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May 23rd 2016 print

Peter Smith

Growth, It’s the Last, Best Hope

The culture of entitlement is so well entrenched that handouts, which see the minority that pays taxes subsidising those who do not, have morphed into "rights" impossible to wind back. Given that the battle is lost, fiscal conservatives should focus instead on reducing impediments to growth

begging handAs intractable budget deficit after budget deficit forebodes national ruin and frames the forthcoming election, there is no shortage of fiscal conservatives complaining that the Government has failed to cut spending. Maybe I have missed it but I can’t recall one that has actually set out and quantified exactly where material expenditure cuts should be made and can feasibly be made. When it comes to specifics there is empty space. Why? The answer is simple. It is just too darn hard.

In 2013 the Centre for Independent Studies established its TARGET30 campaign with the objective of fashioning a public debate that would lead to a reduction in general government spending (federal, state and local) from around 35% of GDP to 30% in ten years. This is a laudable objective. But, predictably, no progress has been made or is remotely in sight.

The bulk of the growing expenditure burden is in the areas of health, welfare, pensions and education, which account for an estimated 60% of federal government spending in 2015-16. It is all electorally inviolable. Certainly new promises (of the reckless Gillard kind on Gonski, hospital funding and the NDIS) should be resisted. But once a program is in place it is all but impossible to make cuts.

Too many people are now getting some benefit or other. Added to this, the culture of entitlement is so well entrenched that handouts, which involve a minority of the population (predominantly the despised ‘rich’) subsidising the maintenance and lifestyle of the rest, have morphed into rights. Short of some cataclysmic overturning of the existing order this will not change. In fact, it will become akin to a law of nature.

Ask yourself, if Ronald Reagan and Margaret Thatcher failed to stem the growth in entitlement spending, as they did in a less far-gone age of dependency, what chance has anybody now?

The question then becomes what to do, if you believe – unlike left-green politicians living in their own delusional world – that growing debt will eventually lead to national ruin. The only feasible answer is to boost economic growth to pay the bills. Sure keep on fighting the good fight to contain spending but understand that this is largely whistling in the wind and that any solution will predominantly lie on the supply side of the economy.

Supply-side economics is associated with Reagan and his economic advisers, including Arthur Laffer. The emphasis is on reducing income and business taxes to stimulate economic activity. That works. But the reduction in revenue as a result of reducing tax rates is unlikely to be matched by increased revenue as a result of the increased economic activity; as it proved under Reagan.

This is not so damaging when government debt is relatively low. It is not sustainable as a stand-alone policy in the current debt-ridden environment. Only one thing is left and that is to encourage economic growth by reducing regulatory impediments to business development and growth. Part of a package might include business and income tax cuts on an assumption that they would work in concert with deregulation. But the main game has to be to lessen restrictive labour market regulations; to reduce red tape; and, most particularly, to remove the dead weight of expensive renewable energy and otiose environmental regulations.

Protecting the environment has become hostage to the Greens’ economic vandalism. As just one of many examples, take the massive open-cut Adani Group’s Carmichael coal mine proposal sited in central Queensland. According to the Queensland Department of State Development approval was sought in October 2010. Here we are in May 2016 and still it goes on. In late 2015 federal approval was set aside because Minister Greg Hunt had not properly considered advice about threats to the yakka skink and ornamental snake. As it is, among hosts of other conditions, Adani has to protect and improve 31,000 hectares where the black-throated finch lives. It is a joke and an impoverishing and job-killing one.

Of course, thoroughgoing deregulation may turn out to be just as infeasible as tackling entitlement spending. If it is, there is no answer. My main point is that fiscal conservatives should put as much focus on dismantling impediments to economic development and growth as to reducing government spending; on the off chance that it might prove a more popular and promising line of attack.

Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics

Comments [16]

  1. Jody says:

    I am astounded at Turnbull bailing out South Australia – this same state which consistently votes Sarah Hanson-Young in the senate. I’ve had told them in SA to go fly a kite!!! Or taken them to Glenelg Beach, pointed and said “south east Asia is that way – start swimming if you want jobs in manufacturing”.

    • Simon2808 says:

      I’m equally astounded by Turnbull’s bailing out of SA. If you listen to the political rhetoric here, it is a constant stream of ‘Junket’ Jay crying that the Federal Government are not providing him with enough funding for all of this pet projects. If Jay were to focus more squarely on economic stimulus measures and cutting back on the red tape than he does on orchestrating ‘trade’ delegations to China or European junkets for himself and his chosen few within the public sector here, he may need to put his hand out less.

    • BTX says:

      Jody – as a proud South Australian, I am both (extremely selfishly, shamefully) pleased at the subs decision, and entirely mystified and astounded at the locals repeatedly shepherding SHY back into Parliament. I can understand the Glenelg Beach plan – but as a practical matter, given modern political reality, this would lead only to a cacophony of demands for increased Federal funding of swimming lessons, for grants for the differentially bouyant, and outraged proclamations of “disgust” at the suggestion of it being a lifestyle choice to stay where jobs aren’t.

