blaming howard and costello won't fly

Article by Judith Sloan
IT has been quite a week for economic pointy heads. First we had Treasury secretary Martin Parkinson deliver his normal post-budget speech. This year the title was "Budgeting in Challenging Times".

We then had the release of a working paper authored by a number of Treasury officials entitled "Estimating the Structural Budget Balance of the Australian Government: An Update".

And to confuse matters even more, the Parliamentary Budget Office released a report entitled "Estimates of the Structural Budget Balance of the Australian Government: 2001-02 to 2016-17".

If you are thinking it sounds like a high degree of overlap, you are not wrong.

So here is Parkinson's view of the world. "As the economy expands, government expenditure has tended to expand with it and thus the scope of government services per person has increased, albeit remaining roughly constant as a share of GDP. We also know that health and pension expenditure are set to increase further as the population ages and as changes in preferences and technology drive increased expenditure on health services."

But here's the thing - as the economy expands and per capita income rises, we should expect the role of government to diminish, not expand. As a consequence of being wealthier, the welfare bill should decline, at least relatively, and an increasing proportion of the population should purchase services privately.

That this has not occurred thus far should not deter our top economic bureaucrat from drawing our attention to the fact that government services shouldn't be regarded as superior goods - the technical term for a good or service the demand for which rises more than proportionately with income.

This point links in with one of the key messages of the Treasury working paper and the PBO report: if it were not for those damned income tax cuts implemented through 2003-04 and 2008-09, all would be hunky dory. The PBO, for instance, attributes two-thirds of the structural budget deficits in the 10 years ending 2011-12 to the income tax cuts.

Are they kidding? Are we expected to believe that the government would not have spent those extra income tax receipts? Given that the Labor government was prepared to run down the negative net debt position it inherited, raid any trust funds hanging around and borrow to spend even more money, this assumption is heroic to say the least.

full article..
http://www.theaustralian.com.au/opinion/columnists/blaming-howard-and-costello-wont-fly/story-fnbkvnk7-1226648728625