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Can We Starve the Government Beast?

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Can We Starve the Government Beast? tween 1995 and 2007 growth in Euro countries aver- aged about 2 per cent per annum, even though almost all Euro countries reduced the size of government (as Can we starve the measured by the proportion of general government outlays to GDP). In fact, no less than 21 out of the 28 countries listed in surveys of OECD member countries government beast? made such reductions and eleven cut them by more than 5 percentage points of GDP, which suggests that they made reductions in discretionary outlays. Par- Sinclair Davidson ticularly noteworthy were the cuts by the Nordic ‘big spenders’—Sweden (13 per cent), Norway (9 per cent), Finland (13 per cent) and Denmark (9 per cent)—as his reckless spending has got to stop’. well as those by Canada (10 per cent), Czech Republic With those words Kevin Rudd out- (11 per cent) and the Slovak Republic (12 per cent). flanked John Howard’s economic These countries have thus reduced the relative ex- policy from the right. Australia’s tent of government outlays by 15-20 per cent, result- traditional centre-left party won the ing in much diminished ‘Swedenisation’. The reasons 2007 election with smaller government rhetoric than ‘Tthe traditional centre-right party. Of course, the Rudd for these developments in Europe are unclear, but they certainly suggest smaller governments have increasingly government is not going to be a small government, but been favoured. Moreover, while one or two countries then neither was the Howard government. Voters had with relatively small government outlays have experi- a choice of two-large government parties at the elec- enced relatively poor economic performances, some tion and seemed to prefer the party that offered slightly academic analysis suggests a favourable relationship be- lower tax cuts with slightly less spending. tween economic growth and the size of government. Small government is rhetorically popular, yet two In a survey of a wide range of academic studies paradoxes are immediately apparent. By historical stan- of the effects of government size, economics Professor dards Australia now has more government than ever be- Denis Mueller of the University of Vienna concluded fore and the party of big government is in office in every that, while too small a government sector can harm state, territory and Commonwealth government. The economic performance, beyond some point the adverse right are no longer the party of small government. This incentive effects from high levels of taxation and regula- phenomena, however, is not confined to Australia. The tion outweigh its positive effects. All of the highly devel- US administration can be described as being ‘big gov- oped countries, Mueller argues, are beyond that tipping ernment conservative’. George W Bush did not cam- point. The country which has maintained one of the paign to reduce the size of government in either 2000 or smallest government sectors since its inception—the 2004 and he has made no effort to do so. USA—has real per capita income levels that are about Andrew Norton has coined the phrase ‘conserva- 25 per cent above the next highest in the OECD. tive social democracy’ to explain the emergence of con- In any event, the case for reducing the size of gov- servative big government in Australia. As he indicates, ernment would not rest simply on the potential for market forces have increased income inequality within improving economic performance. There is a broader society, and given our highly progressive income tax philosophical case that increasing the role and respon- system which has translated into massive increases in sibilities of individuals would enhance individual free- revenue flowing to government. Rather than reduce dom and the functioning of society more generally. Par- taxation, the Howard government directed more funds ticularly in today’s more educated and wealthier society, to favoured social institutions, such as family units— a higher proportion of individuals have the capacity to households with children. This was a deliberate strat- make their own decisions on health, education and re- egy. John Howard recently espoused this strategy to the tirement. American Enterprise Institute. This, in turn, should mean a reduced need for We should maintain a cultural bias in favour of the provision of government assistance, particularly to traditional families. That doesn’t mean discrimi- higher income groups which currently receive about 30 nating against single parents but it does mean per cent of various government benefits. From a social ceaselessly propounding the advantages for a perspective, welfare dependency would be reduced as an child of being raised by both a mother and fa- increased proportion of individuals and families would ther. assume more responsibility for their own welfare. There would be less of a ‘nanny’ state. Sinclair Davidson is a Senior Fellow at the R Institute of Public Affairs. xt? 34 