Government Expenditures and Taxation Levels

Some older data on government expenditures and taxation as a percentage of GDP. Australia spends less from government, and taxes less than the European countries. Yet of our direct competitors in the Pacific Rim, such as Japan, South Korea, America, Indonesia and others; we tax more, and spend more. We are a Pacific nation, not a European one. We also practice American style capitalism. Consequently we will have to reduce the size of the state to at least American levels, if not Japanese levels, so that the state doesn't over-burden us in relation to our regional competitors.

Pacific Rim - Government Expenditure to GDP Ratio

The data this comes from is old. If anyone has sources of more up to date data I would love to see it. Australia saw a growth in the ratio of government expenditure to GDP from 1991 to 1997, from 24.3% to 25.3%. Other Pacific Rim nations in 1997 had ratios of;

From that small list it is obvious our regional competitors spend less from the state than we do. Europe spends much more than any Asian country; France 53%, Germany 29%, Netherlands 48%, Sweden 44% and the UK 41%.

Total Tax Revenue as Percent GDP

The same page contains the ratio of total government tax revenue as a percentage of GDP for Australia between the years 1990 and 2000. This appears to include Federal, State and Local taxes.

By comparison, in 2000 the US was 29%, the UK 38%, France 46%, Sweden 50%. To compare central government tax revenue, which I assume in Australia's case means the Federal government, between 1990 and 2000 shows;

The American Federal government took 19%, the UK 36%, New Zealand 30%, Japan in 1993 took 17% and France 42%. These figures suggest that the Federal Government is doing the majority of the taxation in Australia. If all taxation is 33.6% of GDP in 2001, and the Federal government is taking 26.1% of the GDP, then it suggest the states only take a small slice of it. The GST, while going to the states, is a Federal tax; and as has been shown recently comes with Federal strings attached.

Australian Capitalism

Australia practices American style capitalism now. It has done so since the Keating reforms of the mid 1980s. A central principle of American capitalism is that the individual knows best where their money should go. If government is too big and too regulatory, it inhibits this flow of money from an individual and adds overhead to any enterprise.

The secure, static and stable state of the Menzies era is gone. So is the solve everything state of the Whitlam era. By the style of capitalism we have chosen to base our economy on, we will require a shrinking of the state to at least US levels; if not Japanese levels. This will be one way to ensure fluidity of money, and hence innovative services, products and enterprise.

This is not to say that Australian principles of fair-go and the reduction of inequity have no place in government policy and programmes. It does mean, that we will have to selectively choose the areas that government is currently involved in, where it is no longer the most efficient means of providing services or outcomes.

Australia is going to need political leaders that can reduce government and taxes pragmatically, and in a manner that eases those changes on Australian society, rather than Whitlam style "crash or crash through". In the last one hundred years, the Hawke government has been the only to embark on this style of programme.

cam
Permalink, Government Expenditures and Taxation Levels, Apr 2005, cam
siento: Figures from Australia compares: How Australia Compares has figures for total taxation in 2000 of 32.5% and government outlays as 36.6% of GDP.

A countries \'style of capitalism\' is also about how companies are financed. Germans talk about Anglo-Saxon capitalism, meaning capitalism based on company funding coming through the stock exchange. This is how Australia has funded things. Wheras in Germany the banks have given loans to the \'Mittelstand\' small to medium sized enterprises at low rates and with high security. The Japanese fund things through Zaibatsus and collaboration, and also by having the world\'s largest financial institution, the Japanese Postal Service.

Each of these systems has their advantages. Anglo-Saxon style capitalism allows rapid exploitation of new technologies as shown by America\'s dominance in computers. The German and Japanese systems provide more stability that enables manufacturers to plan more for the longterm as shown by the superiority of the German and Japanese auto industries. While the Germans have invented electronic fuel injection and ABS braking over the past 20 years, the US auto industry has \'invented\' the SUV and the cupholder.

A better way of looking at government expenditure is by looking at what the government provides and if the government provides them well. One of the big things that should be taken into account with US figures is that the US, unlike Europe and Australia, does not have government health care. Another factor to take into account is the cost of University education. The scandalously rapid rise of University education in Australia means that for about one third of Australians the government has ceased helping them for a major expense.

