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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.

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

  1. Andrew C

    “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?!

  2. Andybob

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

  3. Andrew C

    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.

  4. The Pav

    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?

  5. jeremy brown

    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.

  6. Michael

    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.

  7. David Hand

    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.

  8. John Newton

    ‘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???

  9. Dogs breakfast

    “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.

  10. 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.

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