Government: When enough is enough

In the sixth episode of the University of Melbourne’s monthly podcast series The Policy Shop, Vice-Chancellor Professor Glyn Davis asks whether governments are becoming too large. He is joined by Grattan Institute Chief Executive John Daley and University of Melbourne Professor Philomena Murray, of the School of Social and Political Sciences.

Here we set the scene by asking three experts on government whether size is a problem – Professor John Langmore, a former Labor politician now at the School of Social and Political Sciences; Bill Forwood, a former Coalition politician and now strategic counsel at government and public relations firm CPR; and Professor Helen Dickinson at the School of Social and Political Sciences.

By Andrew Trounson, University of Melbourne

Is there a sausage sizzle test for government gone mad?

In late 2013 the Australian Capital Territory introduced new food standards requiring any organisation holding more than five barbecues a year to employ a food safety officer to oversee events. The ACT eventually acknowledged it was absurd and made exemptions, but it left people wondering how it could have got to this?

So how much government and regulation is good for us and has Australia got too much?

The World Economic Forum rates Australia a spectacular fail on red tape, its Global Competitive Index putting Australia a dismal 124th out of 144 countries for the burden of regulation.

But in terms of spending, Australia’s government isn’t particularly large and growth has plateaued since the big expansions of the 1970s and 1980s. Commonwealth government spending has risen from about 18 per cent of GDP in 1970 to around 26 per cent today. Between 2009 and 2013, total per capita government spending growth in Australia was just 0.07 per cent a year. The number of people employed by government in Australia, excluding the military, has risen from 1.751 million in 2007-08 to 1.899 million in 2014-15. It peaked at 1.908 million in 2013-14.

So how do we compare with other OECD nations?:

Australian government spending in 2013 was 36.6 per cent of Gross Domestic Product:

• The OECD weighted average is 42 per cent

• The US is 38.7 per cent

Australian public sector employment in 2013 was 18 per cent of total employment:

• The OECD average is 21 per cent.

• In Nordic countries it’s about 30 per cent

• Japan and Korea are at 8 per cent

• New Zealand is 12 per cent

• The UK is 23.5 per cent.

professor john langmore

There is no such thing a “right sized” government, says Professor Langmore. Rather, government needs to be adapted to the needs of the country and the time. And as far as Australia is concerned, perennial priorities such as covering rising health costs as the population ages and encouraging an equitable society, means the relative size of government spending will continue to at least keep pace with the economy, or rise slightly. Professor Langmore says:

“The right question is what polices and what economic structures will contribute most effectively to national goals, which I’d define primarily as promoting the well being of citizens rather than simply economic growth, which is a means to an end, not an end in itself.’’

The bottom line for Australia, he says, is that as a society we highly value public health and education, and that historically the country has always accepted the role of government in promoting fairness and equal opportunity. Such an attitude goes back to Australia’s founding as a penal colony entirely dependent on government, and the prevalence of the utilitarian philosophy at the time of Federation in 1901 that promoted the welfare of the whole above the individual.

“If Australians want to have the quality and accessibility of services we aspire to now, we will have to pay a bit more toward them. So the question becomes, do you want to promote equity, which government is best placed to pursue, or do you want to minimise government and government expenditure? For me I’d argue for equity every time.”

And while the healthcare burden can be expected to increasingly take up government spending, he notes there is also scope for government to reduce costs such as by encouraging more in-home care, particularly for older people.

Professor Langmore points out opinion polls consistently show maintaining quality health and education systems are high priorities for voters.

The ABC/University of Melbourne Vote Compass tool in May rated the economy the number one election issue, backed by 18 per cent of participants, but education was second at 14 per cent and health third at 13 per cent. Taxation and public spending was down the list of priorities at 6 per cent.

Professor Langmore acknowledges there are legitimate concerns about the reach of government growing to the point where it disempowers people or discourages self-reliance. But he argues that it is government itself that can ensure people have equal opportunity.

“We should always aim to empower people. The question is how can that be done in ways that are equitable so that it isn’t just the wealthy who have more choices? It’s a question of imagination,” he says.

bill forwood

For Mr Forwood, former Liberal leader of Victoria’s upper house and member of the 1992-1999 Jeff Kennett-led Victorian State Government, the balance of support in Australia has swung too far away from self-reliance.

