The bigger the lie and the more loudly it is proclaimed, the more people believe it.
We all know who most people think is better at running the economy: the Liberals, by a country mile.
The Libs seem to have persuaded the masses that they are low-taxing, and that only they can “manage” the economy by running surpluses.
But the truth is not so obvious.
In the past Labor has been notorious for running up debt for pet ideological projects and social welfare. The Libs are less notorious but have been equally spent money in favour of mates rather than the economic good – industry welfare, exchange rates and interest rates.
Mercifully, a lot of economic management has now been taken out of politicians’ hands. They have surrendered it like some gaming tragic who puts a voluntary casino banning order on himself
All the significant economic levers are now within the grip of bureaucrats and the Reserve Bank or have been deregulated – most notably interest rates, exchange rates and the volume and value of imports. Even the question of whether the Federal Government will run a deficit has in effect been taken out of the Government’s hands. The public has now passed Economics 101. They know surplus equals good, deficit equals bad.
Various Reserve Bank gurus have spoken in the past week or so about which side might best run the economy. The nation’s economics writers have been translating the ecospeak of the gurus into plain English – and on this score the CT’s Peter Martin could sit ably by the chap in the UN who translates Swahili into Esperanto. The consensus is that it does not matter very much who is in charge of the Treasury benches because they do not run the economy.
The economic future is by and large in the hands of external forces.
But Federal politicians are not impotent. They can decide how much of the national wealth with be hauled in by the Federal Government and where and how it will be disgorged.
The Howard Government, contrary to all its propaganda, is the highest taxing government in Australia’s history. And it spends the money it gets in an astonishingly inefficient manner: handling cash back to families it has taken tax from and spending breath-taking amounts of money in security – including security from a few thousand refugees on leaky boats.
It has won the propaganda war on who is “low taxing” on several front fronts: a two card trick with the GST; a perception of cutting income tax; a misuse of the taxation yardstick; and a cunning change in the tax mix.
I am now going to bore you with some figures.
Treasurer Peter Costello would have you believe that the GST is not really a Commonwealth tax because all of it gets sent to the states. So the GST should not be included when you compared this government with is predecessors.
In the last Labor year (1995-96), the federal tax take was 22.3 per cent of GDP. Under Howard, excluding the GST, it fell to 20.9 per cent of GDP in 2006-07. Rah rah.
But you should not exclude all the GST. Sure, a lot of the GST was to replace state taxes, but a fair whack of it replaced existing federal special-purpose grants to the states. So after the GST the feds no longer had to provide money from other tax revenue for a good proportion of grants to the states. This money was freed for the Commonwealth to do other things with.
On this analysis, about half of the GST money was new Commonwealth tax.
The trouble is, in the black-and-white world of political commentary people either include all the GST or none of it.
A better way would be to take out the GST from modern figures but also take out the revenue that went to special-purpose grants from the pre-GST figures.
When you do that, guess what? The ghastly high-spending, socialist Keating Government took just 19.0 per cent of GDP in 1995-96 and the low-taxing, efficient conservative Howard Government took 20.7 per cent of GDP in 2006-07.
You wouldn’t mind if (a) they did not lie about it and (b) they spent the extra loot on something worthwhile – other than $1 billion locking up a few refugees on Pacific Islands, several hundred million on APEC, millions on a defence headquarters in a marginal electorate and so on.
Of more importance, is why use the percentage of GDP as the yardstick? Why should the government sector increase at the same rate as the economy as a whole? It might be justifiable if you could see the extra money spent on the basics: public education and health. Instead, we see money spent on the periphery: vote-buying, industry largesse, playing on people’s fears and so on.
Pardon me for crunching the numbers a bit more. Allowing for inflation, in 1995 GDP per head was $9030. In 2007 it was $11,624, according to Reserve Bank figures.
At the end of the Keating Government you were taxed $1715 of that GDP per head. Now you are taxed $2324. That’s allowing for inflation.
So the tax grab has gone up 35 per cent under the Howard Government. You wouldn’t mind if there was something to show for it.
A cunning change in the tax mix has made this more palatable. We have had income tax “cuts” in each of the past five Budgets. Most of it merely restores what inflation has taken away. But income tax is now a lower proportion of total tax. The company tax grab has gone up.
So you might feel as if the tax burden is not so bad. But Jack and Jill consumer still end up indirectly paying the company tax. They do so through higher prices, lower dividends, and less money going into research and development of better products.
Don’t believe for a second it will be better under Labor. Every Treasurer seems destined to become the biggest spending Treasurer in history.
Just don’t believe anyone who says this is a low-taxing, low-spending government.
The first law of government is to stay in office. If the economy expands to make more money available to pursue that end, governments will inevitably take it, no matter how loudly they proclaim their small-government credentials.
The only thing that must be said about the Howard Government is that it has had the sense to stay on the right side of Micawber’s equation. It has always ensured it has got the money in before it has misspent it.
Footnote: I was inundated with comments about last week’s tirade against Microsoft. They invariably agreed with the broad picture that Microsoft had a lot to answer, but many had quibbles with detail, over which I am sure they were all correct, but there were too many to detail here.