Stephen Kirchner points out this rather strange post at the Adam Smith Institute blog defending Peter Costello against charges that the Coalition has turned to ‘big government’.

Adam Smith Institute blogger Fred Hansen, like the Treasurer, focuses on government spending as a proportion of GDP. As I have argued, with strong economic growth that measure can conceal a multitude of spending sins.

But even if we accepted spending as a proportion of GDP, the government’s record isn’t as good as Hansen says it is. As Robert Carling explains, the Commonwealth’s own-purpose outlays (ie after deducting general purpose grants to the states, now funded by the GST) are forecast to consume 1.5% more of GDP in 2007-08 than 1995-96.

Nor is the reduction over time in the percentage of GDP consumed by all levels of government anything impressive by international standards. As OECD statistics show, many other countries reduced spending as a share of GDP more than Australia did – including most European countries, the home of big-spending social democracies.

Hansen is right that the Howard government’s record is better than that of the US in recent years, but it wouldn’t be hard to put in a better performance than the reckless extravagance of the Bush administration.

Here’s a special opportunity for those Australians who think that, even though the federal government is already slugging them for $10 billion more than it needs to finance its spendthrift programmes, they would nevertheless like to give it some more money. It is the Higher Education Endowment Fund, in which part of the Budget surplus will be stashed, and legislation introduced yesterday will make public donations to it tax deductible.

Sadly, this looks like more evidence that my comrades in Canberra have lost the plot. I doubt even lefties think people should donate money to the state, or even if they do are not so delusional as to think that anyone would.

If you would like to give money to universities any of them will take your gift without spending needing to be first approved by the Minister. And you still get your tax deduction.

“employed by CIS, which does not accept government money”
Is it not the case that there is a special section of the Income Tax Assessment Act which makes donations specifically to the CIS tax deductible (along with donations to a particular left leaning think tank)?

That’s commenter Spiros on the issue of who pays my CIS salary.
The argument here is that because donations to the CIS (please make one:)) are tax deductible that is a loss to the government and therefore the CIS (and through it, me) is in receipt of government money. In broad terms, this is a widely accepted type of analysis with the Budget papers providing estimates of ‘tax expenditures’ and my fellow critic of big government Des Moore including them in his estimates (pdf) of the size of government.

I don’t dispute that tax expenditures are a significant aspect of government policy – like ordinary taxing and spending, and like much other regulation, tax exemptions, deductions and concessions are (desirably or not) distortionary in that they steer behaviour towards particular activities and (implicitly) away from other activities. Tax expenditures are criticised for receiving less scrutiny than direct expenditure. And as the government still has to raise a certain amount of money to meet its outlay commitments, it means that other tax rates have to be higher to bring in the required amount of revenue.

I am not, however, entirely convinced by the standard analysis. Continue reading “Don’t tax and spend?” →

When Howard biographer Peter van Onselen interviewed Peter Costello last year, the Treasurer was doing more than just going over old issues like the 1994 leadership agreement or the 2001 Shane Stone memo leak reported in this morning’s papers. He also had an eye to how his term as Treasurer would be seen, in light of criticisms of the Howard government’s spending record:

Mr Costello, frustrated at being overruled by the free-spending Mr Howard in expenditure review committee meetings before the 2001 election, would throw his hands in the air and exclaim: “What is the point of these meetings?”

This is a theme he returned to at a speech to a Liberal student function a couple of weeks ago, when he wryly noted that very few Ministers ever bring proposals for exepnditure reductions to the Budget process. Ministers get blamed for results their Departments announce, and so the Treasurer has received flak for a lack of spending discipline by the Commonwealth government.

His sensitivity on this point was such that he replied to my Policy article on ‘big government conservatism’, with his article in the current issue of Policy arguing for the government’s record on spending as a proportion of GDP (see also my reply and Robert Carling’s response).

Though I disagree that the government’s spending record is good (though as with economic conditions generally, it is important to acknowledge that it could have been a lot worse), I haven’t been allocating blame to Costello personally. I avoided even mentioning him in my big government conservatism piece. It is very unlikely that he dreamt up many if any of the government’s big-spending programmes, and FTB in particular has the Prime Minister’s fingerprints all over it. Unfortunately for the Treasurer, though, he is the one who has to go out and impose taxes, and he is the one who may well be seen, at least in the right-of-centre version of history, as the man who did not, or could not, take advantage of very favourable economic conditions to reduce taxes futher.