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April 26th 2016 print

Alan Moran

Voting Ourselves into Penury

A re-affirmation of small government, ideally including constitutional limits on its size and regulatory authority within the economy, is necessary if stagnation is not to become the way of the world. Or we could ape Japan's example and learn to live with little or no growth, not now or ever

growth decline IIEven with the federal election still at its phony war stage we can discern the assaults on our liberties and pockets that the next few months will foreshadow.  Labor (still more the Greens) has set its spoon to plumbing the depths of the magic pudding as it tries to consolidate and build upon the excesses of the Rudd/Gillard/Rudd years. 

To shore up its support base Shorten & Co., want to:

  • spend more on teachers and people with disabilities;
  • have a royal commission into banking to force banks to lend to those with sub-standard credit or to grant preferred terms to some borrowers;
  • leave the unions beyond the law, thus ensuring cost premiums which are 30% on construction costs;
  • triple the price of electricity by requiring a 50% renewable share,
  • plug the industrial attrition caused by energy and IR cost impositions by increasing protectionism and requiring local steel, even if sub-standard or excessively priced, to be used in naval shipbuilding and infrastructure;
  • promote LGBT agendas, including introducing “marriage equality”; and
  • introduce “more humane treatment” of refugees.

Conscious that government spending remains well above the “emergency” levels introduced in 2007 and that some of these plans will require tax increases in addition to the increased regulatory induced costs, the ALP is proposing to:

  • increase business taxes on multinationals
  • levy a special tax on those earning more than $180,000 a year
  • tax superannuation;
  • introduce higher taxes on capital gains;
  • abolish negative gearing on housing investments; and
  • increase tobacco taxes.

At least in the case of the first four of the above points, the measures would bring about lower savings and investment – the basic drivers of living standards – with detrimental economic outcomes.

Unable to push through some spending cuts and unwilling to face the political obloquy from others, the Coalition is also heralding cost impositions, though perhaps on a more modest scale.  It has already agreed to damaging increases in electricity costs with its re-endorsement of expensive renewables and other energy-policy measures.

With regard to direct outlays, the Coalition is looking to follow the ALP’s soak-the-rich superannuation taxes. Mr Turnbull is also stiffening regulatory resources that ultimately seek to push the banks into non-commercial lending practices.  Those resources, at a cost of $230 million, according to the Treasurer, will not be retrieved by charges on customers. If true this breaks the iron law of commerce that all costs, other than those totally unexpected, are passed on in prices to customers!

As with the ALP, the Coalition’s defence expenditure is fundamentally a means of creating unproductive jobs.  Not only is it refusing to contemplate the most appropriate submarine technology (nuclear), it also accepts a premium price for domestic warship assembly, with the political parties differing only on the geographic location of where to incur the costs.

Modern election campaigns are front-and-rear about spending more money to galvanise support, usually with attempts to disguise the costs by financing the expenditure via the use of regulations, claiming that the effect will merely hit big business, “rich” savers or, in the case of smokers, a guilt-ridden minority.

Of course, the effects of all taxes and regulations are blunted by evasive measures on the part of those impacted.  Even the imposts on smoking, where taxes now comprise 80% of the price, are causing evasion; tax-free illicit product is now at 14 per cent of the market (which is, however, a far cry from the situation of tea drinkers in 1784, when a 119% tariff led to smuggled product supplying an estimated 60% of the British market[1]).

The push back from government in the past

The most notable facet of modern election programs is their radical difference from the great political episodes that have given us liberty, democracy and freedom.  Behind these events were demands, not for more spending, but for less.  Thus in 1215, Magna Carta’s clause 14 required no taxation be levied without “the general consent of the realm”. Following Magna Carta, English Parliaments kept monarchs so short of money that Henry VIII had to ransack the monasteries.  Elizabeth I had to licence pirates — Drake and others — which led to the Spanish Armada. In confronting the Armada, she was unable to afford sufficient powder and shot to allow her English ships to exploit their technologically superior guns, which could fire at five times the rate of the Spanish guns).

The English Civil War derived from King Charles’ attempts to raise taxes without parliamentary approval subsequent to 1529, when the No Taxation Without Representation theme became a slogan[2].  And, while religious issues sparked the 1688 Glorious Revolution that overturned the Stuart line, taxation issues were also notable, the accession of William and Mary being followed by the Bill of Rights and its key provision “levying money without the consent of Parliament is illegal”[3].  Taxation without consent was, of course, the dominant theme in the 1786 American Declaration of Independence.

