Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.


 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate

Subscribe!
Subscribe





On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.
___________

Syndicate
RSS/XML


RSS 2.0

Monster of debt to come

By Mikayla Novak - posted Monday, 6 April 2009


The objections to the responses by the Rudd Government to the financial turmoil and economic slowdown are numerous. The temporary nature of the Rudd cash handouts has been shown to encourage savings and not the splurge in consumption originally anticipated. Adding licks of paint to school buildings and installing pink batts in homes is unlikely to spark Australia's economic recovery.

The descent into fiscal deficits and spiralling public debt means that present and future taxpayers will be forced to endure higher taxes. Deposit guarantees for the financial sector and bailouts for selected industries have distorted the economy, creating a slippery slope for even more ham-fisted government tinkering with markets.

What has been left out of the debate so far is the impact of these policies on the size of government and what that can do to long-term economic performance.

Advertisement

Decades of economic research shows that when government becomes too large, further increases in spending hinder economic growth and productivity. In 2005 American economist Dan Mitchell compiled a large survey of studies all pointing to that conclusion.

There are a number of ways in which more government harms the economy. More spending means more taxes, which distorts incentives for people to work, save and invest to keep the economy growing.

One more dollar of tax raised means one less dollar kept by the productive private sector, with the deadweight efficiency costs and administrative burdens of taxes on top of that.

When governments borrow, particularly when credit markets are tight, they put upward pressure on interest rates and crowd out pro-growth private activities.

Government spending choices in themselves often impede growth and productive activity. Funding bureaucracies that impose excessive regulations can harm investors and consumers alike.

Subsidies to the unemployed and pensioners, or for education, health and housing programs, can distort market choices and destroy private savings as well as, in some cases, incentives to work.

Advertisement

As the global experience of privatisation shows, continued government provision of goods and services is typically less efficient and more costly than private sector alternatives. This also acts as a drag on efficiency and growth in the economy.

The best evidence we have suggests that expanding the size and scope of the state will damage our economic performance in the long term.

Unfortunately, it is evidence that the Government seems determined to ignore.

  1. Pages:
  2. 1
  3. Page 2
  4. All

First published in The Australian on March 31, 2009.

Advertisement
 Institute of Public Affairs Advertisement

 

Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

19 posts so far.

Share this:
reddit this reddit thisbookmark with del.icio.us Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Mikayla Novak is a Research Fellow with the Institute of Public Affairs. She has previously worked for Commonwealth and State public sector agencies, including the Commonwealth Treasury and Productivity Commission. Mikayla was also previously advisor to the Queensland Chamber of Commerce and Industry. Her opinion pieces have been published in The Australian, Australian Financial Review, The Age, and The Courier-Mail, on issues ranging from state public finances to social services reform.

Other articles by this Author

All articles by Mikayla Novak

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Article Tools
Comment 19 comments
Print Printable version
Subscribe Subscribe
Email Email a friend
Latest from Institute of Public Affairs
 No reality holiday from this population challenge
 For budgets only smaller is tougher
 Government subsidies to green groups must end
 Boot-strapping on a carbon tax
 West's history not complete without reference to Christianity
 More...
Advertisement

About Us Search Discuss Feedback Legals Privacy