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Federal

Feb 13, 2013

Myth of Coalition govts: Howard the biggest spender of all

There's a perception the Coalition are better at cutting spending than Labor, but the Rudd and Gillard governments have cut spending significantly. John Howard was the big spender, says Stephen Koukoulas.

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If the current Labor government delivered growth in real government spending during its first five years in office at the same pace the Howard government had in the years from 2000-01, government spending would be almost 6% (or around $20 billion) greater in 2012-13 than is the case. If we take these numbers out to eight years, the gap between the big-spending Howard government and the fiscally prudent Labor government gets even wider.

This is exactly the point the International Monetary Fund noted about the Howard government in a recent study; that it needlessly and wastefully boosted spending in the last two-thirds of its term of office.

In terms of government spending growth, the current government is one of fiscal rectitude and prudence in stark contrast to the Howard government, particularly after 2000-01, when it went on a spending spree that has only been exceeded by the Whitlam government.

Had Labor spent at the same pace as the Howard government did from 2000-01, there would be no chance of a budget surplus in any year of the forward estimates out to 2015-16. The level of government debt, to the extent it matters, would be more than 50% larger by 2014-15.

In terms of the facts, the average annual growth in real government spending in five years from 2000-01 under Howard was 4.3%; for Labor in the five years since 2007-08, the average annual increase has been 3.4%, a huge difference given that annual spending is over $360 billion.

Those five years of excessive government spending during the Howard government have not been cherry-picked to make a point. If we look at the final eight years of the Howard government, the average annual increase was 4.0%; for Labor taking the numbers into the three years of the forward estimates to get an eight year comparison, the average annual rise is 3.2%.

The extraordinary facts about government spending take into account the unprecedented fiscal stimulus measures from the Labor government that accompanied the global financial crisis. Indeed, in 2008-09, real government spending rose by a massively strong 12.7% as the government worked to sustain the economy and preserve jobs. That spending boost has now been unwound.

“To many Australians, the perceptions about the major political parties and government spending and fiscal prudence are the reverse of the reality.”

These facts are not widely understood or acknowledged. Indeed, to many Australians, the perceptions about the major political parties and government spending and fiscal prudence are the reverse of the reality.

Just last week, Opposition Leader Tony Abbott in his speech to the Press Club said, uncontested: “The Coalition can keep government spending in check … For this government, though, the solution to every problem is more spending.”

Abbott said in December that “this is a government that is spending too much”. He has also said, “as the Howard government demonstrated, prudent fiscal management is in the Coalition’s DNA”. There are many similar quotes.

The issue is that Abbott is factually incorrect. Secondly, his statements are rarely challenged by journalists. Thirdly, the government seems unable to challenge the orthodoxy, mythical as it is.

In simple terms, the facts show that in the five years from 2000-01, the Howard government increased real government spending by around 23%. In the five years from 2007-08, when Labor has controlled the budget purse strings, growth in real government spending has been a tick over 17%, including the 12.7% increase in 2008-09 when the GFC was bearing down on the Australian economy, threatening a recession.

The interesting aspect of government spending growth over the past few decades, including in the current environment, is that Coalition governments boost aggregate government spending, while Labor governments tend to cut spending at times when the economy is doing well.

This could explain why mortgage interest rates shot up to 9.6% as a result of the excessive government spending of the Howard government while today, they are just above 6%. The RBA was working to offset the inflation pressures being added too by ill-disciplined Howard government spending.

Never once did the Howard government deliver a cut in real spending in any of its 12 budgets. Nor did the Fraser government, for that matter, ever deliver a cut in real spending in its seven budgets. Twenty Coalition budgets and never a fall in real government outlays. This is staggering when put against the perceptions and rhetoric that so often do the rounds.

For the Labor party, which unquestionably spent up big as the GFC hit, there have been two years in the current period of government where real government spending has fallen, in 2010-11 and this year, 2012-13. Indeed the cut in government spending this year is the largest cut ever recorded. It is worth noting at this point that there were three years in the Hawke/Keating era where there were cuts in real government spending, so over the last 40 years, the Coalition have never once cut spending while the Labor Party has delivered real cuts in five of its budgets.

Which makes Abbott’s promise about cutting spending hard to believe, a point even more non-credible when he refuses to outline the annual cuts of around $15 billion that are needed to cover the loss of revenue from abolishing the carbon price and mining tax and to fund his extra spending commitments.

