Compared to Howard …

So this morning I was on Radio National with James Paterson and Ben Eltham talking about cigars, budgets, and broken promises.

Ben made the point that the Australia faced a revenue problem and not a spending problem – as people of his political persuasion are wont to do. James and I argued the contrary position. We all cited the budget papers to support our argument. But Ben had an interesting cavrat – he only wanted to compare the budget situation to the Howard era. Anyway, I thought I’d have a look at the Howard era compared to the Rudd-Gillard era to see if there is any justification for Ben’s argument.

So looking at the MYEFO data from 1996-97 to the present I graph Receipts and Payments as a percentage of GDP and then calculate the average receipts as a percentage of GDP during the Howard era (25.03%) and then calculate the average payments as a percentage of GDP during the Howard era (24.14%). First thing to note is that the Howard government ran, on average, a budget surplus of slightly less than 1%.

So look at the first figure. Here I have plotted Receipts and Payments and the black broken line is average receipts during the Howard era.

eltham 1

That looks like Australia has a revenue problem – if the Rudd-Gillard government had enjoyed revenue collections at the same rate as the Howard government their spending sprees wouldn’t have mattered much.

But that is only half the story. If the Rudd-Gillard government had spent at the same rate as the Howard government – remember “this reckless spending must stop” – what would things look like? In the second figure I have plotted Receipts and Payments and the black broken line is average payments during the Howard era.

eltham 2

Spending remains well above the proliferate Howard era spending.

So the overall picture is unclear – if you just look at the first graph then the revenue argument appears obvious. But that is simply cherry-picking. You should, at least, look at both sides of the coin and also at longer time series of data.

In the third graph I show Receipts and Payments as before but now include their long-run average values (the broken lines).

eltham 3

As I keep arguing – Receipts is back at the long-term average, while Payments remains above the long-term average. Note too that the long-term averages suggest that Australia has run, on average, a budget deficit, while the Howard era averages suggest that the Howard government run, on average, a surplus.

It is only possible to argue that Australia has a revenue problem by selective reporting of the statistics. (Of course, for statists Australia will always have a revenue problem because the tax system will never generate the revenue that they’s like to spend – but that is a different story).

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26 Responses to Compared to Howard …

  1. kae

    Psst, Sinc

    Did you type this on your iPhone with a sausage?

    Just askin’.

    Oh, and on the matter of budgeting and fixing the deficit and other ALP/Green follies of the past six years, lefty’s have it all wrong.

  2. kae

    And we shall see with the Budget next week whether the Lib/Nats have it right.

    I’m a little concerned.

  3. Gab

    I’m so glad you took him to task at the time, Sinclair becuase I was yelling at him in the car. He’s such a dissembler. You did excellent, but.

  4. Bruce of Newcastle

    Ben Eltham is off his tree. If you look at it as a relative, the deficit is 11% of revenue.

    Which means to get back to balance every outgoing must be reduced by 11%: pensions, CSIRO, ABC, the dole, Medicare, everything. If any sector is not reduced by 11% then another sector has to be reduced by more than 11%.

    Raising revenue by 12% (which is mathematically what would be required) means that taxes would have to be raised more that 12% because of the inhibitory effect that additional taxes have. I don’t know what the multiplier is, 0.6? 0.8? The tax rises required to close the gap would be both epic and catastrophic.

    Thirdly any delay means that the budgetary situation becomes worse because loan interest weighs against the revenue side. This gets rapidly worse if the RBA raises interest rates, which they will.

    Fourthly the projected reduction in expenditure as a proportion of GDP in the future, ie the values for 14/15 through 16/17 which suggest a gentle slide back to 25% are complete mythology. Treasury keeps projecting crap like that and it never happens. Do not assume that expenditure will fall as a proportion of GDP unless someone uses a very big axe with severe energy. The future projection is not so rosy (unless you are a Keynesian fantasist).

    Hockey must cut hard. There is no alternative.

  5. Rabz

    this morning I was on Radio National with James Paterson and Ben Eltham

    How’s that for ALPBC balance, peoples?

    Two fascists, one clueless, mirror licking narcissist.

    We are making progress, I tells ya!

  6. MickfromVic

    One interesting thing that I haven’t seen mentioned much when comparing the Howard and Rudd/Gillard years is that people seem to believe that the two lines aren’t connected somehow?

    Could it be that if Government spends too much, this will also cause Government revenues to fall?

    That, or the ALP would have to be the unluckiest political party in Australian history. Every time they get voted in, a recession happens.

  7. Demosthenes

    This is the stuff I come to Catallaxy for. Keep up the good work.

  8. Tom

    He’s such a dissembler.

    Any old communist arts student gets a pass at Their ABC because FilthScum knows Shut Up wins.

    Shut. It. Down. Sack. Them. All.

  9. gabrianga

    Talking of cigar smokers just who is this arrogant Conservative twat sucking on a Cuban?

    CLUE

  10. H B Bear

    Talking to Ben Eltham about economics – what a waste a fucking time.

  11. Crossie

    That, or the ALP would have to be the unluckiest political party in Australian history. Every time they get voted in, a recession happens.

    You forgot the sarcasm tags.

  12. Art Vandelay

    That, or the ALP would have to be the unluckiest political party in Australian history. Every time they get voted in, a recession happens.

    “Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.

    This is known as ‘bad luck’.”

    Robert Heinlein.

  13. .

    Ben – you numpty – if you are reading – revenue goes up when less is spent because GDP growth accelerates, more so when the budget is balanced or the debt is gone.

  14. Andrew C

    Thanks for the graphs, it’s an important issue to get right. Two questions

    1) The GFC stimulus is clearly abnormal spending. While it was in line with the inclination of the ALP, it was not spending they had planned or sought before coming to office. What would be the effect of removing the stimulus package from the outcomes?