What ne IPA Review | May 2008 Marriage is a bedrock social ed in the 1930s. But Leviathan is now viathan now controls through regulating institution—with an unmistak- a very different beast, manifesting itself and altering incentive structures. Advo- able meaning and resonance. It as the welfare state or ‘the risk society’. cates for big government argue that once should be kept as such. The simple idea that individuals can the correct incentives are in place, people Taxation laws should pro- and should make their own choices is as will behave as expected—a much easier mote, not penalise, marriage. much under threat today as at any time and less tyrannical method than simply The taxation system should gen- in human history. ordering those people around. To the erously recognise the cost of rais- The underlying premise of the risk extent that this form of social control ing children. This is not middle society is seductive. Government can succeeds, individuals prefer being bribed class welfare. It is merely a taxa- insure its citizens against a range of to being coerced. tion system with some semblance risks. This is trivially true—of course. But it implies that, over time the of social vision. The tax payment The important question is however, price tag associated with Leviathan will system must also support choice which risks governments should insure become greater, and the rules and regula- for parents about who cares for its citizens against, and at what price? tions will become more complex. their children. Should they even be trying to insure Hungry hungry government The Commonwealth Treasury has re- citizens against their own choices at all? ported that Commonwealth spending Advocates of big government all answer Standard public choice analysis indicates has grown 54 per cent since 2000-01. in the affirmative but seem to ignore the that governments avoid increasing taxes Consistent with conservative values, that subsequent price tag. In Australia their and avoid decreasing spending. This spending has been directed at the aged reasoning is effective—after all, ‘we’ can creates a bias toward big government and families with children, while un- afford it, and we live in a ‘society, not and budget deficits. The US experience employment assistance has fallen. The an economy’. is largely consistent with that analysis. important point to note is the phrase The individual in this type of so- Recent Australian experience, however, about having a tax system that includes ciety no longer has self-ownership but a social vision. In this regard a centre- is owned by society. How often do we right government is little different from hear that ‘obesity costs us X’ or ‘smok- a centre-left government. Some details ing costs the community Y’ and so on? may differ, but overall the vision is iden- The consequences of (some) personal tical. Government coercion, applied life style choices are apparently socia- through taxation and spending, is the lised giving society the right to regu- primary tool to mould society towards a late those activities. This argument is desired outcome. entirely specious. Cost can only be James Buchanan famously said that incurred within a framework of owner- while socialism was dead, Leviathan ship. Unless smokers or fat people be- lived on. In some respects this com- long to society their ‘premature’ deaths ment missed the point. Socialism has cannot cost society anything. comprehensively failed as Ludwig von Rather than directly controlling so- Mises and Friedrich von Hayek predict- ciety through economic ownership, Le- xt? What ne IPA Review | May 2008 35 is somewhat different. Here government has been maintaining a budget surplus and not spending as Can regulation much as it could. This is despite the massive spend- ing that has actually occurred. On the other hand, the Australian government has not cut taxes as much be reduced? as it could and has chosen to accumulate large re- serves that, in turn, will subsidise future spending. The Australian experience sheds some light on Alan Moran the US ‘starve the beast’ philosophy. That argument suggests that dramatically lowering taxation ulti- mately leads to lower revenues which will in turn umerically, Australia now has more lead to government reducing expenditure. (Bruce regulations than at any time since fed- Bartlett has traced the recent origin of the phrase eration. If we are to pare back govern- ‘starve the beast’ to a 1985 Wall Street Journal ar- ment interference in the economy, we ticle.) In short, this idea has—to date—failed. An need to attack more than just the na- anonymous Reagan administration official admit- tional income share of government, but also the regula- ted, ‘We didn’t starve the beast. It’s still eating quite Ntory web which surrounds the decisions of people and well—by feeding off future generations’. Short run firms. Can this regulation be reduced? budget deficits are financed by borrowing; the US Regulation, like taxing and spending, brings about government is a massive debtor.
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