*Stephen Koukoulas is research fellow at Per Capita, a progressive think tank

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29 comments

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29 thoughts on “Myth of Coalition govts: Howard the biggest spender of all

  1. David Boorer

    Even if the surplus is undeniably a good thing (by itself it is not, you have to take investments into account too) how much of the surplus and paying off debt was through the Liberals’ economic management?

    http://www.finance.gov.au/property/asset-sales/past-sales.html shows the sale of government assets, look up the years Howard was Prime Minister, that’s a lot of money (about $72 billion i think) from selling assets. Tax income from spending was also higher under Howard but since this was a world-wide phenomena it was not due to the Australian government.
    So the Liberals are better economic managers because they got a paid off debt and got a deficit during great economic times and by selling assets? That doesn’t make sense to me.

  2. David Hand

    The way I read the article, I thought the punch line and reason for it are contained in this paragraph.

    “These facts are not widely understood or acknowledged. Indeed, to many Australians, the perceptions about the major political parties and government spending and fiscal prudence are the reverse of the reality.”

    OK, being kind to lefties, let’s humour the doctor and agree it’s all MSM’s and Murdoch’s evil plotting. The misunderstanding of “reality” is the whole point of the article. It’s in the title, mate. It is quaint that you seem to think it is merely a discussion about the obscure economic theme of absolute government spending. Koukoulas is trying to spruik Labor as better at economic management than Howard was by picking a winner. His basis is that Howard spent more and your comment, which I agree with, is that selling assets was one way he he delivered a surplus.

    My main point in this discussion is that the reality of a surplus is material to the article and Koukoulas didn’t mention it. Its materiality is that if Costello found himself sitting on a huge pile of money, he needed to do something with it. Progressives, as they like to call themselves, would advocate some sort of sovereign wealth fund. Costello chose to give it back to taxpayers. This was a political decision rather than a purely economic one but it is highly relevant to the raison d’etre for this left-leaning commentary in the Grand Crikey tradition.

  3. toby robertson

    A quick visit to http://www.budget.gov.au shows us that in 2007 costello’s last budget had revenue of 245b and expenditure of 235b. in 2012 the govt has forecast revenue of 376b and similar expenditure. This means that revenue has risen by 52% from 2007 and expenditure has risen by 60%.

    anybody stating that federal govt revenue has fallen under labor is clearly wrong. And it is also obvious that over the cycle of labor budgets since winning the election, not only has their revenue risen substantially, sadly their expenditure has managed to rise by even more.

  4. toby robertson

    According to http://www.budget.gov.au/2000-01/highlhts/glossy.pdf
    revenue in 1999/00 was 164.7b and expenditure was 155.2b
    whilst in 2000/01 revenue was 153.5 but expenditure was only 150.3b.
    Note not only is this a cut in spending but they cut it when revenue was falling.Soemthing Labor has shown it can rarely accomplish.

    It also makes a mockery of this line from the article “so over the last 40 years, the Coalition have never once cut spending”.

    Some wise person above suggested there is little difference in policies between the libs and lab, to a very large extent this is true and is exactly why you should vote for a govt that can balance its books over the economic cycle.
    I am not sure that any rational person could argue labor manages the budget well?…could they?

  5. toby robertson

    Thx David; the data should speak for itself, and the following should also be a bit embarrassing for the govt…..

    A further look at the budget papers at http://www.budget.gov.au/2012-13/content/overview/html/overview_36.htm
    shows that expendiure as a % of GDP was 25.4% in 2010-11, 25.3% in 2011-12
    and forecast to be 24.3% of GDP in 2012/13.
    Compare that to costello’s projected expenditure in 2010-11 of 21.8% of GDP. A quick flick through the data also shows that fed expendure was around 22.5% of GDP in 2000/01 falling to 20.8% in 2003/4….so much for reckless spending…….

    AND crucially costello forecast for revenue of 287b in 2010/11 but infact actual revenue according to the budget papers has labor receiving revenue of 309.9b. So they had 22b more than projected AND they still overspent by 51.5 billion!!

    Note; Swan has created a number of guaranteed structural imbalances via his carbon tax and MRRT.

  6. toby robertson

    Thx David; the data should speak for itself, and the following should also be a bit embarrassing for the govt…..

    A further look at the budget papers at http://www.budget.gov.au/2012-13/content/overview/html/overview_36.htm
    shows that expendiure as a % of GDP was 25.4% in 2010-11, 25.3% in 2011-12
    and forecast to be 24.3% of GDP in 2012/13.
    Compare that to costello’s projected expenditure in 2010-11 of 21.8% of GDP. A quick flick through the data also shows that fed expendure was around 22.5% of GDP in 2000/01 falling to 20.8% in 2003/4….so much for reckless spending…….

    AND crucially costello forecast for revenue of 287b in 2010/11 but infact actual revenue according to the budget papers has labor receiving revenue of 309.9b. So they had 22b more than projected AND they still overspent by 51.5 billion!!

    Note; Swan has created a number of guaranteed structural imbalances via his carbon tax and MRRT.

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