You can listen to The Stutchbury Sessions on Apple, Spotify, Amazon, iHeartRadio, PlayerFM or listen on your browser.
Episode Transcript:
Today, I’m using the Stutch sessions to ask the question: why are Australians voting for bigger government? Of course, we need government to set laws, to defend the realm, to help provide a safety net for the disadvantaged and for all sorts of other things. But, as society gets richer, as it has, why are Australians voting for a government that takes up a bigger share of the size of the economy? Why are they voting for policies that are leading them to be burdened with higher taxes, a government that is spending beyond its current means and a bigger public debt burden for the next generation of voters to deal with?
For instance, Australians seem to approve of the so-called cost-of-living relief that Labor promised at this year’s election: a $150 rebate for household electricity bills, an increased government subsidy to reduce pharmaceutical prices and a 20 per cent cut to university student debt. These government handouts extend to financially well-off people, not just the disadvantaged. In this sense, they amount to the government handing out money now but putting the bill onto the budget deficit and the public debt that taxpayers will have to pick up in the future. That might be one key to it, many voters may think that someone else will pick up the tab.
There’s an irony here that the post pandemic cost of living crunch was largely the result of the massive government handouts during the COVID crisis. You can understand why given the dire health warnings of the time. Australians used this government money to go on a spending spree just as the pandemic disruptions caused a shortage of many goods. That pumped up overall demand in the economy, just as overall supply was disrupted. The result Australia’s sharpest bout of inflation in a generation, which squeezed living standards and the price of things rose faster than wages. The government response to that?: well, more handouts of course! We seem to have established a pattern where voters give a thumbs up to governments that look after them here and now.
That’s a challenge to classical liberals, like us at CIS. And it should be a problem for centre-right parties supposedly committed to smaller government and lower taxes. But you can see how the centre-right parties themselves have been disoriented by the rise of populist politics in the past decade or so. Today, everyone can see how the Liberal and National Party Coalition is fighting among itself since its walloping in the May election, including over climate change.
In the past week, Liberal leader Sussan Ley has sought to pull the Opposition back to what should be its safe space: smaller government. And she drew on research from the Centre for Independent Studies to tackle one result of this bigger government, the culture of dependency I’ve been talking about in this podcast.
In a speech this week, Ley said that CIS research had found that more than half of adults rely on the government for most of their income, while just 10% of taxpayers pay two-thirds of all income tax. Not only that, but in the past two years, 80% of new employment has been in the non-market sector. GOVERNMENT JOBS
The first point Ley made here has attracted a fair bit of commentary: the idea that more than half of adult Australians rely on the government for most of their income.
The Liberal leader is drawing on a paper by CIS senior fellow Robert Carling about how the size of government in Australia has ratcheted up again since before the pandemic.
Robert added up the number of those working in the public sector, the number of people in jobs that are heavily funded by government and those people on a range of social benefits ranging from the long-established age pension to more recent child care subsidies and the National Disability Insurance Scheme.
While the numbers are not straightforward, Robert Carling concludes that “it is likely that more than half of voters rely on government for most of their income”. That’s a really striking observation that highlights the risks of bigger government.
Robert calls this a shift in Australian politics to ‘voting for a living’. So many people are beneficiaries of big government that it starts to feed on itself. Programs such as the NDIS have spiralled out of control, in this case from its supposed original noble purpose of helping Australians with catastrophic and permanent disability. Not only do any attempts to wind back this expanded welfare state attract strong resistance, but more middle-class voters become attracted to non-means tested entitlements such as Anthony Albanese’s promised ‘universal’ childcare subsidies for rich and poor. It is promoted by an advocacy industry that has grown up around the welfare state. It becomes a vote-winning political strategy, shown by the expansion of the labour-intensive ‘care economy’ and a workforce dominated by public sector unions.
The result is that overall government has ratcheted up in size from — from 34-35% of GDP to nearly 39%. So government now accounts to nearly 40 per cent of the overall economy. That’s now delivering falling productivity, a projected decade of federal budget deficits and a $1 trillion federal public debt.
One of the puzzles in all this is why the debt markets, or those who invest in the ballooning debt issued by governments, have not revolted and demanded much higher interest rates to reflect the increased risk of their investment. We’ve seen some signs of that but it seems that bond market investors will accept these government credit risks – until they don’t.
To keep the credit rating agencies at bay, the big government strategy seeks to pile a higher tax burden onto a relatively small number of higher income voters who already cough up a large share of the tax take, all while insisting that Australia is a ‘low tax country’. Otherwise, the stealth tax of income tax bracket creep will silently load more of the burden of bigger government on mostly younger workers.
It’s a policy recipe for European-style low economic growth, not prosperity, as more voters will discover. But challenging the culture of dependency is politically fraught, as Joe Hockey and Tony Abbott found with their ill-fated 2014 budget. Remember how Hockey said Australia needed to be a nation of lifters, not leaners?
Now this shouldn’t be a Liberal v Labor thing. Joe Hockey was simply trying to repair the budget as Bob Hawke and Paul Keating had done in the second half of the 1980s. Just a few weeks ago, former Labor foreign minister and NSW Premier Bob Carr told a CIS function that governments should give this reply to those seeking more government spending: Just say no.
So here’s my conclusion. It’s politically dangerous to say no to handouts. CIS research suggests that tackling bigger government needs to do more than taking away some voters’ entitlements. It needs to convince them that getting government out of the way can empower everyone — including business — to take up opportunities to make things better for all.
Let me leave you with this quote from economist and past CIS guest Thomas Sowell:
“The welfare state is the oldest con game in the world. First you take people’s money away quietly, and then you give some of it back to them flamboyantly.”
Thanks for listening, You can read or listen to Robert Carlings paper linked in the show notes, or at cis.org.au