How do budget emergencies, growing welfare dependency, and stifling red tape fit together?
The multi‑dimensional character of modern public sector activity lends itself to a form of specialisation, not least among policy experts who focus on specific policy problems in detailed and intricate ways.
A structural budget deficit is largely seen as a problem for economists, social services as one for welfare advocates and social policy academics, and regulation for business interests and other special interest groups.
Even if specific policy problems ultimately require specific solutions pertinent to the problem, there is at least one sense in which all the seemingly disconnected threads of government policy all fit together.
That is, public sector regulations, expenditures and taxes, in one way or another, compromise the ability of people to produce, distribute and exchange valuable resources, for mutual gains.
In other words, government profoundly affect the extent of economic freedom enjoyed within a society.
Since at least the early 1990s, economists have quantified the relative levels of economic freedom enjoyed in each country, and ranked countries against each other in terms of being more, or less, free.
Australia has been consistently ranked among the most economically free countries, however in a recent assessment, by the Canada‑based Fraser Institute, our economic freedom has declined markedly.
In 2011, it was estimated that Australia was the tenth freest economy in the world, compared to fifth freest in 2009 and 2010, with a larger government, increasingly loose monetary policy and heavier regulatory burdens contributing to our slide down the rankings.
Complementing international studies, the Institute of Public Affairs has designed an index ranking the six Australian states, regarding the extent to which governments allow individuals and businesses to freely engage in economic activities.
Given the degree to which fiscal and regulatory systems are centralised within the Australian federation, the economic freedom index includes the activities of commonwealth, state and, to the greatest extent possible, local governments.
Western Australia is assessed as the most economically free jurisdiction in Australia in 2011, largely due to markedly lower government spending and fewer dependents on the welfare roll.
WA is followed on the economic freedom league table by New South Wales and Victoria.
At the other end of the scale lies Tasmania, as the least free Australian state.
The Apple Isle is burdened by the weight of large public sector spending, as well as the largest share of state population directly reliant upon government for their incomes.
The state ranked second lowest on relative economic freedom, Queensland, might come as a surprise to some, especially for those who recall its halcyon days of development from the late 1970s through to the early 1990s.
The high level of capital works spending remains evident to this day but, unlike during the Bjelke‑Petersen era, Queensland public spending and debt profile today more closely resembles that of southern states, and is no longer the lowest‑taxing jurisdiction.
The highest rate of legislative passage of all jurisdictions in 2011 also weighed down the Sunshine State’s economic freedom index ranking, to fifth out of six states.
A growing number of empirical studies have shown that countries with improving economic freedom index scores tend to grow more rapidly than those recording declining freedom.
Backdating the economic freedom index methodology to the 2001 financial year, coinciding with GST reforms, the IPA economic freedom study included a quantitative analysis of the relationship between changes in state freedom index scores and gross state product per capita.
The empirical model shows a ten percentage point increase in the economic freedom index increases the growth rate of GSP per capita by about 0.2 per cent, suggesting that freer economies tend to be more strongly growing economies.
To an extent, the states can implement specific reforms ‑ reducing government spending, taxation and debt, public sector employment and welfare dependency, or regulation ‑ ensuring they make a useful contribution to improving economic freedoms within their own jurisdictions.
But with its significant fiscal and regulatory presence in each of the states, the Abbott government should play its part in reducing the adverse economic influence of big government within each state and, through it, the nation as a whole.
Implementation of the government’s stated policy agenda, such as eliminating the carbon and mining taxes, cutting wasteful spending and eliminating red tape, should assist in halting, or even reversing, the decline in national economic freedom under the previous administration.
Governments need to be mindful that the complex and specialised things they do often comes at a significant cost to economic freedom, and so freeing people to do deals with each other would leave a virtuous legacy of raising living standards for all Australians.