Peeing the growth dividend down the gutter

Nicholas Gruen was certainly in tune with the zeitgeist when he posted about the lack of vision in Australian government, especially in relation to  the way governments have spent  the massive revenue “growth dividend” of the last few years.

But of all people, it has been the Daily Telegraph’s Piers Akerman who has  picked up Nicholas’s insight, and applied it (deservedly in my view) to the States in relation  especially to GST revenue:

According to a study by the reputable think tank the Institute of Public Affairs, the reforms initiated by the Hawke-Keating governments and pursued by the Howard Government, combined with the current resources boom, have delivered revenues that have grown by an average annual rate of 8 per cent per year, 4.8 per cent greater than forecast.

The study’s author Dr Mike Nahan says the states have received a staggering $70 billion more than forecast nearly 15 per cent more than predicted.

But the people haven’t seen any benefits because the states have participated in a spending orgy which makes dole day at the local RSL look like a church picnic, and there is little to show because they splashed out on recurrent spending, principally on public service wages. …

Tasmania spent 32 per cent more, the ACT blew 21.4 per cent more, Queensland punted 19 per cent more, the NT went over by 15 per cent, NSW by 14.8 per cent, Victoria 13.3 per cent, WA 12.6 per cent and SA 12 per cent.

People in NSW have long been aware the cash was not going on infrastructure transport, health, education or security. That was all being funded, when it was funded at all, from new borrowings as it will again be today and through sleight of hand book keeping.

From data on salaries and employment levels on the public record, Dr Nahan identified the principal beneficiaries of the states’ spending spree public servants.

While the rest of the workforce relied on productivity increases for their higher incomes, the bureaucracy enjoyed an average wage growth over the three years to 2005/6 of 9.3 per cent and the state public sector workforce grew by 11.2 per cent over the same period.

Of course, Nicholas’s observation wasn’t  focused on  the States specifically, in fact inferentially he mostly had the Howard government in mind.   Certainly the recent Costello budget (and arguably last year’s as well)  largely figuratively urinated the revenue “growth dividend” up against the wall.   But I think  it’s difficult in a more general sense  to sustain an argument that Howard lacks “vision”.   It’s just that  his vision is one that  those on the thoughtful centre and left of the political spectrum tend to find  fairly uncongenial.   Smashing unions, reducing the tax burden on high income earners,  facilitating economic  inequality in the belief that it  will fuel economic growth that will “trickle down” to the masses (which has in fact occurred at least in recent years),  pursuing cautiously socially conservative policies, and boosting the American alliance at almost any cost.   It’s an almost classically conservative “vision”.

In fact it’s the Labor states and territories (and by extension the federal opposition) who lack any coherent vision.   They happily embrace the rhetoric and in some respects the practices of neoliberal economics as bequeathed to them by Hawke and Keating, especially the imagined virtues of Public Private Partnerships in preference to public ownership of infrastructure projects.   But their lack of any considered political philosophy, to replace the social democratic ideals to which they now  only pay lip service, means that they have almost by default ended up  using “growth dividend” revenues to buy  ongoing political office  through  directionless recurrent spending on the public service.  

It wouldn’t be quite  so bad if  state governments  had seriously boosted the number of teachers and nurses, and thereby  made major dents in  school class sizes and hospital waiting lists, but there isn’t much evidence to support  that in most states.   The NT Martin Labor government, for example,  has done it only to a very limited extent, with modest increases in numbers of nurses and police but a much larger increase in the public sector payroll.    

It’s not often that  I agree with Piers Akerman.  

About Ken Parish

Ken Parish is a legal academic, with research areas in public law (constitutional and administrative law), civil procedure and teaching & learning theory and practice. He has been a legal academic for almost 20 years. Before that he ran a legal practice in Darwin for 15 years and was a Member of the NT Legislative Assembly for almost 4 years in the early 1990s.
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Jacques Chester
Jacques Chester
15 years ago

The problem is not purely Labor’s. The Coalition oppositions have pretty much been playing the “me too!” game. As in: “We’ll spend buckets on the same stuff as them – just with Bigger Buckets!!!1!11!”

I admit that as a sometime radical liberal and fulltime cynic that anything of this kind happens comes as no surprise.

Where to from here? I have previously suggested to the CLP that they should try to position themselves as the party of small government in the NT. In the short term this is electoral suicide, thanks to the disproportionate presence of public servants in the Northern Suburbs.

I mean if anything should be changed about the Self Government Act or written into a future constitution, it is this: that those who draw a government stipend, salary or grant should not be allowed to vote. They have a clear conflict of interest which ought to preclude them, much as conflicts of interest do elsewhere.

But again: it’s electoral suicide.

