As part of today’s sessions at the Friedman conference in Australia, I got to listen to Professor Tony Makin talk about the burden of government spending in Australia.
I want to share several of his slides since he made some very cogent points.
First, he pointed out that debt-financed government spending is bad.
But he also pointed out that tax-financed government spending is equally bad.
In other words, the fiscal burden of government is the total level of spending. How that spending is financed is a secondary concern.
I’ve made similar arguments, so perhaps this won’t be new information for regular readers.
However, Professor Makin augmented the theory with some statistical analysis.
This is how he structured his model.
And here are his results.
His numbers shouldn’t be a surprise. I narrated an entire video that listed study after study showing the same thing.
And even the OECD has, on multiple occasions, produced research showing that bigger public sectors are associated with weaker economic performance. Same thing with economists at the IMF (the political leadership at the international bureaucracies is terrible, but the economists sometimes produce solid research).
By the way, Professor Makin shared some fascinating Australia-specific data looking at spending increases (or decreases) by year. And also broke down the data by who controlled the government.
As you can see (echoing what I wrote two days ago), the supposedly left-wing Hawke and Keating governments were reasonably frugal.
John Howard, by contrast, was supposed to be a right-of-center leader. Yet he fell off the wagon after a strong start (and also set the stage for a very bad Labor government).
In recent years, the right-of-center Liberal-National coalition has done a decent job. It will interesting to see what happens when newly reelected Prime Minister Scott Morrison unveils the next budget.
My two cents (in addition to lowering the top tax rate) is that he should propose some sort of spending cap, like the ones in Switzerland and Hong Kong.
