Howard govt. costs 34% more than Keating govt.

With the latest budget figures now out I did a quick back of the envelope calculation to find that our Federal government services now costs us 34% more than it did a decade ago. That’s after adjusting for population and inflation and omitting the GST cost component.

1997 cost per capita was A$8437 (year 2007 dollars)
2007 cost per capita was A$11310 (year 2007 dollars)

In gross dollar terms the increase in the total cost of Federal government over the decade almost exactly equals the current total of all personal income taxes. Or to put it another way reducing all personal income tax to zero would leave the budget with the same gross revenue outcome as in Keatings day.

1997 Raw Data
Population = 18,524,200
CPI = 120.5
Gross Cost = A$121,105 million.

2007 Raw Data
Population = 20,743,300
CPI = 155.5
Gross Cost = A$234,619 million.


{EDITORIAL NOTE: See comment number 27 for reasoning behind headline revision from 34% to 57%.}

65 thoughts on “Howard govt. costs 34% more than Keating govt.

  1. The “per capitaa” is misleading on it’s own…

    Eg, what was inflation, interest rate, and what percentage of GDP went to those working/not working?

  2. Oops, you listed inflation… my bad.

    That does seem like a pretty large increase… but real per capita income has increased by 3% a year as well, so we still have more disposable income.

    What a massively missed opportunity… if they’d just kept spending constant, imagine what they could have achieved!

  3. Now that, Terje, is marketing magic. Put it right up there with the 30/30 policy. Come election time, there’s very little else that needs to be said.

  4. Most people aren’t aware of statistics like this, especially lefties. I also think this kind of analysis would be good advertising.

  5. David is talking as if the ALP would be the lesser evil. Just remember – Julia Gillard is from the Left and Rudd wasn’t able to prevent her from mouthing off the last time. The ALP will be far worse on the regulation front and no better on the tax/spending front.

  6. Yes, as bad as Libs have been, I believe the ALP would have been worse… and unfortunately, are sliding further to the left.

  7. David is talking as if the ALP would be the lesser evil. Just remember – Julia Gillard is from the Left and Rudd wasn’t able to prevent her from mouthing off the last time.

    Just remember, Howard was elected on the basis of what he said, not what he did. They turned out to be quite different things.

    Why should Gillard’s mouthing off be taken as indicative of anything? She wouldn’t even be the Treasurer or Finance Minister in a Labor government.

    I don’t think either Liberal or Labor is worth a pinch. I’m saying I don’t see how Howard warrants endorsement in the light of the information in this post. It’s tragic mismanagement.

  8. people who vote for politicians ought not complain when they are ruled by politicians.

  9. I am interested in knowing how many libertarians have similar views to the libertarians in the Ludwig Von Mises institute. Judging from them I’d have to say that overall the libertarians are some of the most intelligent people in the world. But it boggles my mind that they do not have more control in how this country is going. Is it just because they are such independent thinkers that they are not united? I don’t think this is the case but still why do Libertarian not have more control?


  10. libertarian is a broad-church description. As soon as all the rest realise that only my views are the totally correct ones, then we can take over Australia from our base in The Kimberleys! Next month, the world!
    All for its’ own good, of course!

  11. overall the libertarians are some of the most intelligent people in the world.

    There’s never been any relationship between intelligence and success, in business or politics.

  12. Both sides are pretty ordinary all right. I don’t believe that the ALP would be worse. My memory is long. After all it was the ALP that slashed the company tax rate from a punitive 49 cents in the dollar down close to where it is today and chopped the highest marginal income tax from a whopping 63 cents in the dollar.

  13. I think DavidLeyonhjelm is wrong, and there is a relationship between intelligence and success, but it is not direct, and other factors come into it. Edison was smart enough to see that light bulbs would be a great idea, and he had the perseverence to keep trying hundreds of times to get it right. Bill Gates was smart enough to see the benefits of software, and had the business acumin to succeed- as well as the right contacts from his days at IBM. Ms Rowling writes well-plotted novels, and came up with a character that people liked, and Harry Potter was created from her brains and insight into children.
    Intelligence is part of success, but not the only part

  14. There was a study released two weeks ago that found no relationship between iq and wealth. In fact in one high iq

  15. Whoops, hit the wrong button …

    There was a study released two weeks ago that found no relationship between iq and wealth, in fact they found a negative correlation for one above average iq group.

    Hard to believe? Think about a very old study by Liam Hudson, he found no differences in the probability of scoring a Nobel for scientists with iq from 130 – 180.

