Some Whitlam nostalgia of my own

Though Whitlamite nostalgia can be a poor guide for contemporary public policy, it is at least understandable that Labor’s true believers remember those years fondly. But when they start indulging in Menzies nostalgia something very odd is going on. In his first speech to Parliament after becoming leader, Kevin Rudd said:

…this modern Liberal Party, is that it is not the Liberal Party of old. If you go back and read what Bob Menzies had to say about social responsibility and social justice, there is no way that Bob Menzies would fit into the world view that we are now being offered. You see, the member for Kooyong recently delivered a speech on Bob Menzies?? legacy within the Liberal Party on these questions of social responsibility. It is quite clear when you read that clearly that there has been an ocean of change between that Liberal Party and what it stood for, despite our criticisms of it and our disagreements with it at the time, and the market fundamentalism which has overtaken the current Liberal Party.

It’s another example of the strange meme that recontructs the conservative Robert Menzies as some kind of left-leaning social democrat. In a fiscal fact-checking exercise sadly lacking among those making this claim about Menzies, today I visited the economics library at Melbourne University to see just how the Menzies government’s spending levels compared with that of John Howard’s government.

I used the last Menzies Budget, 1965-66. To get a realistic comparison, I used the RBA’s inflation calculator to convert all spending levels into 2005 dollars, and divided by the population to get a per capita figure. Overall spending per person under Howard in 2005 was 204% higher in real terms. But in the ‘social justice’ areas the increase was much higher. Education spending was up 866% per person. Health spending was up 803%. In social security there was comparative spending constraint – only 433% higher. From the amazing list of rural rorts running in the mid-1960s I expect we spend less per person on that kind of thing now, but Menzies’ overall record would, in contemporary terms, make him not a social democrat but a more radical neoliberal than anyone at the current-day CIS or IPA.

While in the library, I thought it would be interesting to do a comparison with Gough Whitlam as well. He doesn’t qualify as a radical neoliberal, but Whitlam’s per capita spending record in the 1975-76 Budget is enough for me to indulge in some Whitlam nostalgia of my own. For education, spending per person was 18% lower under Whitlam, health was 45% lower, and social security was 59% lower. Overall spending per head was 39% lower. Howard the canny conservative social democrat has taken taxpayers’ money and Labor’s agenda, without many of either group even noticing.

37 thoughts on “Some Whitlam nostalgia of my own

  1. That is interesting – might be more illuminating if you had the time to profile Fraser, Hawke and Keating while you were at it.

    One theme emerges though- we can count on conservative governments to say one thing and proceed to do the opposite. Nothing changes much.


  2. Isn’t Rudds point that Menzies oversaw a heavily regulated IR system?

    A lot of people on the ‘left’ in Australia regard regulating IR as more important for ‘social justice’ and ‘families’ than social transfers. Strange, but true.

    On another point, you are right – it is just a little bizarre to hear a Labor leader talking up family life in the 1960s. Indigenous families might have a thing or two to say on the topic – working women as well.


  3. I’d rather you left Saint Gough to we true believers.

    You can’t say that Howard has taken “Labor’s agenda” – Labor’s agenda wasn’t just to spend as much as it could per capita. Labor’s agenda under Whitlam wasn’t socially conservative for a start (although it may be under Rudd).

    I don’t agree with all this rehabilitating of Menzies and Fraser. I remember Fraser well enough, and I remember what my father and grandfather used to call Menzies.

    Anyway what do your figures prove? we spend more on health, and we live longer, with better teeth etc. We spend more on schools, and they’re much better equipped etc. Should we not have expensive cancer / cardiac treaments, not have computers in schools ?


  4. Leopold – Rudd’s previous mentions of Menzies have been in the context of IR, but I thought this speech spilled over into a broader social justice agenda.

    David – As Russell suggests, every government spends more than the government before it, and there are sound reasons for some of this, population ageing etc (though not dental as he says; that’s still largely a private industry though Howard does indirectly subsidise it through the private health insurance rebate). In an article I have coming out shortly in Policy I try to concentrate on spending growth rates (higher under Howard than Keating) and to what extent this spending is discretionary. This is where I am most critical of Howard – I can’t see any compelling case, for example, for the massive increase in family payments.