He argues excessive government regulation is now stifling business and individual choice, and the public service has grown to excessive levels because government is doing too much.

Mr Forwood fears it will take a severe economic crisis to force an overdue crackdown on spending. He says both sides of politics are simply too afraid to upset an electorate that, he argues, has succumbed to a sense of entitlement that is exemplified by the growth in middle class welfare, such as the Howard government’s “baby bonus” payments and the expansion of childcare subsidies.

“I start from the position that sensible people will make the right decisions most of the time. But now so much of government is around nonsense nanny state interventions, taking away the right of the individual to make decisions for themselves,” Mr Forwood says.

He warns that ultimately the intrusion of government will undermine “social capital” and that rather than volunteering, people will increasingly expect government to do everything for them. Last year the Australian Bureau of Statistics reported a decline in volunteering rates to 31 per cent in 2014 from 36 per cent in 2010, reversing a previously rising trend up from 24 per cent in 1995.

“One of the consequences of big government is less volunteering, less social capital, less inclusion at the local level.”

Mr Forwood was part of the Kennett Coalition government in Victoria that was elected in 1992 with a mandate to cut spending and reduce the state’s deficit, which had blown out to $2.2 billion. Credit rating agency Moody’s had cut Victoria’s rating by four categories from AAA to A1. In four years the government cut spending by 10 per cent and sold $45 billion worth of assets, reducing total debt from $31 billion to $4 billion by 2000. Moody’s recently reaffirmed Victoria’s AAA rating with the current Labor government forecasting surpluses for the next four years with finances boosted by payroll and property tax gains.

Mr Forwood says the cuts of the Kennett years were only possible because of the scale of the crisis, and he fears government debt is likely to blow out again until another crisis happens.

“The fundamental principle that people value being able to look after their own affairs without government help has gone out the window, and been replaced by concerns about ensuring people get what they feel the government owes them,” he says.

“So we now have a situation where we are transferring our debt problems to future generations because we are living so far beyond our means that someone else is going to have to pick up the mess later on. And that is a function of big government doing things it doesn’t need to do, and paying payments to people who don’t need them, all in the interest of getting elected and staying elected,” he says.

associate professor helen dickinson

The practical policy challenge for many OECD countries, including Australia, isn’t so much an argument over the size of government, but how government can better “steward” the delivery of services, argues Associate Professor Dickinson.

During the 1980s the role of government in directly delivering services was increasingly questioned in favour of the idea that services would be better delivered through market forces to make them more efficient and responsive to demand. That gradually led to state monopolies being privatised and services being out-sourced.

Associate Professor Dickinson argues the problem is that the outsourcing agenda has been too narrowly focused on securing efficiencies as services were expanded, such that service standards have sometimes fallen well short of what is needed.

“What we have started to realise is that delivering services in the most efficient way can simply undermine the quality of services,” she says.

For example, the outsourcing to the market of vocational education services in Australia led to widespread scandals over poor quality courses and hard selling as government subsidies were exploited. Scandals have also hit employment services and in 2008 the government subsidised childcare market was plunged into crisis by the collapse during the Global Financial Crisis of giant provider ABC Learning.

“A lot of this debate about big and small government is around efficiency, but while efficiency is important, government can’t think in just those terms.”

“I don’t think we can go backwards,” she says. “But what we do need is for government to be clearer on what it is trying to achieve with its money, what services are needed in return, and recognise the need for better market stewardship,” she says.

“No one is really doing it well, but everyone is realising that overseeing marketised services isn’t as straight-forward as classical economics suggests, where the market can just look after itself. Instead what is needed is a lot of work in data collection and monitoring and being able to steer markets to avoid market failure,” she says.

She says there is a pervasive idea in the community that any money that goes into bureaucracy is money that’s being taken away from service provision. But she argues that a competent and properly resourced bureaucracy is crucial to ensuring markets operate well.

She is concerned that the National Disability Insurance Scheme, in which clients can choose their provider, will lack sufficient management and market oversight after the government said staffing at the National Disability Insurance Agency would be limited to a maximum of 3,000 compared with projections of 10,595 by 2019.

“It is true that there are sometimes hugely unhelpful bureaucracies involved that cost a lot of money, but without the resources for active management, government simply doesn’t know whether it is spending its money in the most efficient way and securing the desired outcomes in terms of service.”

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