Australia High tax, big spend: there’s no home for neoliberals in this new era of mega-government

15:06  12 may  2021
15:06  12 may  2021 Source:   crikey.com.au

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Who is now the party of small government in Australia? Where do the remaining neoliberals in politics go for a political home? There’s been a sea change in Australian politics, one thoroughly unconducive to advocates of the core tenets of economic orthodoxy over recent decades — fiscal constraint, small government, the automatic belief that private is superior to public.

Josh Frydenberg standing in front of a window © Provided by Crikey

Maybe they can join the ALP. The evidence has long shown that Labor is the party of smaller taxation in Australia. It is the Liberals who are the big taxers, and now even bigger spenders. Despite the absence of a major economic crisis, with unemployment at mid-5% and strong growth forecast, Scott Morrison and Josh Frydenberg intend to spend 27% of GDP next year, and then above 26% of GDP in the following two years.

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Kevin Rudd and Wayne Swan never got above 26% even during the darkest hour of the financial crisis. And Wayne Swan’s efforts to get spending back under control in 2012 will now remain the high point of disciplined post-crisis budgeting for a generation.

Spending now looks to be permanently well above a quarter of GDP or more under the Coalition, a level unthinkable during the Howard years, when spending average just above 24%, or even in the Labor years, when it average under 25%.

chart, bar chart © Provided by Crikey

And on tax, even during a recession, the Coalition still retains its bragging rights as the party of high taxation — despite Frydenberg’s reflexive assertion that taxes will always be lower under the Coalition.

chart, bar chart © Provided by Crikey

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Despite the pandemic, tax collection by Morrison and Frydenberg will only briefly and marginally fall below 21% of GDP. Under Labor, the tax take spent two years at 20% and the following year at 20.8%, while the Coalition and the media lambasted their inability to return to surplus.

The Coalition: big taxing, very big spending, and huge deficits. Net debt is deliberately being pushed over $1 trillion. Forget the hypocrisy of all those years of debt ‘n’ deficits rhetoric — how far has this fundamental change in the Coalition’s approach to fiscal policy been debated within the parties, and especially within the Liberal Party? Where are the hardline neoliberal backbenchers — the hairy-chested advocates of small government, low taxes and individual freedom — to object?

It’s possible to argue that it’s a political expedient, a cash surge designed to recover the government’s standing in the face of a bungled vaccine rollout and a crass mishandling of gender issues, with one eye on the coming election. And this government has a history of announcing big spending, failing to deliver it, and then boasting of its fiscal discipline in bringing spending in under forecasts, while re-promising the same funding again. And spending for this current financial year remains tight compared to what was forecast last year, and only really ramps up from next year.

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So is it a half-baked conversion to big government? The problem with that argument is that large slabs of the new spending are permanent, recurrent spending: billions of dollars a year extra going into funding residential and home care for the aged care sector, and mandating set care requirements for residential care that will inevitably push funding requirements up in the future.

Moreover, the Morrison government now owns aged care scandals: it has promised a generational reform in the sector, and goes a solid part of the way to actually delivering that, even if it could have gone much further. Future scandals will only put further pressure on the Coalition to further increase funding

Even if the intention is that this will be a medium-term embrace of bigger government that is permanently above a quarter of the economy, future treasurers may find it very hard to return to the days of Wayne Swan, let alone Peter Costello.

So — where does a neoliberal go now?

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