    2) The ALP agreed to match about 98% of the tax cuts proposed by the Howard government in 2007. What would be the effect, (both assuming and putting aside the GFC) of Australia not having pursued this bipartisan policy?

    3) The final graph seems to suggest the long term average of payments and revenues has not changed significantly since 1996. To what extent should we trust these figures? Ie, are Howard’s surpluses and Rudd’s deficits to be seen as distortions of the trend, or is the long term average misleading?

    I could add what effects on spending/revenue might also come from assuming the Opposition during 2013 had not blocked a range of means tests etc. However I don’t believe such changes would be that substantial.

    In short, I agree with the basic premise that the Rudd & Gillard government sought to spend more than the Howard government (or at least what Costello allowed). But I doubt the wisdom of any analysis that ignores the changes the GFC and the 2007-9 tax cuts brought.

    Maybe they were incidental, but i’m yet to see the case clearly laid out.

  15. Andrew

    Could it be that if Government spends too much, this will also cause Government revenues to fall?

    That, or the ALP would have to be the unluckiest political party in Australian history. Every time they get voted in, a recession happens.

    Believe it or not they tell it that way – and Howard was lucky with rivers of gold. (No 1997 crisis, commodity bear market, 2000-02 recession after tech wreck and 9-11, and even whitewashing the subprime crisis of Feb 2007 into the forgettery.)

    Now I don’t THINK Krudd caused the GFC (not that I’m ruling it out). But they did cause the other GFC – the Gillard Financial Crisis. Our employment performance was bottom 5% of the world during her term! almost as bad as the Rudd term for employment. That’s what I’ll never forgive.

    But I think it’s more about the nature of the taxes. RSPT and WBCT were specifically designed to destroy jobs, with the FWA. Had they spent like crazy on roads and ports, I don’t think it would have been as destructive.

  16. His Omniscience

    What Sinclair along with most other Catallaxy commentators miss is that redistribution of equity grounds, environmental amenity and other non-materialistic elements of wellbeing, that are best addressed by government rather than the private sector, are ‘luxury goods’ and so, as society’s income increases over time, it it to be hoped and expected that government spending as a share of GDP increases (cet. par.). Historical comparisons of spending and taxation that fail to take this into account are of limited utility.

  17. Baldrick

    … the average receipts as a percentage of GDP during the Howard era (25.03%) and then calculate the average payments as a percentage of GDP during the Howard era (24.14%).

    Perhaps it’s the Irish whiskey effect, but shouldn’t that read …

    … the average receipts as a percentage of GDP during the Howard era (25.03%) and then calculate the average payments as a percentage of GDP during the Rudd-Gillard era (24.14%).

  18. 2dogs

    While the GFC may have had a small role in the lower R-G-R revenue, it wasn’t that big. Much of the blame can be placed on Rudd saying “me too” on the Howard tax cuts promise before the 2007 election.

    Abbott’s “me too”‘s (NDIS and Gonski) are giving him a headache, too.

  19. Dan

    it to be hoped and expected that government spending as a share of GDP increase

    Should it go past 100% or just get up to it?

  20. Toiling Mass

    Every time I see Ben Eltham the similarity means I read it as Ben Elton.

    Their names are quite similar too.

  21. Andrew

    In what sense was the GFC stimulus binge “abnormal” when the current spending takes the peak GFC year and matches it?

    What this analysis almost certainly misses is the tax rebates are not “spending.” They are reductions in tax. This analysis means nothing without this adjustment – Howard was a low taxing, low spending PM.

  22. .

    His Omniscience
    #1301550, posted on May 12, 2014 at 12:56 am
    What Sinclair along with most other Catallaxy commentators miss is that redistribution of equity grounds, environmental amenity and other non-materialistic elements of wellbeing, that are best addressed by government rather than the private sector, are ‘luxury goods’ and so, as society’s income increases over time, it it to be hoped and expected that government spending as a share of GDP increases (cet. par.). Historical comparisons of spending and taxation that fail to take this into account are of limited utility.

    Fuck off Clever Dick.

    Everyone of your arguments is asinine, puerile shit.

    “Psychic externalities”

    FFS. You are kidding yourself. A summary of your nonsense: GDP is negative because my sadness of not boning Miranda Kerr is greater than national output.

    Stop shit stirring as you know better, or if you genuinely believe this shit, hand back your degree you disgrace.

    Furthermore, the wealthier a society becomes, redistribution becomes increasingly unethical.

  23. Andrew

    If redistribution is a luxury good, which arguably it has been treated as by what went very close to being failed states in Europe, then here’s a question:

    Why the fuck didn’t R-G-R cut it back when the GFC suggested that luxuries were less affordable than they used to be?

  24. stackja

    The left needs more taxes.

  25. egg_

    Bruce of Newcastle
    #1301384, posted on May 11, 2014 at 9:37 pm

    Thanks for the relativity info, Bruce.
    Also, the average (i.e. area under the graph) is relevant.

  26. The left needs more taxes.

    We need a simple mechanism whereby all people who, in addition to the basic services which governments ought to support, want “climate action”, say, or “support for the modern arts” or any United Nations Scam paid from the public purse must themselves contribute thereto. One easy way (such as when some businesses offer an additional “carbon-offset” fee) would be for the government to have some Optional Levies which would list all who contribute to The Modern Arts Fund and The Subsidies for Inefficient but Allegedly Renewable Energy Fund and Opera Australia et cetera; then, whenever people opine that government ought to support this or that noble cause, any citizen may respond, “Well, let’s look online and see just how much money you’ve put where your mouth is.”

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