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Whether the Coalition admits it or not, 'big government' is here

Under the Coalition, the budget deficit was a record $134 billion in 2020-21. Labor's biggest budget deficit was $54 billion. (Source: Getty)
Under the Coalition, the budget deficit was a record $134 billion in 2020-21. Labor's biggest budget deficit was $54 billion. (Source: Getty)

I've watched politics, economics and the Federal budget for around 35 years, and one lesson I have learnt is to look at what politicians do, not what they say.

And so this is about the budget, government debt, taxing and spending.

The Coalition side of politics has, for decades, claimed to be the party or side of politics committed to small government.

The rhetoric surrounding these claims has as a focus low levels of tax, restrained growth in government spending, balanced budgets and little or no government debt.

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It has gained huge political benefits from these claims with voters generally siding with parties that espouse these characteristics of economic management.

All of which makes for interesting analysis with the Treasurer, Josh Frydenberg, recently releasing the final budget outcome data for financial year 2020-21.

One of the key facts released was confirmation that the budget deficit was a record $134 billion in 2020-21 which followed what was the old record high deficit of $85 billion in 2019-20.

Since the Coalition won the 2013 election, each of the eight budgets has recorded a deficit, each one adding to the level of government debt.

Labor’s biggest budget deficit was $54 billion.

The authority that manages the Federal Government’s gross debt debt hit a record $843 billion at the start of October 2021, up from what looks now to be a tiny $273 billion at the time of the 2013 election. That's according to information from the Australian Office of Financial Management.

CANBERRA, AUSTRALIA - JUNE 02: Treasurer Josh Frydenberg during a press conference in the Blue Room at Parliament House on June 02, 2021 in Canberra, Australia. Australian Gross Domestic Product (GDP) rose 1.8 per cent in seasonally adjusted chain volume terms in the March quarter 2021, according to figures released by the Australian Bureau of Statistics (ABS) today. (Photo by Sam Mooy/Getty Images)
Treasurer Josh Frydenberg. (Photo by Sam Mooy/Getty Images)

Government debt is on track to exceed $1 trillion in the next two years and to reach $1.2 trillion in the second half of the 2020s based on the current policy settings of the Coalition government.

The budget data also confirmed that government spending, as a share of GDP, rose to a record 31.6 per cent in 2020-21.

This is a staggeringly large level of government spending and it up 7.1 percentage points of GDP in just two years.

The previous Rudd/Gillard Labor government, which was accused of wasteful spending during the global financial crisis, saw the peak level of government spending at 25.9 per cent of GDP in 2009-10 and when it lost the election, this ratio had fallen to 23.9 per cent of GDP.

So much for the Coalition being the side of politics that believes in small government.

This is not necessarily a criticism of the economic policy settings of the last two years. The COVID crisis and economic free-fall demanded extra government spending to support the economy during these troubled times.

Indeed, the government could have done more to protect the economy from the fallout from the COVID disaster but instead chose to limit its stimulus measures.

What the budget data shows, indirectly, is the importance of fiscal policy – spending decisions – on managing the economy.

Rhetoric of ‘small government’ a lame distraction from the goals of economic policy including full employment, a strong business sector and a safety net for those in society who fall on hard times, pandemic or not.

Then we come to tax and government revenue.

The budget papers show that total Federal government revenue jumped to 25.1 per cent of GDP in 2020-21, a level last seen 15 years ago.

Despite the economic slump, the government captured significant tax and other sources of revenue at a level well above the historical average.

It is clear that the current government is not only spending massively, it is taxing heavily and yet it is still racking up record levels of government debt.

It is clear that the size of government has permanently risen, aided by the extreme policies of the current Coalition government. Voters want the government to provide good health care, world class education and, good roads and high quality infrastructure.

These are expensive items for a government to deliver. If the budget is ever to go back to balance – as it should when the economy has healed – it will require extra tax revenue to help get to that end point.

These are the sort of economic policy issues likely to emerge in the upcoming election campaign. Services provided by the government, tax to pay for them and all in the context of keeping the budget under control.

Given the experience of the Coalition’s record on spending, tax and the budget, it shapes up as a hot contest.

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