Growth, It’s the Last, Best Hope

As 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.