  5. Andrew,
    I do recall saying at the LAST election that Howard’s policy was for more taxing and spending whilst Latham’s was much tighter in terms of fiscal policy and he actually promised to reduce both spending and taxation as a % of GDP.

    Admittedly it was amusing watching ‘leftwingers’ support a right wing economic policy and vica versa but it was hardly news.


  6. Ditto Tom N! Given that government spending seems to rise inexorably, perhaps a worthwhile comparison to make is the rate of change in spending as a % of GDP?


  7. It’s an indication how successful social democracy is, given it can compell the likes of John Howard to morph into a social democrat in order to keep retaining government!


  8. Rajat – The trouble with that measure – and I think the Howard years highlight this – is that it can cover many spending sins. Despite rapid per capita spending increases in many areas, Commonwealth outlays as a % of GDP were lower in 2004-05 than 1995-96, partly because of much lower debt costs, but also because the economy was growing fairly strongly. There is no reason to assume that government spending should grow in tandem with the economy; indeed some social spending items should decline. I like the per capita figure because it gets us closer to population-based drivers of spending.


  9. Define “successful” Christian. You could say totalitarianism was extremely successful on the basis of Stalin’s experience, if you define successful simply as staying in power.


  10. Andrew

    The compelling case for the massive increase in family payments is called re-election. Could Rudd offer a tax cuts based economic vision and wedge JWH from the right ?


  11. James – In defence of Christian, there is a big difference between staying in power by killing people who oppose you and staying in power by winning elections. It’s hard to know exactly what effects Howard’s social democracy is having, beyond the obvious one that the financial position of people with children has improved relative to those without, and that the elderly have also improved their position relative to those in other age groups.

    Jimmy – I have struggled to find direct public opinion evidence on the family payments; for such a massive spending programme ($26 billion) there is remarkably little interest in how the public sees it.


  12. There is no reason to assume that government spending should grow in tandem with the economy

    What’s the use of money if it’s not used to buy better health, education etc? And the relative price of these things is continually rising as technology makes the relative price of privately-provided stuff (ie food, manufactured goods, entertainment) ever cheaper.

    It’s called the Baumol effect – productivity growth in services is inherently slower than productivity growth in primary and secondary industry. Therefore the price of services is constantly growing relative to that of other things. Government is into the service business, not in making stuff. So the real cost of government rises with economic growth.


  13. Yes James – Please note Andrews defence of my position, there is a big difference between success through killing and persecution and success through winning elections over and over again. As both of my grandfathers were political activists persecuted by the communist (puppet) regime of Poland, I am well aware of the distinction and I reckon you should acquant yourself with it too! And please, don’t anybody interpret my comments as praise for John Howard – They are rather intended to praise the power of social democracy to change people like John Howard!


  14. DD – But economic growth also makes the private alternatives to government services more affordable, though in recent years is hard to sort out the relative influence of general prosperity and Howard’s subsidies in increasing use of private health and education.

    Interestingly, the Howard government has managed to increase productivity in universities, and also significantly reduce its own expenditure per student (and even more so per capita overall).


  15. the financial position of people with children has improved relative to those without

    Can I just point out not all people with children benefit. This year I did get $150 (from the State government) because one of my tribe started prep – yet I don’t seem to be getting anything (that I can see) from the Feds. Mind you, Mrs D and I both work and (allegedly) have high paying jobs so wedon’t expect to get anything either. But is does irritate when pollies talk about how they’re doing so much for ‘working families’ and we hear about all these wealth transfers to people with kids.


  16. Andrew, I guess my unease with just looking at real spending per person is that – and this is my suspicion without looking at the data – it would make the vast majority of governments in western countries more ‘socially democratic’ than the government(s) that preceded them. For example, Howard more SD than Hawke, who was more SD than Fraser, who was more SD than Whitlam, etc or (I’m guessing again), Reagan more SD than Carter and Thatcher more SD than Wilson or Callaghan. Is that terribly useful information? Perhaps the true political orientation of a government should be assessed relatively. That is, how well they cope with relentlessly increasing demands for more spending. At the same time, I realise that’s a bit of a cop-out for someone who is similarly nostalgic about lower tax and greater individual responsibility!


  17. Rajat – In my article I do look at rates of increase in spending per person over equivalent periods of Howard and Keating (Howard had faster growth rates). I haven’t done similar calculations for other PMs. It is a time consuming process.

