Fairfax’s Peter Martin has today published an interesting summary of Internationally Monetary Fund (IMF) research, which questions the commonly held view that the Howard Government were sound fiscal managers. From the SMH:
AUSTRALIA’S most needlessly wasteful spending took place under the John Howard-led Coalition government rather than under the Whitlam, Rudd or Gillard Labor governments, an international study has found.
The International Monetary Fund examined 200 years of government financial records across 55 leading economies.
It identifies only two periods of Australian “fiscal profligacy” in recent years, both during John Howard’s term in office – in 2003 at the start of the mining boom and during his final years in office between 2005 and 2007…
The IMF study mirrors findings of a 2008 Australian Treasury study that found real government spending grew faster in the final four years of the Howard government than in any four-year period since the 1990s recession.
The number of spending decisions worth more than $1 billion climbed from one in the first Howard budget to nine in the last. The proportion of savings measures fell from one-third of budget measures at the start of the Howard era to 1.5 per cent at the end.
For what it is worth, I mostly agree with the IMF’s conclusion. The Howard Government presided over the biggest private debt boom in Australia’s history and, in its later years, one of the biggest terms-of-trade booms. These two events meant that the Australian economy grew strongly and fostered strong growth in both employment and incomes. Importantly, it also flooded the Government with tens of billions of dollars worth of extra taxation revenue – via increased personal, company and capital gains taxes (as well as lower welfare spending) – which it spent on a range of questionable initiatives and middle class welfare.
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Put simply, it was easy for the Howard Government to look like sound financial managers when, through good luck, its revenue base expanded inexorably thanks to the unsustainable expansion in private debt and the once-in-a-century commodity boom.
To be fair, similar criticisms can be targeted at some of Australia’s state governments (e.g. the Bracks/Brumby Governments in Victoria), which benefitted similarly from the huge (and unsustainable) surge in stamp duty receipts and GST revenues. They, too, looked like sound managers by virtue of the fact that their revenue base expanded inexorably and their budgets remained in surplus, despite a raft of questionable (and costly) spending decisions.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
