A key issue in this campaign has been whether government should be bigger or smaller. But that’s not the way either side has wanted to frame it. As usual, both sides prefer to be seen as offering more government spending and tax cuts and a return to big budget surpluses. In election campaigns, the rules of arithmetic are flexible.
A twist this time is that Scott Morrison is using his promised super-mega $300-billion tax cuts to support his claim that the Libs are always the lower-taxing party, whereas Labor is invariably the party of higher taxes.
But such massive tax cuts surely require big cuts in government spending? Oh, gosh no. Where did you get that idea? As he and Treasurer Josh Frydenberg have repeatedly said, they’re willing to "guarantee the essential services that Australians need and deserve".
For their part, Bill Shorten and Chris Bowen are promising to reverse a lot of the government’s previous alleged spending cuts in health and education, while more than matching the first stage of the government’s tax cuts and achieving bigger budget surpluses than it would. They would square this circle by "paying for our commitments by closing loopholes for the top end of town".
Only this week did Labor produce its detailed costings and figurings. We’ll come to that.
Apart from this week’s last-minute additions, all the government’s costings and figurings were outlined in the April budget, of course, and confirmed a few days later in the pre-election update.
Actually, this government has a rather chequered history on the unmentionable subject of whether government should be bigger or smaller. The obvious advantage of a bigger government is that it provides more of the services we love, and doesn’t skimp on their quality. The obvious advantage of a smaller government is less tax to pay.
When Tony Abbott came to government in 2013 determined to end debt and deficit ASAP, he pledged to do so solely by cutting government spending and avoiding any tax increases (apart from his temporary budget repair levy on high income-earners).
Trouble is, voters were so appalled by the sweeping cuts to health and education he proposed that his government’s standing in the opinion polls plunged, never to recover. The Senate blocked many of his cuts.
The episode revealed what economists call the "revealed preference" of voters (not what they say, but what they do). They may like tax cuts and hate the idea of new or increased taxes, what they really don’t want is smaller government.
In subsequent budgets, the Coalition pretty much abandoned the notion of cutting its way back to surplus (apart, of course, for its regular cuts in things most voters didn’t worry about – public servant numbers and payments to people on welfare).
It tried to limit the growth in government spending by following a rule that any new spending proposals had to be offset by equivalent cuts. Apart from that, it sat back and waited for "bracket creep" to raise tax collections to the point where the deficit disappeared.
Except for Malcolm Turnbull’s first budget, in 2016. Here he proposed to phase in a cut to the rate of company tax, and covered part of its cost by pinching Labor’s plan for huge increases in the tax on tobacco, and doing his own versions of Labor’s plans to tax multinational companies and reduce superannuation tax concessions.
In the end, most of the plan to cut company tax was abandoned, but the tax raising measures stayed – a point to remember when Morrison and Frydenberg try to give you the impression it’s only Labor that increases taxes or cuts back tax concessions (or increases taxes via bracket creep).
When Danielle Wood, of the Grattan Institute, looked more closely at Frydenberg’s budget, she found the government had fiddled the figures to exaggerate the extent to which it had limited the growth in government spending so far, and now was claiming to be able to limit its average real growth to just 1.3 per cent a year over the next four years – something no government has ever come close to achieving.
The ageing of the population and the huge demands this will make on the budget make it even harder to credit.
Now Dr Peter Davidson, principal adviser to the Australian Council of Social Service, has taken Grattan’s work and dug even deeper. He finds that, after you allow for expected population growth, real spending growth per person would be zero.
We’re told that, still in real terms, spending on tertiary education is expected to fall by 0.6 per cent each year, while spending on dental health, and on family payments, are each expected to fall by 0.7 per cent.
Spending on employment services is expected to fall by 2.5 per cent a year and on social housing by 2.7 per cent.
You may believe that would happen should the Coalition be re-elected, but I don’t. It’s possible Morrison has a dastardly secret plan to "do another Abbott" after the election, but it’s much easier to believe the government was just fudging the figures to make it seem it could afford big tax cuts as well as achieve big surpluses.
Meanwhile, Labor’s costings reveal that "closing loopholes for the top end of town" is a misleading way to describe its various cutbacks of tax breaks affecting high-income earners and plan to restore the Coalition’s budget repair levy for another five years.
But the costings are just that – costings of individual promises. Nowhere are we told what the various tax-raising measures add up to, nor what the various spending measures add up to.
We are, however, told that the former would exceed the latter by $17 billion over the next four years. Oh, well that’s OK then.
Bit too tricky for my liking. When it comes to the size of government, neither side wants to spell it out truthfully before the election. Thanks, guys.
