Gillard gets it right

Ever since the Hawke government announced the “Trilogy” commitments in 1984, promising no increase in the revenue and expenditure shares of national income, Australian politics has been, in effect, a conspiracy of silence about the central issue of economic policy, that of the appropriate balance of private and public expenditure. The steady growth in demand for services like health and education has ensured that no reduction in the public sector share has been feasible, while the market liberal dogma enshrined in the Trilogy has prevented any increase.

In retrospect, it’s striking that Hawke’s commitment came just after the reintroduction of Medicare, funded (in part) by a levy on all incomes. Medicare’s success has made it politically untouchable. On the other hand, it has been assumed (though without much supporting evidence) that any increase in taxation (not matched by offsetting cuts) is politically impossible.

The Gillard-Swan government was, until yesterday, ruled by this doctrine. With their unfortunate habit of making categorical commitments out of aspirations, both Gillard and Swan had repeatedly ruled out a levy to fund the National Disability Insurance Scheme (by contrast, “conservative” state premiers like Newman were happy with the idea) But, as a recent Grattan Institute report has made clear, there is no way of meeting the needs for health and education without a substantial increase in revenue (as well as cuts in low-priority direct expenditures and tax expenditures).

So Gillard has announced a proposal for a 0.5 percentage point increase in the Medicare levy, raising $3 billion a year. Abbott has equivocated so far, but has stated his support for the NDIS, which leaves him no honest options except to go along.

If we could achieve consensus on paying for improved services through higher taxation in this case, we might finally have a serious debate about what, as a community, we are willing to pay for.

Costello Report: first look

The full version of the Costello Commission of Audit Report has finally been released, along with the Newman government’s responses. As it turns out, the “Interim” report was the Commission’s last word on most of the big issues, such as the state’s debt position and fiscal outlook. The Final Report consists of

* A general discussion of the role of government, which is just a restatement of the market liberal orthodoxy of the 1980s and 1990s, proposing privatisation, competitive tendering and contracting and so on
* The specific claim that Queensland can deal with the problem of rising demand for health, education and similar services in coming decades by permanently raising the rate of productivity growth in those sectors.
* Detailed discussion of all areas of government activity.

Of these, the second is the important one. The fact that productivity grows more slowly in human services than in other sectors of the economy, and that this implies relative growth of the public sector, has been known since the work of Baumol in the 1960s. This pattern is unlikely to be changed by the kinds of measures being proposed by the Commission.