    The complexity is that governments do need to be judged contextually, on the basis of the options realistically available to them. But there is necessarily a subjective element in deciding what options are realistic. However, in the full Policy article I do try to argue that Howard chose to increase spending when there was no pressing need to do so.


  18. Sinclair – If you have one kid and both parents work, family tax benefits cut out at about $95K family income, 2 kids $104K, and 3 kids $115K. Two professional incomes would typically bust these limits, but most families are eligible. If Mrs D stays at home, you’ll get a few thousand dollars a year no matter how much you earn.


  19. I agree with Rajat that looking at real (CPI adjusted ) spending per person tends to give a more dramatic view of trends than looking at spending as a percentage of GDP for example.

    I haven’t got to hand figures past 1999, but let’s take the statutory rate of age pension for a single person. (The age pension is still the largest single cash benefit in Australia.) In 1965 this was about $5,100 per year (99 values); following increases under the Liberals and Whitlam by 1976 it was about $8600 (99 values) and by 1999 it was about $9400. So it increased by about 80% in real terms. It has probably gone up a bit more since then due to indexation to MTAWE post-1996.

    However, as a percentage of GDP per capita, the pension was just under 35% in 1965 under Menzies. It reached a peak of about 42% of GDP per capita under Whitlam, and since then it has taken a long bumpy downward trend to just over 30% of GDP per capita in 1999 (and I suspect a bit lower now).

    So if you look at pension levels in real terms you would say that since Whitlam all governments have been social democratic.

    In contrast, if your measure is as a percentage of GDP per capita, you might say that Whitlam was the only real social democrat, and all successive governments since then have been unwinding his generosity with most of the hard work done in the last few Fraser years and under Hawke.

    Having said this, what it tells me is that real GDP per capita is a lot bigger now than under Menzies or Whitlam.

    The other reason why spending has gone up is that in 1965 there were about 700, 000 persons receiving age and service pensions and by the end of the 1990s there was a bit over 2 million. Some of this is due to higher coverage of the aged population – more social democracy – but most of it is due to more aged people.

    In fact, in terms of aggregate real spending on age pensions, the increase in the share of aged people in the population accounts for slightly more than half of the total increase in spending over the period 1965 to 1998, with the increase in benefit levels accounting for a further 40% (and other things explaining the balance), i.e. demography, not social democracy.

    Having a higher share of the population reach age pension age and live longer afterwards is something all governments of whatever persuasion would have to deal with.

    Spending on families has gone up a lot whichever way you measure it. However, this is overwhelmingly concentrated on low income families. At the end of the Menzies years a single income family with two children at half average earning would have received (in 2006 values) about $1600 a year in all tax deductions and child endowment, and a family at twice average earnings would have received about twice that. The subsequent peak was under Fraser in 1975-76 when a low income family would have received about $4,200 a year and a high income family only a little bit more.

    My rough calculation is that if you annualised current family payments (Parts A and B) a single income two child family at half average earnings could receive a maximum payment of about $12,800 a year (if both kids were teenagers and not including rent assistance). A family at twice average earnings could receive about $1800 a year in FTB Part B and I roughly calculate about $600 a year in Part A payments. So the high income family is getting less than under Menzies and Fraser. It’s too complicated to work out what has happened around AWE, and low income families on benefits will not have done as well in terms of family payments (not basic entitlements) as those in low paid work.

    But expressing this relative to GDP per capita would bring this down, although the low income families are obviously well ahead.


  20. Howard has also been generous with so-called self-funded retirees. I left my Menzies stats at work, but there has been a huge shift about those of working age from self-reliance or reliance on family to reliance on the state. This is the trend that worries classical liberals and conservatives alike, and where Howard departs from Australian social democratic orthodoxy in trying to use policy to push them back into work. He hasn’t been all bad in this area.


  21. You miss my point, Andrew. Yes of course privately provided health, education, etc services have increased in relative price too – just as government services have. So what? The fact is that health, education, lauranorder, etc have gotten a lot more expensive relative to those industries (agriculture, mining, manufacturing, etc) where technology has massively reduced the labour input needed to make a set quantity of goods. And agriculture, mining and manufacturing do not form part of the government sector.

