Friday, January 11, 2013

Howard was your most wasteful sprendthrift in modern history - IMF

Not Whitlam. Not Rudd. Not Gillard

Australia’s most needlessly wasteful spending took place under the John Howard led Coalition government rather than under the Whitlam, Rudd or Gillard Labor governments, a major international study has found.

Entitled A Modern History of Fiscal Prudence and Profligacy the new International Monetary Fund study bills itself as the first to examine 200 years of government financial records across 55 leading economies.

It identifies only two periods of Australian “fiscal profligacy” in recent years, both during John Howard’s term in office - in 2003 at the start of the mining boom and during John Howard’s final years in office between 2005 and 2007.

The stimulus spending of the Rudd government during the financial crisis doesn’t rate as profligate because the measure makes allowance for spending needed to stabilise the economy.

The Whitlam Labor government of 1972 to 1975 also escapes censure.

The economists from the IMF’s fiscal affairs department found the only other years of profligate spending during the past six decades took place during the conservative government of Robert Menzies, in 1960. It says the Menzies government was notably prudent in 1950.

In the postwar years of 1947 to 1949, the Chifley Labor government was deemed prudent as were the Scullin and Lyons Labor and Coalition governments between 1931 and 1935. John Curtin’s Labor government was profilgate in 1942...

The study finds that in broad terms Australia’s government debt has been falling since 1932 when it peaked at 98 per cent of gross domestic product. Across all levels of government it is presently just above 20 per cent after climbing since the global financial crisis.

The budget balance has been broadly stable for half a century.

The key finding is that Australia has few examples of economic recklessness compared to other developed nations. Canada’s government debt peaked at 143 per cent of GDP in 1946, Japan’s reached 233 per cent in 2011, Israel’s reached 284 per cent in 1984. Australia’s neighbour New Zealand recorded government debt of 226 per cent in 1933 and a budget deficit of 7.5 per cent of GDP in 1995.

Developed nations were generally their most prudent before the First World War and during the 1990s, the study finds. They were generally their least prudent during the mid-1970s and in some cases after the global financial crisis.

The IMF study mirrors findings in a 2008 Australian Treasury study that found real government spending grew faster in the final four years of the Howard government than in any four year period since the 1990’s recession.

The number of big spending decisions worth more than $1 billion climbed from one in the first Howard budget to nine in the last. The proportion of savings measures fell from one third of budget measures at the start of the Howard era to 1.5 per cent at the end.

Responding to the IMF report Coalition Treasury spokesman Joe Hockey said the Howard government left Labor with a $20 billion dollar surplus and no net debt.

“It was not John Howard and Peter Costello who wasted billions of taxpayer dollars on dangerous pink batts and overpriced school halls - it was this Labor Government,” he said.

In today's Sydney Morning Herald and Age

Play with the IMDF DataMapper. It's fun:

Related Posts

. 'Too much money was sloshing around' - Turnbull on Howard's economic mistakes

. Treasury tells the truth about its past masters, and the Budgets they forced it to write

. Henry on the Howard years


Marek said...

interesting how much better data collection has gotten in the last decade

Letters to the Editor said...


Hockey's '$20 billion surplus' down to considerable help

Joe Hockey says that the Howard government left a $20 billion surplus and no net debt in commenting in Peter Martin's article (''Australia's most wasteful spending came in the Howard era, finds IMF'', January 11). That sounds a lot but is much less than the proceeds received from the sale of Telstra and Sydney Airport, to name just two publicly owned entities .

So without that injection of cash, the Howard government ran a loss at a time when the receipts from the mining boom were at all-time-high levels. The Howard government's record is one of lost opportunities for which we are all paying now.

Bill Gale Terrey Hills

I wonder if Tony Abbott will try to demolish the credibility of the IMF.

Russell Mills Redfern

Unquestionably, former prime minister John Howard was a spendthrift. No problem was ever mentioned that did not have a multibillion-dollar solution. All too many of the Howard government's goals (in health, education, welfare and economic policy) were realised through government subsidies and regulatory edict.

If former Labor prime minister Gough Whitlam was social democrat in love with big government, what does that make Howard?

Australians waiting for a ''cut taxes and spending'' election slogan from the Coalition should not hold their breath.

Victor Diskordia McKellar (ACT)

Letters to the Editor said...


How to buy votes

IT IS true that the final term of the John Howard-led Coalition government involved profligate spending - ''Hey, big spender: Howard the king of the loose purse strings'' (The Age, 11/1). As a swinging voter, that was why I voted him out. However, as shadow treasurer Joe Hockey says, the spending was financed by an Australia that had money in the bank.

