Contradicting the Morrison government’s election rhetoric, the facts suggest Labor has a better recent track record on handling the books and reforming the economy.
In an election year, political discussion invariably turns to which party is the superior economic manager. An analysis of the last five decades during which official financial records have been kept reveals a surprising result.
The Morrison government is honing its message that taxes will always be higher under Labor. But is that so?
Let’s look at the official treasury statistics in Budget Paper No. 1 dating back to 1970.
To be fair to the Coalition, the comparisons exclude the Covid-19 years when the economy and the budget were shocked by the global pandemic, requiring heavy budgetary support.
And to be more than fair to the Coalition, the analysis includes the period of the Great Recession of 2008-09 triggered by the Global Financial Crisis that also necessitated government stimulus spending, this time by Labor, but of a smaller magnitude.
The analysis that follows therefore is biased in favour of the Coalition and against Labor.
Between 1970 and 2019, the Coalition had been in government for 26 years and Labor for 23 years – roughly equal periods.
Labor is the party of high taxes, right? Wrong. Over the review period, Labor’s taxation revenue as a percentage of GDP averaged 21.1 per cent while the Coalition’s averaged 21.9 per cent.
The award for the highest-taxing government in Australia’s history goes not to the Whitlam government or to those of Hawke, Keating, Rudd or Gillard, but to the Howard government. Coming in second in the high-taxing stakes is the current Coalition government.
Turning to the spending side, it is true that since the early 1970s Labor governments have outspent Coalition governments, averaging 24.5 per cent of GDP compared with 24.0 for the Coalition.
But in more recent times, the current Coalition government has been a bigger spender than the Rudd-Gillard Labor governments – despite the exclusion of the Morrison government’s pandemic-era spending and the inclusion of the Rudd government’s GFC stimulus spending.
If both sets of stimulus spending are included, the current Coalition government has spent much more than its immediate Labor predecessor, averaging 26.8 per cent of GDP compared with Rudd-Gillard Labor’s 25.2 per cent.
At the height of Tony Abbott’s campaign against the Rudd-Gillard government’s “debt and deficit disaster”, net government debt reached 10.4 per cent of GDP.
Before the pandemic struck, the current Coalition government had almost doubled net debt to 19.2 per cent of GDP.
Net debt is now on its way to an estimated 30.6 per cent of GDP this financial year and an officially projected 37.4 per cent of GDP by the middle of the decade.
The budget update released in December projects net debt to remain above 35 per cent of GDP into the 2030s. This tallies with the most recent intergenerational report projecting budget deficits persisting for at least the next four decades.
If Liberal politicians and their supporters can describe Labor’s net debt of 10.4 per cent of GDP as a disaster, they should consider the Coalition’s pre-pandemic net debt a double disaster, its trebling this year a triple disaster and its officially projected quadrupling a calamity.
Superior economic management shouldn’t be limited to handling the nation’s books. If it was, the prize would go to Labor.
So, let’s move on to an even more important economic indicator – productivity growth.
In a landmark report https://www.pc.gov.au/research/ongoing/productivity-insights/long-term/productivity-insights-2020-long-term.pdf, the Productivity Commission has calculated that, since federation, productivity growth has accounted for almost all the improvement in Australian material living standards.
A telling chart in that report reveals that multifactor productivity growth in the 1990s more than trebled that of the 1970s and 1980s and was more than double that of the period 2000-2016.
Just ahead of the pandemic, productivity growth was zero or close to it.
Nobody seriously disputes that the productivity boom of the 1990s was due mainly to the Hawke-Keating economic reforms that opened the Australian economy to competition from at home and abroad.
In fact, the Productivity Commission’s list of reforms contributing to the 1990s productivity boom consists mainly of Labor initiatives such as the prices and incomes accord, a reduction in import restrictions, the introduction of national competition policy and tax reform.
Howard government reforms also earn a reasonable mention.
If Labor governments are proven superior budget managers and have superior economic reforming credentials, how have they gained a reputation as inferior economic managers.
Repetition is the answer. Say something often enough in politics and it will be accepted as true, even if it isn’t.
Craig Emerson is managing director of Emerson Economics. He is director of the APEC Study Centre at RMIT University, a visiting fellow at the ANU and an adjunct professor at Victoria University’s College of Business.