Liberal tax & Labor spending

When the Liberal Party was in power I often complained that they kept tax too high. In the last budget before the Liberals took over (1995) tax was at 24% of GDP. In the last budget before the Liberals lost power tax had risen to 26.1% of GDP. And apparently this was the era of neo-liberal excessive tax cuts. Sigh.

But in their defense, the Liberals did manage to decrease government spending as a percent of GDP, and combined with their tax increases they managed to run consistent budget surpluses.

My complaint with the Labor party is going to be on the other side of the budget ledger. In the last budget before Labor took over (2007) spending was at 24% of GDP. After two short years it is now up to 28.6% of GDP. That is the highest level in the history of Australia.

The Budget announced yesterday shows that we now face a 2009/10 budget deficit of $57.6 billion (4.9% of GDP). By any measure, that is the largest budget deficit in the history of Australia.

The government claims that the deficit has been caused by the global recession. This is partly true. Revenue has fallen significantly compared with previous estimates. However, over the last year the government has made spending decisions which have cost $27.9 billion for 2009/10 alone. Without these spending decisions the deficit would have been under $20 billion.

9 thoughts on “Liberal tax & Labor spending

  1. Oh well. Only another decade of growth to pay off the deficit incurred in a single year…

  2. I might devote an article to it next week but in the interum people might be interested in looking into Proposition 1a being voted on in California next week. Basically it would cap spending increases to no more than the 10 year average for revenue growth. Any surplus thus created would need to go into a special rainy day fund. The merit of the idea in my book is that there is no political windful in terms of immediate spending capacity to be had from tax hikes. And no sudden bursts of spending that might rapidly necessitate future tax hikes.

  3. Stop worrying, the RBA’s got this all under control and the Labor party loves us all. I particularly have faith in the fine intellect of Mr. Wayne Swann who has a wonderful grasp on reality.

  4. It is disgusting to see how poor performance is being justified with the global financial crisis excuse.

    How can they measure the number of jobs that were NOT LOST thanks to the so-called stimulus packages?

    I wonder if the same person who undertook such calculation could also tell me how many new jobs COULD HAVE BEEN CREATED had taxes been much lower in this country.

  5. My girlfriend said something about receivers of youth allowance getting $2500 last night. I might see if I can get back on that wagon (I work 20-30 hours a week and go well above the earning thresholds) just to get it, take photos of the money order going to the LDP and send them to every labour MP in parliament. Show them just how much students need it :/

  6. You are right, John. I think a good T-shirt would be one with the motto- “The only good tax… Is a dead one!”
    TerjeP- the trouble with these referendae is that they are inflexible. California’s budget is pre-carved-up. Even if, for instance, it would make good sense to spend slightly less on Education, and more on roads, just for one year, they can’t do it! If you read The Future of Democracy (I forget the Author), you will be saddened at what referendae have done. Let’s not be referendummies.

  7. Nicholas – I agree that the government should be the one to allocate the budget. However I do like the idea of the size of the budget being determined by some direct democracy mechanism.

    John – given that the Howard government spending included repayment of debt it inherited it would be useful to look at the spending of the Hawke Keating years instead of the actual tax burden. Do you have the figures available?

  8. Historical tax and spending data is available in the budget papers, in the link above.

    I note that most of the debt repaid by the Libs came from asset sales, not surpluses. And I further note that after the debt was repaid, the Liberals did not subsequently cut tax.

    But I take your point that to some degree they were paying the price for the folly of previous governments.

  9. I agree that it probably wouldn’t alter by much how we ought to judge the Howard government. However I wonder whether it might alter how we judge the Hawke / Keating governments.

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