  2. Ian MacDougall says:

    Protecting the environment has become hostage to the Greens’ economic vandalism. As just one of many examples, take the massive open-cut Adani Group’s Carmichael coal mine proposal sited in central Queensland. According to the Queensland Department of State Development approval was sought in October 2010. Here we are in May 2016 and still it goes on. In late 2015 federal approval was set aside because Minister Greg Hunt had not properly considered advice about threats to the yakka skink and ornamental snake. As it is, among hosts of other conditions, Adani has to protect and improve 31,000 hectares where the black-throated finch lives. It is a joke and an impoverishing and job-killing one.

    Is that so?
    This is an argument for ‘jobs ‘n growth’ to automatically trump any and all environmental considerations: that is APART from the GHG product of Adani and its (choke! caaargh! splutter! hawk! spit!) heretical global warming effect.
    US Senator Gaylord Nelson (1916-2005) famously rejected the suggestion that economic development should take precedence over environmental protection: “The economy is a wholly owned subsidiary of the environment, not the other way around.” He was right.
    Peter Smith’s myopic line “It is a joke and an impoverishing and job-killing one” can be applied to ANY environmental impediment to untrammeled development.

  3. Jody says:

    With respect, sir, I hardly think that what we have in this country is ‘untrammeled development’. We seem to have the most rigorous standards for development that you can imagine and acres of red tape. Meanwhile, the unemployed languish in towns which are literally dying and public servants who rely on government for their existence continue unaffected in a parallel universe of entitlement and protection. Really, THEY are the ones seeking protection and use the green throated toad or the origami thrush to achieve that.

  4. Jody says:

    PS: I’ve always wanted to be involved in politics and I use my retirement wisely – joining the CIS and the IPA and other conservative think tanks with like-minded individuals to pressure government. It’s an ongoing and relentless project and one cannot afford to drop the ball if any kind of legacy is to be left to our children.

    We are living in selfish and dangerous times and driven by the most venal groups who think the world is as bad a place as they themselves often are. And these same groups are quite prepared to destroy an investment/opportunity/business/ideology which they think don’t conform to their idea of the utopian paradise. All the while these same individuals or groups wouldn’t have the foggiest idea of how a business is run, how a profit is drawn, how an employee is paid, how a deduction is made; it just doesn’t register on their parochial but authoritarian radars.

  5. Lawrie Ayres says:

    Scrap the ABC and SBS and there you have saved 13 billion over ten years. Scrap the RET and save the 20 billion per year subsidy to Chinese wind farmers. Make students repay their HECs before they can do other courses at taxpayer expense. HECs should only apply to courses that have a reasonable chance of securing a job that will pay well enough to repay the HECs. Scrap government grants to so called researchers. If the research is so vital then private companies will fund it for a return later on. Scrap arts grants. We don’t give grants to house painters or plumbers so why grants to artists who are usually not very good. Provide education vouchers to parents of children to be spent at the school of their choice. Introduce a co payment at the doctors.

    There are thousands of ways to reduce spending and the average householder has tried many of them so it isn’t radical. Reducing red and green tape automatically reduces the public servants who administer it so it is a double plus.

    If kids did not get the dole when they left school their parents would soon make them get jobs.

    I am sick of the hand out mentality when I and my friends have busted a gut for our 50 year working lives to achieve a moderate retirement. It further sickens me when politicians want to take what little we have to give to some layabout with pierced tongue and purple hair because he is disadvantaged in some way. Yep. I would vote for Trump.

  6. Ian MacDougall says:

    Jody:
    With respect, I earn a substantial pert of my (modest) income as a private entrepreneur, and I heartily agree with you that we “cannot afford to drop the ball if any kind of legacy is to be left to our children.”
    There are conservatives, and there are people who call themselves ‘conservatives’. All too often, the self-styled ‘conservatives’ are of the ‘development above all else’ mentality, for whom any objector to what they want to do is a ‘greenie’ (say no more!). And all too often, all that the ‘conservatives’ want to conserve is existing social arrangements and income streams.
    A true conservative in my book is first and foremost a biological conservative: ie a conservationist. The economy, remember, is a wholly owned subsidiary of the environment.
    If one is blase about a threat to the “yakka skink and ornamental snake”, then one is easily equally blase about any threat to any non-domesticated and non-’useful’ species, from the green and golden bell frog up to the humpback whale (which thanks to past over-hunting to the point of extinction, is now pretty well protected.)
    I put it to you that a biosphere in which the only ruminants are beef and dairy cattle, and the only birds are chooks, Christmas turkeys and game species, and the only carnivores are called ‘Pusskins’ and ‘Rover’ will be a very boring (and self-terminating) one indeed for our children and grandchildren to inherit.