It is also curious to view Asian levels of government expenditure as definitely a good thing. Japan has not done well over the last 10 years. Many Asian countries may be growing rapidly, but that is surely because they start from a fairly low base.

Australia\'s level of government spending is reasonable. Australia\'s government provides a good suite of effective services at a good price.
cam: Mo\' Money:
the US auto industry has \'invented\' the SUV and the cupholder.

When the Mini (BMW) was introduced to the US it didnt have a cup holder big enough. This was the largest complaint from customers. America is definitely consumer driven, and American companies are consumer focused, and extremely sensitive to their customers.

btw, the biggest innovation for me lately (last few years) has been ipod+itunes, it has totally changed how I listen, use and interact with music.

that the US .... does not have government health care.

According to this retarded applet , the Department of Health and Human Services had an outlay of 643 billion USD. More than the military gets (~400 billion).

That also does not take into account the money that the US States, Counties and Towns spend on health as well. I think the US has social health, just that it is the most inefficient one on the planet.

The scandalously rapid rise of University education in Australia means that for about one third of Australians the government has ceased helping them for a major expense.

I think education is one area that is rife for deregulation. Between expense and relevance to private industry, the University is losing its status. There needs to be innovative and more efficient means for people to obtain a specialist education.

It is also curious to view Asian levels of government expenditure as definitely a good thing.

We have chosen to be a consumerist economy, that means it is most efficient when individuals are choosing where their money goes. Giving more money to the state inhibits the efficiency of a consumerist economy as the government is an imperfect consumer of goods and investor of capital.

Government also skews the flow of money. Negative Gearing in Australia is a good example. It locks money up in brick and mortar, rather than making it available for entrepreneurs. In the US a good example of inefficient use of capital (ie squandering) is the use of government money to create stadiums. The Washington DC Nationals are one big taxpayer rort. In Australia, investment in infrastructure has been deferred for political reasons. Or has been used in attempts at electoral bribes (WA pipeline).

The Federal government should look to bringing down its receipts and outlays to the 20% of GDP mark IMO.

cam
siento: Innovation: The iPod and mp3s and the stuff to support it are innovative and they are also electronics and computer industry examples. Perhaps the best way to describe it is that US innovates better in ares where no one has any idea what to do, while Japan and Europe are better at improving things that have been done a million times. The walkman and the Playstation are high quality and involve some innovation, but are really examples of making everything work well together.

Those are interesting figures about the US health budget. The US spends about 13% of GDP on health, Australia 9%. The US government spends 56% of US money while in Australia our government spends 70%. I had thought the US government share would be lower.

It\'s funny how people like to target negative gearing as causing the housing bubble. The other factor is the lack of tax on people\'s primary residence. If capital gains tax were to apply even partially to family homes this would also cause a shift in housing funding.

There are some positives about home ownership for developing things. A large percentage of small business loans are made with housing as security.

As for choice, well, we have chosen political parties that like to tax and spend. Although the Liberal Party appears to be serious about tax reform.

Taxation always skews economic activity. It\'s inevitable. The government creates stable conditions and a branch of it sets interest rates.  Government always intervenes in the market. It\'s just a question of doing it well or badly.  
cam: America: The iPod/iTunes was just a comment on my part. I didnt mean it meant US capitalism was superior. It has changed how I listen to music. It also made our big stereo obsolete.

The Japanese also innovated what we call quality. The globalisation of manufacturing would not have been possible without the Japanese experience in Statistical Process Control. Australia and America didnt catch up with the Japanese in that area until the 1990s.

Japan had been doing it since the 1950s. I recall in the 1980s having a Datsun 180B that refused to die. More recently I have had a Suburu that didnt want to go either.

Interestingly though, it was an American W. Deming that did all the intellectual legwork for SPC to work. It essentially commoditizes the labor and location of the manufacturing line. Which enabled factories to be moved quickly from Alabama, to Mexico to China in the space of a decade.

Health in the US is super-messed up. There is also the requirement for many employers to provide health as an employment benefit too. There is so much money being spent on health. The recent Medicare bill looks like it was design to balloon out of control too. It is in a more fiscally precarious position than social security. American legislators are quite poor.

cam

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