Crikey



Myth of Coalition govts: Howard the biggest spender of all

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.

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Categories: Economy, Federal

29 Responses

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  1. This is exactly the point the International Monetary Fund noted” - Stephen Koukoulas

    This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily
    represent those of the IMF or IMF policy.” - IMF

    The author is misrepresenting the paper, and worse, he linked it for credibility and that quote is on the 2nd page! What does he think of the readers, trying such a bold faced trick?!

    by Andrew C on Feb 13, 2013 at 12:21 pm

  2. Wowsers Andrew C ! When you exclude that tricky paragraph the effect on the argument made in the rest of the article is … nothing.

    by Andybob on Feb 13, 2013 at 1:18 pm

  3. Ok, Andybob, did you read the report? Or do you blindly trust the author, even after such a ridiculous lie? How did such a misrepresentation got past the editors?

    Sorry, but once your credibility is ruined, as it is here, it becomes harder to listen to face value.

    by Andrew C on Feb 13, 2013 at 1:32 pm

  4. Dear Andrew C

    On the basis of your last post (3) then you would obviously have no truck with Abbott, Costello, Howard or if in Qld Campbell or in WA Barnett & Buswell

    I would say that linking the report just made it easier to check it so the credibility issue is what?

    And anyway is the assessment wrong in your opinion?

    by The Pav on Feb 13, 2013 at 2:10 pm

  5. Andrew C, grasping at straws to imply that the article was incorrectly attributed. So what? The facts are still there too see - take a look at the graph on page 44. Sycophants who can’t bear to see the shiny brass plating of the coalition tarnished make me puke.
    Twenty Coalition budgets and never a fall in real government outlays, apparently. The author wonders why the press haven’t made anything of it. Two main reasons in my opinion - News Ltd and Australian bloody-mindedness.

    by jeremy brown on Feb 13, 2013 at 2:16 pm

  6. Ah Kouk, keep talking them up, mate. There were three Labor Prime Ministers in the House the other day. One of them produced a surplus. Good old Bob back in about 1991.

    by Michael on Feb 13, 2013 at 2:24 pm

  7. Nice try, Stephen.
    The problem is that those years of Howard government you refer to were years of surplus.

    That is, for those who may need an explanation, that though the government spent a lot, the tax take was even greater. The problem Labor has is that it is spending money it doesn’t have. Though a surplus in itself is not a fundamental requirement and the coalition would be in deficit as well in the current period, voters will make their minds up on the likely future capability in government fiscal responsibility.

    Sorry mate but the ALP has a lot of ground to catch up.

    by David Hand on Feb 13, 2013 at 3:04 pm

  8. The issue is that Abbott is factually incorrect. Secondly, his statements are rarely challenged by journalists’

    How many times have I heard politicians sprouting porkies and never challenged by journalists.?The ABC is the worst culprit. why is this so???

    by John Newton on Feb 13, 2013 at 3:14 pm

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

    That is it, in a nutshell.

    The level of sophistication of the average voter is such that comments by the likes of David Hand are considered material, when they are not. Surplus good, deficit bad, no context, no insight. Pretty much sums it up.

    Coalition government, last 5 years, reaped a $300b windfall in tax receipts (budget papers), without having done anything to create them. They were just there at the right time. The receipts were so huge, so unexpected that even they couldn’t spend it fast enough, at a time when we should have been squirrelling it away.

    The deficits during the GFC were good policy, not wasted. The waste was in the middle class welfare, high earners tax cuts and structural deficit that the coalition left the Labor party.

    Just the facts.

    by Dogs breakfast on Feb 13, 2013 at 4:16 pm

  10. 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.

    by David Boorer on Feb 13, 2013 at 6:57 pm

  11. I mean surplus in the last sentence :/

    by David Boorer on Feb 13, 2013 at 7:05 pm

  12. But David and Doggie,
    You can bang on all you like about who might be the better economic manager but it doesn’t alter the fact that this is a political puff piece that doesn’t mean very much because it chooses an isolated metric - government spending - to spruik Labor and whack the Coalition.

    Hey it’s an election year. Stephen is entitled to do this but the idea that the electorate is too dumb to make its mind up about who should be in government is a dangerous anti-democratic notion clung to by Labor supporters in the face of a coming self-inflicted electoral disaster.

    As Labor gets swept from power, you will still be blaming the mainstream media in general and Murdoch in particular.

    Talk about deniers!

    by David Hand on Feb 13, 2013 at 10:43 pm

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

    The real - thought I suspect unintended - truth behind this statement is that the economic policies of Labor and the Liberals are largely indistinguishable.

    by drsmithy on Feb 13, 2013 at 10:47 pm

  14. Hey it’s an election year. Stephen is entitled to do this but the idea that the electorate is too dumb to make its mind up about who should be in government is a dangerous anti-democratic notion clung to by Labor supporters in the face of a coming self-inflicted electoral disaster.

