It's time for smaller government

Australia has been lucky to see an extended period of economic strength, with sustained increases in GDP stretching back for decades. Yet in spite of these unique circumstances, the size of government has grown to now reach 35% of GDP.

The role of government has changed substantially over time, limiting the usefulness of comparing governments from the 1960s (and before) with those of today. A far better starting point for analysing the growth of government is the rapid expansion of Australia's welfare state commencing with the election of the Whitlam government in 1972.

The Whitlam government introduced welfare for single mothers and relaxed means testing for pensions in 1973; scrapped university fees in 1974; and implemented a national health care scheme (now called Medicare but then called Medibank) in 1975.

Since 1972, spending across all three levels of government has increased at an average rate of 4% a year. Today the government rakes in more than a third of everything this country produces.

A significant proportion of this spending is wasteful or inefficient. Research suggests that 30% of GDP is the maximum efficient size of government, which means that federal, state and territory, and local governments currently spend approximately $60 billion more each year than they should.

TARGET30 is a campaign that aims to cut government spending down to less than 30% over the next 10 years. Without TARGET30, governments could be wasting $150 billion a year by 2021.

Governments have been spending in bad times by following failed Keynesian policies to stimulate growth through debt-fuelled government spending,and governments have been spending in good times to redistribute income to the needy and rusted on faithful (and not always in that order).

Across the Western world, decades of these misguided policies have created societies in chaos. Throughout Europe, big government 'solutions' have led to fiscal and debt crises, while the United States is looking at its own looming debt crisis.

Yet the TARGET30 campaign is not about recriminations for the ghosts of government spending past. TARGET30 is about the future – a future that will pose substantial challenges, such as an ageing population, rising health care costs, and slower economic growth.

These challenges, when combined with our ever-increasing demand for more services, could see government exceed 50% of GDP by 2050, burdening future generations with higher taxes, higher debts, and a broken society.

Now is the time to break these trends and prepare Australia to meet its future challenges.

Australians cannot and should not meekly accept that future tax rises are inevitable because of claims that governments don't have enough money to meet their basic obligations. The failures of governments in areas like defence and infrastructure should be put down to incompetence, not underfunding.

However, the forces of big government marshalled against us are enormous. Government spending has created a legion of vested interests with incentives to vote for even greater largesse. Unwinding the tendrils of the state from every aspect of our lives is easier said than done.

These difficulties in reducing spending are why TARGET30 proposes a practical and achievable target for reducing government spending. TARGET30 can be met by holding government spending constant in per capita terms. It is a compromise between the economic ideal and what is realistic.

A good starting point for the next government is an audit of all existing government departments and programs to determine what programs are really necessary, and what programs are effective. Too often, the results from government programs are not examined, and where spending is ineffective, often the answer is simply more spending.

Cutting economically harmful programs (such as industry protectionism) would generate strong benefits for the economy in the medium term as well as reducing spending. Another idea that would generate additional positive benefits while reducing spending is to eliminate the massive duplication of functions at the state and federal levels.

Productivity and competition must become Australia's mantra. Productivity improvements in the public sector workforce (not just cuts to overall numbers) will go a long way towards meeting TARGET30 and enabling Australia to maintain a social safety net for an ageing population.

Australia needs a serious debate about the size of government. By acting now to cut waste and inefficiency from government, we can ensure that Australia will be able to afford the services it needs in the future. Cutting unaffordable and wasteful spending now when the economy is strong will avoid the downside of enforced structural adjustments down the track.

TARGET30 is an important campaign and small government is an important issue. The future prosperity of our country is at stake.