So there is this argument going around that the Rudd-Gillard government is still smaller than the Howard government. Very popular in some quarters on Twitter. Okay – so how do you measure the size of government? Milton Friedman argued that it was the tax burden. That is a good place to start. I like to think of it as being either taxation or spending which ever is the larger. After all if the government has a deficit that is simply deferred taxation. So I pulled the expenditure data as a percentage of GDP of of the latest MYEFO. Graphed the Howard era spending and the Rudd- Gillard era spending. Now the first thing to check is the number of budgets Peter Costello brought down. I had thought it was 11, but it was 12. So the average for the Howard era is 24.15 per cent (shown in the broken blue line below). Then the question is, how much benefit should we give Wayne Swan for this financial year? Yesterday he trashed his own budget. We really have no idea how much spending there will be this financial year. Nonetheless lets give him the full benefit and include this year in a calculation of spending. The average for the Rudd-Gillard government (so far) is 25 per cent (shown in the broken red line).
All up looks to me that the current government is spending more than the Howard government did. Yes, I understand there was a GFC – yet that excuse only goes so far.
It is true that if you look at the revenue side of things the current government does look better than the Howard government. Yet the government here is trying to make a virtue of weakness. Revenue is not down because this government has cut taxes; indeed this government has introduced new taxes and increased existing taxes while cutting tax expenditures. Revenue is down because the economy has been weak.
I should add the expenditure figures do not include off-budget items like the NBN.