The bottom line for evaluating government is an examination of its size within the national cake. Two key dimensions of this are its call on GDP and its regulatory exactions.

The annual budget offers a bird’s eye view of the direction of government size. As a share of GDP government spending has been trending down from 28% in the mid 1980s to 23.4% to 24% in the present year and for current estimates of the next three years.

Much of this reduction has been made possible over the years by a disgorging of activities to the private sector — not only through privatisations.

Normal observations have been for the outlying years to increase, which might be especially so for a government with an ambitious social agenda. And although the Swan Budget puts further pressures on the bureaucracy to provide efficiency dividends most of the savings are simply the outcome of “parameter” changes (i.e. changed assumptions).

The tone of the budget and the Treasurer’s post budget interviews was one of conservatism. Programs have been funded by cuts and assurances are given that this will be the on-going picture.

Taxes are left pretty much unchanged — the top income tax rate of 45% is looking increasingly uncompetitive in global terms. Action on reducing this is foreshadowed but it would be extraordinary for a Labor Government to move on this in its first budget even though it collects little additional revenues compared to the 40% soon to be 37% second top range. One highly optimistic note is the $600 million a year budgeted to be raised from the alcopops tax; clearly the government has never understood the fungibility of alcoholic products — wine coolers can be made almost as teen-oriented as those with a spirits base! A similar triumph of hope over experience is the projected revenue increases the Tax Office is scheduled to receive over the next five years.

A blind spot remains housing where the government confines its policy statements to tinkering with subsidies when the main game is the restrictions in planning approval systems administered at the state level. One sound initiative is a modest support for electronic systems to facilitate faster approvals, but imaginative uses of carrots and sticks would offer far more in housing affordability than could ever be supplied by the $500 million a year in subsidies and infrastructure offsets provided in the Budget.

Infrastructure remains something of an enigma — lots of special funds but the only concrete move this year is a further $75 million on studies. The papers trot out bureaucratic self-praise about infrastructure and do not canvas measures to address key shortfalls by winding back regulatory measures stopping Telstra building its own fibre networks and discouraging coal and iron ore miners from building infrastructure for their own use.

Most of the government’s potential future assault on consumers’ living standards is off budget. The discussion of regulatory reform has no plan to tackle over-regulation that has been identified by the IPA. Indeed, the Rudd government would not fare well in a close examination of its early regulatory performance. It has been busy introducing new regulations into, at best, useless schemes like the fixing of petrol prices and has set a course for a vast new regulatory agenda driven by greenhouse concerns.

This latter factor is the Achilles Heel. Expenditures and regulatory enactments foreshadowed to pursue climate change mitigation could be economically crippling. So far, a “paltry” $2.3 billion over five years is all that’s identified. $500 million of that is an old fashioned infant industry hand out for a green car plus a further $650 million to create other industry opportunities that short-sighted entrepreneurs would all fail to spot!

The future action is in the fire and brimstone Ministerial statement of Penny Wong, which is sprinkled with hyperbole about “hottest years on records”, “disappearing ice caps” and other factoids. This threatens the equanimity of the steady as she goes approach with a different set of interventionary preferences that characterises the rest of the Budget.

Peter Fray

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Peter Fray
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