Speaking at the Sydney Institute yesterday, Finance Minister, Mathias Cormann, claimed that government spending needed to be reduced over time to an average of around 24% of GDP “at the most”, from around 26% of GDP currently:
“…to ensure federal government expenditure is affordable in our economy and doesn’t force us into higher taxes overall, over time we need to get back to an average level of government expenditure of about 24% as a share of GDP at the most and stabilise it at that level.”
He said that in the last year of the Howard government, spending as a share of GDP was 23.1%, and over the whole Howard period expenditure averaged about 24%.
Needless to say, I disagree with Cormann’s notion that Australia should set a definitive limit on government expenditure against GDP.
What is important is not the quantum of spending, but its quality. Provided spending is efficient and used to fund worthwhile public programs and world class infrastructure, and taxes are raised in the most efficient and equitable manner possible, then it should not matter whether government spending-to-GDP is 24%, 26% or some other figure.
An adequate tax take, along with well-targeted expenditures, are vital elements of a civilised society, and should be the primary focus of fiscal policy, not some arbitrary limit.