Recently I checked the Treasury's website and came up with the following data regarding the last 40 federal budgets (21 under Labor and 19 under the Coalition). There have been 14 surpluses and 26 deficits as follows: Rudd/Gillard 0/5; Howard 10/2; Hawke/Keating 3/10; Fraser 1/6; and Whitlam 0/3. As treasurer, Peter Costello delivered 10 of only 14 surpluses achieved in the past 40 years and, when he left his post, Australia. I will vote Liberal at the next election for precisely the same reason I voted Howard out - profligate spending.

Roger Dutton, Wangaratta

JOHN Howard spent much of his prime ministership buying the votes of middle and upper-class voters. He was happy to spend this country's amazing fortune, generated by years of economic growth, on subsidising private health funds and private schools while he neglected the critical shortages in public health and education. Now we have the ridiculous situation where it is politically untenable to limit the support of this middle-class privilege and blatant exclusivity. The long-term costs to Australia are not just financial.

Marty Waters, Wonthaggi

Anonymous said...

Someone should tell Bill Gale of Terry Hills that he is wrong.

Money from asset sales was not put into the budget as revenue otherwise there would have been three huge surpluses when T1,T2 and T3 were sold. Money from asset sales was used to pay off debt or put into the Future Fund.

Costello ran surplus budgets without asset sales.

Peter Martin said...

True, for the sale of companies.

But for money from a fire sale of other government assets went straight to the Budget's bottom line - $56 billion worth in the Coalition's first few years in office.

The worst of the deals was the sale of the DFAT headquarters in Canberra - it enriched one year's surplus, but at an enormous continuing cost in ever-increasing rent.

Anonymous said...

"But for money from a fire sale of other government assets went straight to the Budget's bottom line"

No, money from asset sales went into paying off debt. It was not counted as revenue. Unlike Keating who sold Qantas, Commonwealth bank and the CSL and used the money for recurrent expenses and did count money from sales as revenue. Something which had never happened in Australian history.

Costello's surplus budget were not obtained by selling assets. Costello spent less than he received and therefore ran a surplus budget.

Peter Martin said...

Not so.

SOME of Costello's surplus budgets were obtained by selling assets - so-called 'non financial' assets.

Gittins takes up the story:

"Costello decided to exclude from the ''underlying'' budget balance something now known as ''net cash flows from investments in financial assets for policy purposes''. Businesses such as Qantas were classed as financial assets because what the government owned was shares in those businesses, and shares are financial assets, not ''real'' (physical) assets.

Good move. Selling existing businesses had little effect on economic activity. It was really just an alternative way of funding the budget deficit to selling government bonds, not a way of reducing it.

But good ole Pete left himself a loophole: he didn't exclude from the underlying budget balance proceeds from the sale of non-financial assets such as land or buildings, even though the same argument applies."

Your broader point about assets such Qantas and Telstra is quite correct.

faust said...

So you take an IMF Working Paper and regurgitate it in an article? You didn't analyse whether this was accurate or otherwise. Was this because you are suffering from confirmation bias?

Peter Martin said...

Get a life.

Reporters report (in this case as soon as the bloody thing came out) so that people like you and others can analyse.

Forex Striker Review said...

Selling existing businesses had little effect on economic activity. It was really just an alternative way of funding the budget deficit to selling government bonds, not a way of reducing it.

faust said...

Peter, I do have a life and you criticism is unwarranted. Your role is not only to report fact, but to analyse for the lay reader. What you have done is blindly reported a working paper and have added no context or analysis. The idea that you are a mere 'reporter' is disingenuous at best and woeful if you want an informed reader base.

For your information, based on my education and work background I do understand the IMF report and can quite easily analyse it. My concern is for the vast bulk of people who do not go to the source data and rely on you. I think you have a duty of care towards them.

Additionally, you failed to adequately counter my claim that you may have suffered from confirmation bias when you wrote your article.

Peter Martin said...

Who knows whether I suffered confirmation bias. The article certianly didn't confirm what I thought. I am astounded, absolutely astounded, that the study did not find the Whitlam government to be profligate.

It is a bit rich of you to say I added no context when that is exactly what I did.

As for analysis.. watch this space

Anonymous said...

You just got completely owned by Henry Ergas at the Australian.

Peter Martin said...

...which missed the story.

Henry's analysis is, as always, excellent.

As I wrote myself:

The key finding is that Australia has few examples of economic recklessness compared to other developed nations...

Anonymous said...

At least they didn't engage in what was obviously a misleading and tendentious piece of misreporting.

Anonymous said...

Ergas didn't 'own' Peter far frrom it.

He was as selective in this 'analysis' as he was when he claimed NZ was much better in fiscal consolidation than us which proved to be equally untrue

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