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Statistics on spending cut tax claims down to size

Date

Andrew Leigh

Australia is a low-spending nation, so why is Tony Abbott listening to advice from economic extremists?

Last week, Prime Minister Tony Abbott alleged that the ABC was unpatriotic. This week, the ABC's Fact Check unit found that claims by Social Services Minister Kevin Andrews were wrong. Put the two together, and you can't help wondering if Abbott's next step will be to declare that facts are unAustralian.

But much as we can all get a chuckle from the Abbott government's media strategy, it's the substance of Andrews' assertion that bears scrutiny. He described Australia's welfare system as ''not sustainable'', and warned of a European-style fiscal crunch within a decade.

Andrews isn't the only one making dodgy claims about the size of government. Speaking at a Senate inquiry last month, Commission of Audit chairman Tony Shepherd said that Australia's budget involved ''unsustainable largesse'', and that his commission was examining ''the size and scope of government''. Their remit is simple: cut government spending.

Rather than pursue an ideological agenda, the Abbott government would do well to start with the evidence on how Australia's government compares. In 2006, Liberal treasurer Peter Costello requested a rundown on how Australia's tax system compares with those in other countries. The report (co-authored by Peter Hendy, now a Liberal MP), concluded simply: ''Australia is a low-tax country''. It pointed out that we have no wealth, estate, inheritance or gift taxes. For individuals, the report found that we have one of the lowest income tax burdens in the developed world.

Since then, federal Labor delivered significant personal income tax cuts. When Costello was describing us as a low-tax country, our tax to gross domestic product ratio was 24 per cent. After six years of Labor, our national tax to GDP ratio is 23 per cent. Add in state and local governments, and the tax ratio is about 33 per cent of national income. To put this into perspective, the total tax take in New Zealand and Britain exceeds 40 per cent of GDP. And both countries have conservative governments in charge.

Yet there are partisan voices who not only want to ignore the reduction in Australia's tax take under Labor - they also seem ignorant of where we sit in an international context. Over the past six years, while Labor was in government, Australia spent less and taxed less than most developed nations. The size of our government is similar to South Korea and the US - yet some on the right would have you think it was in the league of Finland and Sweden.

This matters because unlike the 1996 Commission of Audit, which was carried out by recognised professionals and presented its report to the public, this year's Commission of Audit is heavily dominated by big business, and will present its report in secret. Everyone agrees big business deserves a seat at the table - but they shouldn't get to book the whole restaurant.

The Commission of Audit excludes any representative of small business, the union movement or the social sector. More importantly, there is no one representing you - your interest as a taxpayer. There are no nurses or doctors representing the health services and hospitals Australians rely on. There are no teachers or principals representing schools and students. There are no peak bodies representing pensioners.

Its work will not be scrutinised by the public, but will instead feed directly into Joe Hockey's savage budget cuts.

Australians are right to fear the consequences of this approach to policy. When the chairman of the Prime Minister's Business Advisory Council, Maurice Newman, describes DisabilityCare as ''reckless'', he strikes fear into the thousands of Australians with a disability. A government that is dragged into a backflip on school funding hardly engenders trust among parents. And as shadow treasurer Chris Bowen has pointed out, the government's forecasts suggest it will fall short of its job creation target.

Under a government with strong economic convictions, the Commission of Audit's partisanship might not matter much. But this is not that government. One minute, we see the rejection of Archer Daniel Midland’s bid to buy GrainCorp (the first time investment from a US company has been turned down). The next minute, the government is announcing that it will overturn laws requiring financial planners to disclose commissions or even act in a client’s best interests.

  Abbott’s recent statement that he hoped BHP’s Olympic Dam project would go ahead prompted the company to remind him  the project was shelved. Since coming to power, the government has gone from holding press conferences in front of a ‘‘debt truck’’ to striking a deal with the Greens to remove the debt cap entirely. When it comes to economic policy, it’s hard to tell whether B.A.Santamaria, Friedrich Hayek or the Marx Brothers are in charge.

  But don’t take it from me – let’s look at his colleagues. Asked whether he would endorse  Abbott,  Costello famously replied, ‘‘Oh, not on economic matters’’. In private, Costello is said to describe Abbott as an ‘‘economic illiterate’’. Covering off the other side of the basic skills test, former opposition leader John Hewson has described Abbott as ‘‘innumerate’’.

Lacking core economic convictions, this government is especially susceptible to extreme views. Skewed advice could well push the government into making economic mistakes that will endanger our future prosperity.

 As a recent International Monetary Fund report noted, Australia engaged in ‘‘fiscal profligacy’’ between 2003 and 2007: failing to invest the tax revenue from the first phase of the mining boom into productive infrastructure. This lost opportunity to invest in our future can be partly traced back to the economic lassitude that set in during the last phase of the Howard government.

 Rather than outsourcing the hard decisions to vested interests,  Abbott would do well to open up the process. He should let the Commission of Audit set its own reporting timetable, as occurred in 1996. Instead of continually belittling public servants, he would do well to draw on the expertise of Treasury and the Productivity Commission. And he could remind the ‘‘cut, cut, cut’’ brigade that by international standards, Australia is a low-taxing, low-spending nation.

 

Andrew Leigh is the shadow assistant treasurer and his website is andrewleigh.com.

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