    The argument being presented is not that they are “too dumb”, but that they are not being exposed to all the information.

    by drsmithy on Feb 13, 2013 at 10:49 pm

  15. Abbott at the Press Club making uncontested claims? Who was there, there, in a position to contest those campaign claims?
    Weren’t they all “journalists”/politicians?
    They edit our news to their views (the final product that most of us get to see), for us out here in Voterland, on which to form an opinion.

    by klewso on Feb 14, 2013 at 1:59 am

  16. What a bunch of knockers, sprouting the coalition party line and the crap they read in the murdoch press. Wake up to the what the reality of Australia being run by people of the ilk of Abbott, Hockey, Pyne, Mirabella, Bernadi and Andrews would be. You won’t know what hit you when they rewind us back past the Howard years. And do yourselves a favour and read the IMF discussion paper instead of parroting Abbott’s bullshit.

    by jeremiahwuzza on Feb 14, 2013 at 10:04 am

  17. @ David Hand, the referenced report and therefore this article doesn’t just take into account government spending as explained in the introduction of the referenced report. You also didn’t address my point of the global economy and sale of assets being big factors in the surplus the Howard government got or why the “isolated metric” of a surplus is a good thing. Instead of providing supporting evidence you’ve claimed this article and Labor supporters think “that the electorate is too dumb to make its mind up about who should be in government” which is not claimed or insinuated in this article as far as i can see.

    by David Boorer on Feb 14, 2013 at 11:47 am

  18. 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.

    by David Hand on Feb 14, 2013 at 12:50 pm

  19. 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.

    by toby robertson on Feb 14, 2013 at 2:05 pm

  20. 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?

    by toby robertson on Feb 14, 2013 at 2:31 pm

  21. Thanks Toby.
    Your posts show that the entire article from Stephen Koukoulas is fantasy.

    I read it again and realised that he wasn’t talking about absolute spending but growth in spending - an even more obscure measurement, even less meaningful and even more irrelevant. Except that it shows the ALP in a slightly better light of course.

    And the relentless negativity about Abbott continues, his verballing continues. This very misleading article is a great example.

    by David Hand on Feb 14, 2013 at 3:24 pm

  22. The upshot of Stephen’s piece is amply demonstrated by some the comments: the ‘perception’ is strongly manipulated by the media which love a simple bit of FUD to more subtle explanations. Labor’s spending as a percentage of GDP is falling, and has been lower than Howard’s. No surprise when the Coalition kept p!ssing the ‘rivers of gold’ into the punter’s pockets for some electoral loving.

    Has this government been a poor economic manager? Why absolutely, says the Murdoch press, as they wave around the numbers with no context, no reference to the GFC, or what other Western economies look like now.

    Simple, isn’t it? Ans what’s more, the simple buy it, and the partisan pretend it’s the truth.

    by CHRISTOPHER DUNNE on Feb 14, 2013 at 4:59 pm

  23. 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.

    by toby robertson on Feb 14, 2013 at 5:15 pm

  24. Excuse me Christopher but have you looked at the budget documents?! Everything I have said is clearly spelt out so that a child can read the numbers. You are welcome to your own opinion, but not welcome to your facts.
    Labor clearly are incapable of running a balanced budget over the economic cycle and it cant just be a case of bad luck??
    For instance as i showed you above revenue has risen dramatically under labor, and has exceeded costlello’s forecasts, and yet they still over spent by 51b in 2010/11 despite receiving 22 b more than was expected.

    perception is intersting, this article suggests not enough journalists point out liberal flaws. Most people I know believe it is the other way and the evidence i have shown you to my mind speaks for itself. Have you evidence to support your own?!

    by toby robertson on Feb 14, 2013 at 6:45 pm

  25. 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.

    by toby robertson on Feb 14, 2013 at 6:46 pm

  26. 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.”

    Nail on the head. I for one will not believe a word Abbott says until he comes clean on what cuts he will make.

    by Rortydog on Feb 14, 2013 at 6:59 pm

  27. And you believe everything the current govt says I suppose?! If you remove the carbon tax you remove the need to compensate…….and as for the MRRT. Just how much will that contribute to funding the already committed expenditure?
    I would think trusting anything a politicians says is problematic, but would you trust a govt that says hundreds of times they are running a surplus and cutting expenditure when the opposite is abundantly clear from the budget papers?! Or a Treasurer who sends out leaflets congratulating himself on achieving a surplus…..that he will never achieve!?
    I will repeat it for you. in 2007 govt expenditure was 235b ( and 21.5% of GDP) but in 2012 it is 376b or 24.3% of GDP…straight from the budget papers! and last year they spent 25.3% and the year before 25.4%.

    by toby robertson on Feb 14, 2013 at 7:49 pm

  28. Not to mention, the Worlds Greatest Treasurer uses inflated figures in the forward estimates, cooked up by overly positive treasury forecasts ($29 carbon price in 2015, over estimates of the mining tax revenue) to plan in future spending. So the money is committed before the revenue is even guaranteed.

    Maybe when I buy my next house, I can draw up a graph on MS paint showing a steady line at a 45 degree angle as my projected future income, and the bank will give me a million dollar home loan.

    Maybe ill ask swanny to go guarantor?

    by Counterpoint on Feb 15, 2013 at 2:11 am

  29. All these armchair economists. Come on guys, the fact of the matter is a coalition win will be a kick in the guts for Australia and put us completely out of synch with the rest of this rapidly changing world.
    The time for picket fences and sending back the boats is well and truly over. All this dumb crap about a green army. What are these people on? Rolling back taxes on a matter of principle, duh? Sucking up to big mining, cutting red tape. And green tape. Slimey toad mates in state governments, they’ll all be in it together
    What kind of system is it where you always have to choose between the lesser of 2 1/2 evils?

    by jeremiahwuzza on Feb 16, 2013 at 10:54 pm

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