Advancing equality

One rule is to ensure that new and existing revenue and spending instruments are well targeted and subject to regular review; many existing social spending programs have goals which are not well specified and whose rationale has largely disappeared. Another golden rule is to choose revenue instruments which do not unnecessarily distort economic choices and which have the least impact on economic incentives: there are many special tax exemptions and deductions which fail this test and could sensibly be scaled back.

Governments could also make greater use of income-contingent loans in lieu of outright grants where the activity being assisted has a reasonable chance of yielding good productive returns in the longer term.

Finally, where a new spending program is expected to build up the future stock and quality of human capital, governments should not be afraid to fund some of it out of borrowing. This argument is particularly strong in a country like Australia which starts with an exceptionally low level of public debt by historical and international standards. And if it means crowding out some marginal private investment (in shopping markets, luxury homes, motels, etc) in order to make room for more productive public investment, so what?

The international evidence makes it clear that free markets and lightly regulated labour markets do not by themselves lead to good social mobility outcomes. They need to be supplemented by active social policies. Such policies can win wide community support and generate substantial net benefits for the economy. Truly a win-win in the long term!