firstly false, and, secondly, it is not altogether clear whether it is a good or a bad thing anyway. The critical thing during the election campaign is not so much the opinion and battle for ideas and policy, but getting the facts correct before bagging the other side for things they do not do. Stephen Koukoulas is the General Manager of Market Economics thekouk.com @th ekouk