Should small government liberals abandon the Liberals?

Sinclair Davidson’s suggestion that the most formidable opponents of small government are conservatives rather than social democrats is interesting. I wonder whether this could lead to a realignment of Australian politics.

commenter Winton Bates, in a comments thread prompted by a post on how the rich paid an increasing share of net income tax under the Howard government.

As I argued in my big government conservatism article, the Howard government turned into a conservative social democratic government. Like Labor before them, the Liberals under Howard used the proceeds of a broadly market economy to finance a large welfare state. Under Howard, welfare spread up the socioeconomic ladder, towards the universalism that social democrats have long wanted to create wider support for the welfare state. And by boosting the not-poor but not-rich middle class from taxes on the top 25% of earners, Howard helped keep overall income inequality fairly constant under his watch, despite growing inequality in market income.

It remains to be seen whether this is a medium or long-term ideological shift. At one level, Howard’s policies can be explained (though not explained away) by factors that are unlikely to be permanent. Politically, periods of prosperity are accompanied by greater pressure to spend more on government-provided services, so we are in the spend part of the tax-and-spend public opinion cycle. It is hard for governments without massive public opinion support for other reasons to resist such political pressures – especially when the necessary money is just flowing in on existing tax arrangements with no need to raise tax rates.
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