    Put it another way – as it gets ever easier to make stuff then a bigger proportion of our effort goes into other things, such as educating kids, staying healthy and feeding lawyers. And more of these other things fall into governments’ domain than making stuff does.

    As an empiric matter, the constant growth of government over the last 200 years ought to make you see this. Otherwise how else can you explain that growth in the face of many governments who have been trying to roll it back?

    Mind you, I think what the Marxists would call “an internal contradiction” is emerging in modern capitalism. I agree with you righties that very heavy taxation harms both economic efficiency and the liberty of the subject (though I may disagree what “very heavy” means). But I think the Baumol effect and the increasing complexity of society means that very heavy taxation will slowly become necessary and desired by the public (privatisation is not a *long run* answer, for reasons too long to canvass in this already overlong post).

    How to resolve the contradiction? I don’t know – but I have a book outline on the problem sketched in my head for my retirement.


  22. Sorry, DD. You’re going to have to write that book before retirement – perhaps in Andrew’s comments section. I’m happy to accept that government spending has inceased, and the costs of government services have increased. But I suspect that’s due to government being happy to spend other peoples money (throwing money is the solution to problems) and not worry too much about the quality and quantity of output.


  23. Andrew and Christian – your point is duly noted. My point was simply that one cannot conclude, just because something is successful politically, that it is necessarily successful in any other way (i.e. improving society, liberty, etc).


  24. DD – Private health and education have become more expensive, but also more affordable relative to gross income – which was the point I was making above. I know the point you are making, and the longer version of my argument in the upcoming Policy article acknowledges this. I also think that though certain aspects of the welfare state were in hindsight mistakes, it is hard to reverse them once they are in place. However, there is still plenty of unnecessary discretionary spending, and this is worth fighting over.


  25. “certain aspects of the welfare state were in hindsight mistakes, it is hard to reverse them once they are in place.”

    Care to expand on this? Which aspects?


  26. Single-parent pensions that did not require a return to work when the youngest child went to school were definitely a mistake, and arguably this whole pension has done more harm than good in encouraging dysfunctional households (against this, it has avoided some poverty that would otherwise have existed, and the heartache of giving up babies for adoption). Much of the rest of the family payments system. Publicly-delivered education.


  27. From Todays’ Sydney Morning Herald:

    Mr Howard said Mr Rudd was making the same mistake as Mr Beazley, Mark Latham, Simon Crean and Mr Beazley again before that, in trying to portray him as an economic extremist. “What he’s arguing is that I’m a rampant market fundamentalist and laying waste to social order. It’s wrong. It’s invalid. One of the things that’s distinguished my last 10 years is the care I’ve taken to look after middle- and lower-middle-income families.

    “Family tax benefits, child-care rebates, all of those policies. We’ve kept the social security safety net. In fact, some people have even, on the right of me, have actually said I’ve been too generous.”


  28. I think this establishes he is not – and agrees he is not – a libertarian.

    It doesn’t necessarily mean he is a social democrat!


  29. On The Insiders this morning, Howard described himself as economically liberal and socially conservative (if he hadn’t said so in the past).


  30. too right.
    If he really was the ‘market fundamentalist’ don’t you think he would have de-regulated the labour market instead of re-regulating it.
    wouldn’t have he reduced not increased the pages of legislation alah New Zealand and given workers the choice?


  31. Russell: “Anyway what do your figures prove? we spend more on health, and we live longer, with better teeth etc. We spend more on schools, and they


  32. I think it intruiging the level of welfare that has been targeted directly at middle Australia families in recent years. It’s almost as if this so called targeted spending has become a pillar in both sides election strategies beyond the big picture issues of reform of the tax system and our foriegn policy posture in the region. Family first and its impact, has interestingly arisen out of this and other factors.

    On one hand welfare does play a vital role in assisting people moving from the economic backfoot to the frontfoot but on the other hand it can and often does act as a stifling agent to stop people’s inner drive to succeed off their own bat i.e. Small Business.

    Ditto to opening this debate up a bit to ensure a more objectivist view point is put at the social and economic level.

    Having grown up in a community culture of middle to upper-middle class welfare specifically relating to families, I can say its importance can’t be overlooked or written off outright.

    Critical re-assesment is always vital in refreshing the future of social and economic policy in Australia.


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