    • Peter says:

      I thought I would leave it to Jody who is doing a good job of laying bare environmental extremism but really Ian the greenies’ vexatious objections to the Adani coal mine have nothing to do with a skink of any description. It is all about stopping coal mines even if it means denying Australians jobs and impoverished Indians cheap power. Meanwhile these irresponsible vandals mainly live in the inner city where they enjoy all the benefits that cheap power has brought. Conservatives believe in measured environmental protection. They also believe in increasing prosperity and alleviating poverty.

  7. Jody says:

    Conservation is, of course, tremendously important. But the tics of the greenies have been overplayed and somewhat cliched and that has had a counter intuitive result; few are listening any more. And there are way too many pressure groups and vested interests who have a financial stake in outcomes rather than genuine altruism, IMO. Many of these groups have become ‘industries’, eg. conservation, rights activism, environmental protection, national parks management. On and on it goes. The gravy trains shifts from business and development to QUANGOS and other government-dependent institutions.

    I’m not sure how your income as an entrepreneur impacts on this discussion, but I may just be obtuse!

    I’m for the little guy. And girl. Those at home with kids, a mortgage, a little dirt on their hands, a fair dinkum hard-working attitude to life, rolling with the punches….but there is only so much rolling you can do when progressives from the city – light years removed from these peoples’ lives – dictate their fate. As somebody who owned a large agricultural industry myself I had to stare down bureaucrats who threatened our endeavour very often. They called us ‘environmental vandals’ because our chook farm created dust. And every other form of abuse imaginable. I stood up to all of it, played the game (oh, boy, didn’t I!!) and eventually won the day. So, I’ve got first hand experience of this kind of rubbish. And the people accusing us of being vandals would be one and the same throwing every disposal item they didn’t want into the local garbage tip, burning wood-fired stoves, had their dogs fouling the lawns, driving noisy and very fast cars, burning their house lights day and night. On and on the hypocrisy goes…

  8. Eeyore says:

    The missing component in any greenie thought bubble is who pays? The magic pudding is getting a flogging. Underpants gnomes run the place and it is no-ones fault but our own.

  9. Ian MacDougall says:

    Jody:

    And these same groups are quite prepared to destroy an investment/opportunity/business/ideology which they think don’t conform to their idea of the utopian paradise. All the while these same individuals or groups wouldn’t have the foggiest idea of how a business is run, how a profit is drawn, how an employee is paid, how a deduction is made…

    I do. That’s how my “income as an entrepreneur impacts on this discussion.”
    I think you ascribe to ‘greenies’ far more direct clout than they actually have. Federally, the Greens get about 10% of the national vote. They cannot govern on that 10%: they can only do deals with whoever wants to play. So their strength in large part derives from the institutionalised mutual hostility of Labor and Coalition. I would never vote for them federally because of their crazy open borders policy, but I have voted for them in state elections over particular issues.
    However, their major strength is sounding notes that go on to resonate in the wider world. Their original issue (Tasmania’s Franklin River Dam) is perhaps the best example of this. Perhaps your beef with them is really about their ability to catch a wave in the wider community over some issue like that.
    Peter:

    It is all about stopping coal mines even if it means denying Australians jobs and impoverished Indians cheap power.

    And why should they want to do that? Because it’s not just about jobs and cheap(?????) power. (The hidden real cost of that coal-fired power is its contribution to glacial melting, global warming, ocean acidification, and all that other UN Climate stuff that you are ideologically committed to not accepting.
    That’s apart from the best present use for coal, which arguably is as a source of (cheap) road tar. When the best coal deposits are all burnt for (ultimate) low-grade heating, what are our descendants going to build roads out of? Loose gravel? Cobble stones? Wooden blocks?

  10. Jody says:

    I didn’t make the comment about Indians and cheap labour, so I will not comment on your response.

    And with respect to the Greens and ‘greenies’ in general it’s quality not quantity. Noisy MINORITIES are precisely that; they can seldom be measured in any significant numbers, but they certainly can with noise. Their obnoxious posturings have alienated many mainstream voters and trashed the brand of conservationism, IMO. This ‘wave catching’ that you describe is often empty opportunism. It’s all about power – and not the type generated with coal.

  11. a propos says:

    Greens are watermelons – red inside and green outside.Former Communists gone over to the green party. Logically, their priorities are not environmental protection but the prevention of the market economy’s success and, ultimately, its destruction. Capitalism consistently demonstrates its superiority over the illusionary socialist economy when it comes to bringing humans out of poverty. This fact , which disproves the Marxist dogma, is incompatible with the hard Left existence and , therefore, needs to be mitigated. An assault on the capitalist economy, using an environmentalist approach is the most expedient way to do it in this day and age. Greens priority is the destruction of the capitalist economy. It has nothing to do with the protection of our environment.
    Using this approach, the Greens have acquired a balance of power with the help of the “useful idiots” I might add. All their actions in politics are directed towards one goal – fighting capitalism.

    • padraic says:

      If the Greens are watermelons Labor has become tomatoes. I noted at the local shops the other day ALP operatives at a stand wearing bright red t-shirts and their advertising material was equally bright red. It looks like the commos have finally taken over the ALP.