Mr Abbott embraces big government

Wed, 14 May 2014  |  

Mr Hockey's first budget allows me to update my 'size of government' comparison, which I first published on 1 May 2014. It is reproduced in full, below.

For the sake of simplicity, the size of government is calculated by adding revenue and spending as a share of GDP, to see what sort of footprint any particular government has in the economy.

It is early days for the Abbott government, to be sure, but the budget shows that the size of his government will be 49.1 per cent of GDP, calculated on the period from 2014-15 to 2017-18.

This is a smidge below the Howard government (49.2 per cent) and the Hawke / Keating government (49.6 per cent), but is significantly larger than the Rudd/Gillard government (47.4 per cent).

In other words, the Abbott government looks like reverting a high spending / high tax government and unwinding the smaller footprint left by the previous government. The revenue from Medicare copayments, the petrol excise rise, the income tax hike, the levy on big business add to the tax take, but the fact they are recycled to at least part fund the paid parental leave scheme, roads, a medical research centre all add to government spending.

Unless something changes in the years ahead, the Abbott government looks like being a big government.

I'll leave it to readers to judge whether it is a good or a bad thing.

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Article from 1 May 2014

One of the lame brain fact free and unchallenged assertions doing the rounds recently and one which forms the basis of the Commission of Audit report, is that the spending cuts and other policy changes needed are because the government is getting too big.

While it is open to debate on how best to measure the 'size of government', one way is to look at the sum of Commonwealth revenue and spending as a share of GDP. This means that the more the government raises in tax and then recycles into the economy via spending, the bigger the footprint of government on the economy, and vice versa.

Makes sense?

A quick look at the size of government, on this measure, reveals some startling facts. I repeat facts based on data in Mr Hockey's Mid Year Economic and Fiscal Outlook document.
Under the Rudd and Gillard governments, the average size of government was 47.4% of GDP.

The Howard government size of government was 49.2% of GDP.

What do you know! The Labor government was 1.8% of GDP smaller than the Coalition under Howard. That's $30 billion per annum in today's dollar terms.

The Hawke / Keating government accounted for 49.6% of GDP on average per year.

Under the Fraser government, the size of government was 47.2% of GDP.

All of which means the size of government has been shrinking in recent years and is back to the level of the 1970s. Is that still too big? I doubt it. It is where the revenue is raised and where that precious money is spent that matters. And this is where the political cauldren boils over on the carbon price, mining tax, paid parental leave and the whole hotch potch of measures in every budget.

Does anyone else have a better way of measuring "size of government'? Let me know.

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