Taxpayers’ increasing role in powering the economy

At a time of sluggish GDP growth of a measly 0.2 per cent in the June quarter and 1.5 per cent last financial year, Australia is in dire need of a new growth agenda to revive the economy and living standards, as Paul Kelly wrote in Inquirer on Saturday. As federal government policies stand, Jim Chalmers is probably correct when he says that if the government had cut spending harder in the budget, Australia would be in recession. The national accounts, the Treasurer said, showed that without government investment growth in areas such as Medicare and medicines, the economy would have gone backwards in the June and March quarters.

That makes it no less alarming that two-thirds of the 882,000 jobs created under the Albanese government have been funded by the taxpayer, as The Australian’s analysis of Australian Bureau of Statistic data reveals. They work in “non-market sectors’’ – healthcare and social assistance, education and training, and public administration, Jack Quail reports. While the national accounts are a sorry picture, the Treasurer argues his spending strategy is “carefully calibrated for the conditions’’. While that formula was the usual way of autocratic “planned’’ economies, decades of experience in Australia shows that entrepreneurship and private enterprise have been the backbone of our development and wealth. They need to be released again. The dangers of the current imbalance were highlighted by Tom Dusevic on Saturday in an article headed “A nation of public opulence and private squalor is born’’. Consumers were battered by inflation while government was on a spending spree, he wrote.

But years of experience in Australia shows that sustained growth, driven by private sector investment and productive enterprises – not government spending – is the pathway to better living standards and prosperity. That strategy requires policy settings that encourage investment and productivity – flexible industrial relations, keeping red tape in check, minimising green lawfare, and competitive taxation policies. These, unfortunately, are badly lacking. Despite vast stimulus spending on JobKeeper, Josh Frydenberg’s approach in looking to the recovery phase from the Covid pandemic three years ago was “Wherever possible enable the private sector to play a leading role … restoring confidence … protecting the productive capacity of the economy’’, as he wrote on Saturday. It was, and is, a good strategy for government.

Against the advice of economists and the August Reserve Bank Statement on Monetary Policy that “recent public spending announcements by federal, state and territory governments’’ were contributing to inflation, Dr Chalmers said on Sunday there was “not any evidence” government spending was inflationary. He also paved the way on the ABC for spending more public money on aged care, childcare, higher education and Medicare – possibly by inclusion of dental care in the scheme long-term. While popular, such a move would blow out its cost by billions of dollars a year, probably necessitating a Medicare levy rise.

The disproportionate surge in government-aligned non-market sector jobs (573,121) as opposed to market sector jobs (326,505) is a reversal of traditional patterns. Oxford Economics head of macroeconomic forecasting Sean Langcake says surging public sector jobs growth is concealing weakness in the private sector. With national accounts data showing the federal-state public sector wages bill topping $250bn for the first time, the trend must be reversed. Weak productivity, as Kelly wrote, is a cost for business that erodes the cost base of the economy. Both major political parties need to put forward agendas to lift it.

Bigger, more interventionist government with ever-larger payrolls is not the answer.