English concerns about taxation were also seen in France.  The “Fronde” 1648[4] was an attempt of Louis XIV’s regent to impose new taxes, but the Parlement de Paris had other ideas and demanded 27 articles for reform, including tax reductions, and its approval for any new taxes.  These same issues brought the calling of the Estates General in 1789 which sparked off the Revolution.

The push for greater spending and regulation in the modern era

In the past, calls for liberty from government oppression and a veto over the means by which spending was accommodated were made by those who would actually be paying the money: landed interests and, increasingly, businessmen.  Indeed, the American revolutionaries were as concerned to prevent exactions on their wealth from the mob as they were concerned about such takings by King George.

Accordingly, the US Constitution was devised to make it very difficult for government to raise revenues and, above all, to place massive constraints on its ability to seize private property.  The mother country the Americans rebelled against had only about 3% of the population enfranchised in 1780.  Only 1.3% of the US population actually voted in the first election, and during the Washington Presidency voting rights were held by only 15% of free men – those who were landowners or taxpayers[5].  John Adams, the revolutionary and philosopher who became the second president, thought that government in all manifestations threatened individual liberty, and said of democracy: “(It) never lasts long. It soon wastes, exhausts, and murders itself.”  While Adams was clearly pessimistic in his timelines, the effect of democracy in legitimising the calls of the poorer majority upon their less numerous affluent citizens has led government to become a giant redistribution machine. Comprising less than 10% of GDP in John Adams time, government has grown to its present levels of 40-50% in the Western world[6].

Gradually, political parties of the left, once in power, expanded the franchise to place themselves more likely to gain majorities (in a rare move, the British Tories under Disraeli in 1867 selectively did the same, but lost the succeeding election).  Inexorably we have arrived at the situation where 30% of working households, and 40% of all households, pay no net tax[7].  In the previous US presidential election, Mitt Romney famously pointed out that 47% of voters[8] pay no net tax and overwhelmingly support the Democrats, who they see as maintaining and enlarging their unearned incomes.  “I’m voting for Obama because he gave me an IPhone” was one notorious claim by an admirer[9].

Democracies, while syphoning increasing shares of producers’ incomes, have, nonetheless, prospered compared to other forms of government.  The least successful countries are those run by kleptomaniacs in Africa, by dogmatic socialists (nowadays comprising just Cuba and North Korea), those riven with corruption and the failed states unable to police radical Islam.  The basic law and order modern states provide is worth a great deal, despite the investment- and productivity-sapping over-rides of individually preferred market transactions that assure prosperity.

Is all this changing in the post 2007 world?  We have now seen almost a decade of stagnation among the traditional democracies.  In that period, only a dozen countries have consistently achieved annual growth of over 6%.  Some –China, Laos, Vietnam, Cambodia — have done so by shifting from a totalitarian to authoritarian form, to make a distinction noted by Ronald Reagan’s UN Ambassador Jeane Kirkpatrick,  of government that grafted capitalism onto a one party regime.  Some like the ex-Soviet “stans”, and PNG saw growth fed by the China boom.  Only India among the major success stories can be ranked unambiguously as a democracy.

Most of the more successful economies (none of which are in the First World) have kept government spending below 30% of GDP.  India is among these but, ominously, since the turn of the 21st century, China has seen that share climb from 17% to over 30%, (Laos and Vietnam have followed a similar pattern) perhaps following in the footsteps of Japan forty years ago.  In 2014, some 35% of Chinese government spending was on health, welfare and education[10]; this is growing but remains well below the 60%-plus found in Australia and other developed nations.

What is to be done?

It is inconceivable that modern states can operate other than on some variation of one-person-one-vote democracy.  And, as incursions into freedom of speech and the growth in power of repressive agencies such as the Human Rights Commissions demonstrate, this is not a guarantee of liberty.  The modern state’s redistributive tendencies have led to the gradual socialisation of production which in recent years has surely been a major factor in the economic stagnation experienced by all major developed countries.

