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.
In that sense, the Howard spendathon was an ideological crime of opportunity – if you leave lots of cash lying around somebody is going to walk off with it. It would have been much less likely to happen in a tighter budgetary situation, coming in the medium term. Economic growth is likely to slow, and demography is about to turn against us as the boomers retire.
Nevertheless, as my big government conservatism article argued Howard’s policies did pick up on themes in Liberal ideology, and that could give it an enduring ideological attractiveness to many within the Liberal Party. Ideas like family and choice – even state-sponsored choice such as private health insurance rebates – go down well in Liberal circles. Few in the party are on the record opposing the family handouts of the Howard era. The budgetary consequences of these tendencies will expand and contract with the economic cycle, but they are on-going.
Despite this, given the realistic choice between the Liberals and the ALP the case for abandoning the Liberals weakens. I was sceptical last year of Labor’s ‘economic conservatism’, and while we should reserve judgment until budget night the signs aren’t good for Labor as a party of smaller government. The savings announced or hinted out so far are worthy but small in the context of the total budget. If they can’t cut now – six months into their term, the Opposition weak, and with attacking inflation as a cover – it is hard to imagine that they will cut in future.
This is especially so as the basic instinct of Labor’s constituency is to favour spending. In the 2005 Australian Survey of Social Attitudes, in response to a standard question asking if respondents prefer more spending or less tax, Labor supporters were 54% to 30% in choosing more spending over less taxing. Liberal supporters marginally preferred less tax – 41% compared to 38% for more spending. And Labor also has to keep an eye on the Greens, who it seems like taxing and spending almost as much as they like trees, with 73% in favour of more spending, and only 16% for less tax.
The Liberals then are likely, over the medium to long term, to be the more promising party for lower taxes and spending. I don’t think there are grounds for Winton’s suggested ‘realignment’ of politics – even setting aside the stickiness of party allegiances and difficulties in setting up alternative party structures that make realignment improbable in practice, whatever the theoretical arguments in favour.