    Still hard to believe, I think there must be some correlation. If you look at studies on creativity, the most common denominator is perseverence. There is the possibility that the very bright cruise through school and so never learn the requisite discipline to take full advantage of their gift. I’ve known a number of people who fit this bill.

  16. Inversely to speed of problem-solving. The person who uses less time has more iqqeyness/iqqity

  17. According to Catalyst (ABC TV) the most important factor in sucess is what they call “emotional intelligence” these days. Basically getting along with people and being able to get people to see your point of view is critical.

  18. ‘Creativity’ would be the ability to manipulate facts in your head, perhaps as part of problem-solving. Thus it could link to intelligence through speed. A person might be able to solve ordinary problems very quickly, but be stumped by creativity. A computer can solve a maths puzzle, but wouldn’t have the imagination to make up a poem, or make new jokes.
    Q. How many inventors does it take to change a light bulb?
    A. That’s a criminal waste of an inventor! You keep them around so that when they have a bright idea, you can steal the bulb!

  19. The story is actually worse than what Terje says because of the governments treatment of GST. Before 2001 the government had a wholesale sales tax (WST) and passed that money on to the states through FAGS (financial assistence grants).

    After 2001 they still had a tax (now called “GST”) and they still passed that money to the states… but they no longer reported this tax or the spending in the federal budget. Therefore they were able to make the government look artificially smaller.

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  21. …passed that money on to the states through FAGS …

    Anybody else find this find this funny, or am I the only immature bastard here?

  22. Emotional Intelligence (Daniel Coleman) is nonsense. More of that feel good crap from psychology. Like self esteem, a stupid and dangerous concept, EI has little to do with intelligence. There are plenty of intellectually brilliant but emotionally retarded inventors out there.

    Creativity cannot be measured by iq. Richard Feynman, arguably the most creative physicist post WW2, had an iq of 122. IQ is principally about convergent intelligence, creativity requires divergent inteligence.

    There are always exceptions, many studies do reveal a relationship between iq and academic and professional success.

    Speed of processing has been touted as some as a good measure.

    The whole paradigm about inteligence is up for grabs, there is even speculation that the precious “G” does not exist.

    There is only one true measure of intelligence, what the person produces. I’ve known people with iqs ranging from 90 (me) to over 150 and some of these high iq types were simply good at doing tests but in the real world they were oxygen bandits.

  23. John is right to raise the issue of FAGS and GST. I acknowledged it in the article but it is simple to include the effect so I probably should of taken the effort to do the numbers. Let me try and remedy that now.

    GST according to the latest budget papers totals $40,000 million. So the corrected numbers would be:-

    1997 cost per capita was A$8437 (year 2007 dollars)
    2007 cost per capita was A$13238 (year 2007 dollars)

    An increase of 57% not 34%.

    If we look at the budget in per capita inflation adjusted terms it is not entirely correct to say that we could have elliminated all personal income tax. We would have been able to elliminate only $100 billion out of $114 billion (allowing for population and inflation). So we could have reduced personal income taxes by 88% not 100% as I alluded to in the original article.

    Of course this more correct summation also misses the dynamic effects of cutting taxes. If we had been cutting personal income taxes to the extent suggested possible I fully expect that the added incentive would have got us over the mark to total ellimination.

    It bemuses me that many people think zero income tax is a technical impossibility.


  24. Unfortunately Terje… it’s more complex than that. You first estimate underetimates the tax increases but your second estimate overestimates the tax increase. You were probably better off doing the former.

    I’ve written about it in more length in several places elsewhere. As David points out, the GST didn’t only replace the WST. The correct adjustment to make is to add the difference between the forward estimates of FAGS and the budget balancing assistence (BBA) that the federal government continued to pay the states after the introduction of the GST.

    This is a bit difficult, but there is a short cut. After the introduction of the GST the budget papers record a decrease in the size of govt (as a percentage of GDP) but in reality the size of govt (as a percent of GDP) stayed about the same. So to do a quick adjustment you add the difference between the 2000-01 and 2001-02 government tax stats.

  25. We’re paying an extra 34% (at least), and this is under the Liberals !?

    Un-frickin-believable. Where would we be if Labor was in power.

    If headlines like this made the news, people would certainly feel the need to vote for the party least likely to grow government and most likely to shrink it.

  26. Jono – based on your last sentence and limiting the analysis to the last 30 years and to the parties that have formed government in that time (ie Labor versus Coalition) then you are suggesting that people should vote for the ALP.

  27. Real net incomes have increased over the same period – and unfortunately, tax has kept pace with that.

    As long as real per capita incomes are increasing, then all you need to do is cap spending (ie, adjust to inflation), and the tax burden would decrease (relative to wages).