The only politically safe way to get rid of public servants is to, essentially, wait for them to die or quit. Once permanent they are essentially grafted to the public teat. Unfortunately this breeds publicservantitis and all the other malaises of government. So another “lose the next election” policy would be to gut the extortionate, lavish conditions enjoyed by public servants – and make them easier to fire.

Patrick
Patrick
15 years ago

Or vote for Kennett – ah, the good times!

Nicholas Gruen
Admin
15 years ago

Ken,

I agree with most of what you’ve said. I certainly wouldn’t be letting the states or the ALP off on my claims about lack of vision. In certain respects the Howard Govt has been superior to the States – for instance most state PPPs have been a scandal.

You summarise Howard’s agenda as follows.

Smashing unions, reducing the tax burden on high income earners, facilitating economic inequality in the belief that it will fuel economic growth that will “trickle down”

Cameron Riley
15 years ago

I have difficulty seeing much difference between the federal and state governments. They are all of the bland managerial style, which tries to keep its nose clean politically, manipulates votes and wedge opponents with public spending. Many of the so-called debates and political issues have been over abstracts, rather than concrete policy.

Paul Watson
Paul Watson
15 years ago

Cameron,

The difference between the federal and state governments is quite simple. The states are run as effective subsidiaries of their big, local corporates (thus NSW is a mid-sized division of Macquarie Bank and Westfield, and Tasmania an operating entity of Gunns); while the Commonwealth is mainly run by overseas corporates.

Ken,

Positing a few thousand public service fat-cats as having licked up, until the plate was dry, billions of dollars is ludicrous. The urinal that you refer to obviously must have more standing capacity than you give it credit for.

It is now well-understood that privatisation deals, state and federal, have diverted billions of taxpayer dollars into the pockets of banks, lawyers and sundry other white-collar sleaze-firms. In view of this, the thought that some public service dipstick is getting paid $100k just to, in substance, manually hand bucket loads of cash to (say) Macquarie Bank does not particularly offend me. The obscenity here, of course, rests with Macquarie Bank and its ilk, and the politicians who authorise such deals.

I also find it ironic that, so soon after approving this line from Johan Norberg:

“And growth makes non-zero-sum games possible. Without it, whenever someone succeeds and gains, someone else has to fail”

Uncle Milton
Uncle Milton
15 years ago

“modest increases in numbers of nurses and police but a much larger increase in the public sector payroll.”

It’s very easy to criticise state governments for increasing the salaries of nurses, teachers and police, but it’s a market economy, and if you don’t offer them enough pay, they will take better paying jobs elsewhere, especially the younger ones who have got plenty of options. The public sector unions aren’t to blame. They aren’t getting anything for the members that they couldn’t get in the market anyway.

The state governments have got a real dilemma. The public expects more and better public services, and when they don’t get delivered commentators like Ackerman are the first to criticise. But delivering these services costs big bucks, there are skilled labour shortages everywhere which means you have to pay high salaries to attract the people who are going to deliver, and it is very hard to get productivity improvements out of teachers and nurses. You can always double class sizes
so that you only need to employ half the number of teachers, but then teaching quality drops away.

The one thing most state governments haven’t done is make big cuts to public service numbers, not the people who deliver the services, but the people in the departments. Kennett did it, and Costa has threatened to do it, but even that doesn’t buy you all that much, and it’s a one off gain anyway. Victoria has 25% less public servants than when Kennett came to power, and while Victoria’s budget position is better than NSW, it is not staggeringly better. Meanwhile, if you want to hire a teacher or a nurse in Victoria, or anywhere else, you’ve got to pay the going rate, and that is high and getting higher.

Steve Edney
15 years ago

you get so het-up about the fruits of “growth”

Patrick
Patrick
15 years ago

Yea, I too wanted to point out that that was the most staggering piece of analphabetisme economique, historique et tout court I had seen in a non-satire context on a blog this year.

After all, writing capitalism instead of socialism is pretty hard to do unless you have major freudian issues.

Jacques Chester
Jacques Chester
15 years ago

Just who is losing out of my back yard vege patch?

And more to the point, if capitalism is a zero sum game, why aren’t all of the capitalist economies enduring mass starvation?

Chris Lloyd
Chris Lloyd
15 years ago

Seems like some disagreements about the facts here. Ackerman says the state public service grew by 11.2 per cent over the past three years. Uncle Milton says Victoria has 25% less public servants than when Kennett came to power. Paul Watson says the money has mainly been lost to Macquarie Bank through failed PPP’s. Seems like someone needs to present a few time series plots of spending on various sources overlaid with revenue. Wish I had the time. Or we could just accept the analysis of the scholarly and objective IPA.