But, as is being indicated by the increasing size of government in the authoritarian, newly transformed market economies, particularly China and Indo-China, the same government-induced redistributions away from income earners are at work generally. The constitutional restraints on government that the American revolutionaries introduced 230 years ago stemmed the tide, but with increasingly reduced effect even in that country.

Some re-affirmation of small government, perhaps including constitutional limits on its size within the economy, including its regulatory size, is necessary if stagnation is not to become the way of the world.

It is probable that a precursor to such measures will require an acceptance that economies have ceased to grow.  This will not be soon in coming, partly because the impetus of new technology and competition means that some actual growth is not being recorded – after all, the new IPhones are better than their originals.  There is, moreover, a dominant philosophy that the elusive growth can be re-nurtured by smart government stimuli, fiscal and monetary, but that we just have not got the hang of this yet.  Such philosophical beliefs have a remarkable endurance.

Japan has been using variations for over 30 years and has not yet given up on them. There is a leson there, if only we could grasp it.



[1] https://www.tea.co.uk/tea-a-brief-history

[2] Bennett, Martyn (2013).The English Civil War. p.97

[3] https://en.wikipedia.org/wiki/Glorious_Revolution

[4] http://www.britannica.com/event/The-Fronde

[5] http://jer.pennpress.org/media/26167/sampleArt22.pdf Virginia in 1776 held to its basic freehold quali- fication of 25 acres of improved land, but then in 1785 lowered the alternative requirement for freehold owners of unimproved land from 100 to 50 acres.

[6] Apparently Jefferson never wrote “The democracy will cease to exist when you take away from those who are willing to work and give to those who would not” but he did say, “the first principle of association, “the guarantee to every one of a free exercise of his industry, & the fruits acquired by it.”  Alexander Francis Tytler an eighteenth century Professor at the University of Edinburgh wrote, ““A democracy cannot exist as a permanent form of government. It can only exist until the people discover they can vote themselves largess out of the public treasury. From that moment on, the majority always votes for the candidate promising the most benefits from the public treasury, with the result that democracy always collapses over a loose fiscal policy–to be followed by a dictatorship.”

[8] http://www.politifact.com/truth-o-meter/statements/2012/sep/18/mitt-romney/mitt-romney-says-voters-who-support-barack-obama-a/

[9] https://www.youtube.com/watch?v=tpAOwJvTOio

Comments [2]

  1. Voters can do lots of things. They can vote out a PM, provided the backroom party mafia doesn’t beat them to it, they can be convinced by the largely leftist media to vote to change government [as with John Howard] because the media was bored with prosperity. The voters can even change the constitution via referendum. But one thing the voters will never be able to do is to VOTE themselves into prosperity. There is only one truly essential requirement for wealth creation – and that is – freedom a.k.a. free markets or capitalism. The only thing the voters can do to ensure freedom is to vote to restrict/limit the size of government. In Australia’s case we must not only limit the size of government we should make it smaller. None of the current political leaders seem up to the task, many/most politicians are unaware that government is the problem not the solution. As proof, observe how long it took for action to stop the TWU recruitment racket masquerading as a ‘safety’ issue.
    To successfully ‘reverse’ the damage done to the social and economic fabric of our society, and even that done to civilisation everywhere, conservative politicians must explain clearly and logically what they stand for – limited government and free markets/capitalism/freedom – and what they oppose – i.e. totalitarianism of any sort, be it secular [communism/fascism/Nazism i.e. all varieties of socialism] or theological totalitarianism such as Islam.
    In practical terms it means that the LNP must take on the leftist media and go in really hard and explain the true nature/meaning of socialism. i.e. they must get the message across that socialists will take, by FORCE, the money/earnings from one section of the population [the wealth generators/productive] to give to another section of the population who won’t or don’t want to earn their money. Anybody tempted to vote socialist [because they think they might get 'something for nothing'] should be told forcefully and repeated that anybody who is prepared to sacrifice somebody else’s interest to gain a vote will not hesitate to later sacrifice them too if there are more votes in it. The Thelma and Louise type of economic crash at the end of the Greek highway we are on won’t be pretty. The choice we have at the moment is to accelerate madly under Shorten and the LABOR/GREEN axis or to take a more gentle leap under Malcolm. We need somebody to grab the steering wheel and apply the brakes.

  2. pgang says:

    All levels of government in Australia have become pointless entities. They exist only to exist.