    Rudd has promised not to increase tax as a percentage of GDP.

  28. Dear FLEECED- is Rudd’s promise a core, or a non-core, promise? Only core promises are binding on politicians, unless they had their fingers crossed, or can claim they were, or might have been, drunk, at the time.

  29. fleeced

    how important do you think this increase in real net incomes is in increasing govt expenditure.

    is it fair to hold spending constant if earnings are increasing?

  30. Terje: Exactly… but this is what I meant in one of my earlier posts when I said that individually we’re still “better off” – just not as “better off” as we could have been. Of course, I didn’t examine the data, so maybe we’re not (I am personally, but in 96 I was just leaving uni!)

    Nicholas: Who knows? – he made the promise in trying to show his economic credentials as a “fiscal conservative,” but as Terje says, it just means that spending can contunie to increase.

    Pommy: Mostly yes (with the usual if/but conditions). Real per capita incomes can increase for instance just by having more people employed… shouldn’t this bring government spending down? IANAE (I am not an economist), but I’m sure there’s plenty of arguments either way – and it’s more than possible that I’m missing a few subtleties.

    I’m open to arguments, but on the surface, I see no reason why spending should keep pace with GDP, as Rudd has suggested. Instead, we should use this as an opportunity to reduce the tax burden for all.

  31. Government spending is often justified on the grounds of helping poor people. As GDP and employment and wages increase there will be fewer poor people. Therefore, real government spending on welfare/health/education etc should decrease as GDP increases.

  32. terje.. was there ever a single election in the last 30 years where, on balance, the ALP actually ran on a platform promising to spend less than the Liberals ?

    (not that I’ve been voting for very long, this year will only be my 3rd federal election)

    Were Kim Beazley or Mark Latham any better than Howard with regards to their spending promises? I don’t really think so.

    Howard is spending much more than Keating was 10 years ago, but how much would a Keating government be spending today if it remained in power another 10 years ?

  33. As regards taxes, I remember a Beazley saying, in regard to taxes, that we weren’t being taxed enough! This was around the year 2000 or so, but it seems either incredibly stupid, or an honest (brave?) statement, or warning. The whole thrust of a socialist government is to increase the central power of the state, so as to have the power to keep things equal.
    Until we live in an equal-wage communist utopia, we’ll always have some people earning less than others, and thus they can be classed as ‘poor’ who need to be helped by confiscations from the non-poor.

  34. was there ever a single election in the last 30 years where, on balance, the ALP actually ran on a platform promising to spend less than the Liberals ?The whole thrust of a socialist government is to increase the central power of the state

    Many in the ALP have a misguided idea of social justice, but there’s no way the ALP is socialist. It’s a classic social democrat party. The Liberals are too, except they won’t admit it.

  35. So our choices are- fast poison by the ALP, or slow poison by the Libs! Openly centralist dictatorship, or covert control. Hmmm… which to choose?
    Darn, we have too many choices! The party which promised to do away with elections would win the next election!

  36. On the basis of the last 30 years, the ALP have been in power for 13 years, the Liberal/Nationals 17. I’m not surprised that we can blame the Liberals for most of the increase in spending. Both parties are big government, it is simply the fact that the Liberals have been the most successful in bribing us, either through the good fortune of being in power during a healthy economy, or by targetting their bribes to better effect.

    The ALP also suffers from the factional system which divides the parliamentary party. They have less cohesion in their policy aims. We should all vote Labor in the House (and encourge the right faction) and Liberal in the Senate, simply to hog tie a Labor government. A similar scenario was presented in the US under the Clinton administration, with the Democrats in the White House but not in control of both Congress and the Senate. This leads to a fiscally responsible government.

    Of course it doesn’t lead to reform or smaller government, it merely minimises the harmful effects of statism.

  37. Beazley was not good for the ALP. I think tax comments by the likes of the unionist and ALP policy man Bill Shorten are representative of the more positive position that the ALP can pitch. And people forget that Hawke/Keating inherited from Fraser/Howard (who controlled the senate then as now) a top marginal tax rate near 70% and Hawke/Keating were quite pragmatic in slashing it significantly.

  38. The Hawke/Keating era made progress in a lot of areas – a credit to the ALP, not just taxes, but micro-economic reform in general (including tariffs)… Keating wasn’t as good in his PM days unfortunately – by then he made too many compromises to the left to get the leadership (which seems to be what Rudd has done now).

    The ALP seems to be embracing the unionists even more of late. It seems Rudd made a deal with the devil to get the leadership 😦

  39. My comment above got severely distorted by the system and made no sense. This is what it should have said:

    was there ever a single election in the last 30 years where, on balance, the ALP actually ran on a platform promising to spend less than the Liberals ?

