Opinion & Commentary
Need to cut fat before we all pay the price
THERE was an important lesson to come out of the government's announcement that there will be no surplus this year. We learned that, despite a strong economy and the serious political consequences of breaking another promise, governments are seemingly incapable of breaking their addiction to increasing spending.
 Egged on by sections of the public and the media, spending across all tiers of government has grown at more than 4 per cent a year for the past 40 years, outstripping GDP growth despite some of the strongest economic conditions this country has seen.
Governments have been spending in bad times, as then prime minister Kevin Rudd said in 2008, to "underpin positive economic growth in the Australian economy", and governments have been spending in good times, such as the expansion of middle class welfare under the Howard government and the efforts of Julia Gillard to "spread the benefits of the boom."
Government spending creates a growing constituency with a vested interest in voting for even greater largesse. The Centre for Independent Studies estimates that in the 2010 election nearly half of all voters relied on the government for the majority of their income.
In some parts of the country the story may be worse: University of Tasmania professor Jonathan West calculates that only a third to a quarter of Tasmanians earn their income independently of government. Unsurprisingly, Tasmania receives large subsidies from the rest of the country and the unemployment rate is nearly 3 per cent higher than the national average. Few talk about how we are going to pay for all this. With rising healthcare costs, an ageing population, and lower economic growth, government spending is set to exceed 50 per cent of GDP by 2050. This will mean higher taxes, higher debts, and even slower growth.
The CIS has launched the TARGET30 campaign to halt these worrying trends and promote the benefits of smaller government. It aims to cut government spending to less than 30 per cent of GDP over 10 years. This is an achievable target that can be met by holding spending constant in per capita terms. This will put Australia in the best shape to meet our future challenges.
TARGET30 will focus on ways that essential services can be delivered while reducing waste before a crisis like the continuing meltdown in Europe hits here.
Australia needs a debate on the size of government. It is absurd to argue, as some have, that government's current revenue base is insufficient and we need higher taxes. Governments already rake in more than a third of everything Australia produces; failure by governments to meet their basic obligations (e.g. in defence and infrastructure) demonstrates incompetence, not underfunding.
There is no credence to the argument that there is no fat to be cut. Government spends about half a trillion dollars a year; some of this is necessary, but much of it is not. Simple steps can get the budget back into balance in the medium term.
First, the next government must audit all government programs to see which are really necessary, and which actually meet their goals. Obvious areas of inefficiencies, such as the $10 billion a year provided in industry assistance and the duplication of departments at commonwealth and state level, should be scrapped immediately.
We can spur improvements in health and public hospitals by encouraging competition, especially through the use of vouchers and increased use of private sources of health funding. Substantial benefits would also come from reducing middle-class welfare churn; a good first step would be abolishing the $4.5bn Family Tax Benefit Part B payment.
We should all be made aware of the true costs of government services, such as the level of subsidies provided under the Pharmaceutical Benefits Scheme and for public transport; and price signalling through user charges should be extended.
In addition, governments should focus on improving the performance of the public sector. The NSW Treasury predicted that its fiscal gap could be completely closed through increases in public sector workforce productivity of 0.5 per cent above the national average.
Australia is in a strong economic position, but we must cut government spending now to ensure future prosperity.
Simon Cowan, a Research Fellow at The Centre for Independent Studies, wrote the foundation report for the TARGET30 campaign.
