Ideas@TheCentre

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Closing the government gaps

Simon Cowan | 04 April 2014

cowan-simon In a speech this week, Treasury Secretary Martin Parkinson identified two gaps that put pressure on government budgets.

The first is the gap between what the community expects and what governments can realistically do. The second is the gap between what citizens want from the government and what they are willing to pay for. Closing these gaps will be key to addressing Australia's short-term budget problems and our looming, long-term fiscal crisis.

This is likely to prove very difficult. Even modest reforms such as introducing a medicare co-payment, making cross subsidies for regional broadband users transparent or reducing government intervention in the childcare sector have drawn heated responses.

Opponents of co-payments have said that their introduction would be the end of Medicare (despite the existence of co-payments throughout the health system), while advocates of more affordable access to childcare are told they need 'a history lesson.' As for the NBN, without the hidden cross subsidies for regional broadband it should just be shut down. At times the government gaps seem like gaping chasms.

Parkinson then comes up with another insight; that it is unlikely that 'we could achieve the real rate of growth required to return the budget to surplus by relying on economic growth alone.'

This is especially true when you consider the drag on economic growth caused by the increasing size of the government. The explosion of red and green tape, the repeated distortions of free markets through government subsidies and industry policy, not to mention our inadequate processes for assessing and developing public infrastructure in Australia, all contribute to lowering our rate of growth.

To his credit, Parkinson noted that 'by the end of 2012-13, real spending increased significantly more (40 per cent from 2002-03) than real GDP (34 per cent from 2002-03).'

It should be obvious (for several reasons) that the solution to an unsustainable expenditure increase is an expenditure reduction, however Parkinson goes further, advocating tax system reforms to 'truly meet the needs of a modern Australian federation.' This seems to be code for tax rises.

Unfortunately, it seems the Treasury Secretary couldn't quite make the leap across the government gaps

Simon Cowan is a Research Fellow at The Centre for Independent Studies.