    Yes. It was either 1990 or 1993 and Labor was desperate to appear economically responsible. I remember going to a function where Don Stammer was speaking. He made the point out that it was the first election in his memory in which the parties were vying to offer the fewest electoral bribes.

    It would be pretty easy for Labor to promise to spend less than the Liberals this election too. All they have to do is means test the baby bonus and throw a bit of money at global warming and it will appear responsible.

    My major concern about the ALP is not that it has unionist amoung it’s ranks but rather that it is beholden directly to unions.

    The ALP was created by the unions and has always been beholden to them, but it’s less now than it ever was. I’m not saying it oughtn’t be less, but a sense of proportion helps.

    We should all vote Labor in the House (and encourge the right faction) and Liberal in the Senate, simply to hog tie a Labor government.

    Excellent advice. After giving first preferences to the LDP of course.

  40. David – The ALP can of course run it’s internal affairs as it sees fit but I don’t have to like it. I do think that I have a sense of proportion on this issue. I agree that the ALP is less beholden to the unions than it was in the past, but it is still too beholden for my liking. In my vote at the last federal election I did preference the ALP over the coalition so it is not as if this single fact alone determines my decision.

    Other than the fact that the ALP sometimes says one thing and does another (ie it is dishonest) why do you think we should preference them on this occasion? What will they do that you think is good?

  41. Is the LDP standing candidates for House of Reps or Senate seats (or both)? I would have thought the party’s strongest chance would be the senate.

  42. Ok. Point taken. I can’t even join the party because I have been disenfranchised by living outside of Australia.

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  44. There too huh. Funny thing about democracy, factions form to lobby the government for “rents,” given the dispersion principle. Small wonder every one knows the saying: “Democracy is the worst form of government except for all others that have been tried.”

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  46. Other than the fact that the ALP sometimes says one thing and does another (ie it is dishonest) why do you think we should preference them on this occasion? What will they do that you think is good?

    The Coalition is equally dishonest (consider core promises), so I don’t think relative honesty comes into it.

    The Coalition has been captured by rent seekers – sugar, ethanol and the wheat single desk amongst others. This post shows it is outspending all previous governments on a per capita basis. Every solution it offers involves the expenditure of large amounts of taxpayers funds. It is not a liberal government and it deserves to be kicked out.

    The ALP will also be captured by rent seekers, particularly the unions and environmental movement, but that won’t happen in its first term. The Hawke/Keating government only started to go downhill in its second term. That will time to kick it out as well.

    The tree of liberty must be refreshed from time to time …

  47. Okay. Thats how I felt last election. I still do feel that way but at the moment the IR issue is trumping the “it’s time” factor. I do feel like the IR reforms are really important over the long hall and I don’t feel like there will be a second bite at this cherry if the ALP with the current Gillard policy get over the line. Last election the only reason I could see to preference Howard at that election was the prospect of IR reform, but at that time I thought there was no way they would win a senate majority.

    Also I’ve never suggested that the coalition is more honest.

  48. what’s this ‘will also’? The ALP is already captured by the unions. David has a bee in the bonnet about the Libs because of the Port Arthur guns thing and isn’t taking an objective view of the ALP. On the other hand, he already said on the libertarian sub-groups thread that he thinks economic freedom is merely ‘theoretical’ i.e. he doesn’t really care about economic freedom (which is kind of surprising for a libertarian but there you go) so that he would preference the ALP over some delusion that they would be softer on guns is a foregone conclusion.

  49. Jason, if you can’t avoid impugning my motives and misrepresenting me, stay out of the discussion. You look silly.

    Terje, I don’t understand why you think IR is a bigger issue for Labor this time compared to the last election. Latham’s IR policies were far worse than Rudd/Gillard’s.

    I also think there’s other things that matter besides IR, neither side does what it says and their differences are relatively minor in the big scheme of things anyway. Therefore most times I’d be happy to see a change of government at every election.

  50. Jason – you seem to be adopting a needlessly rude position. Move on.

    David – I think the Howard IR reforms were valuable. That was my projection before the last election but I discounted them on the basis that the coalition would not win a senate majority. My recollection is that Latham wanted to rip up AWAs but at that time AWAs did not trump awards. The current crop of AWAs over ride awards and as such they are more significant, especially over the long haul. However my recollection of Lathams full position on IR is now hazy.

  51. David is one of the most hard-core free marketeers I’ve met. The only exception to this might be his views on IP, but not even certain about that as I’m still trying to work out if they’re right or wrong!

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