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Howard's government - post mortem

By Chris Lewis - posted Monday, 28 July 2008


How best can we measure the success or failure of the Howard government’s economic, social and environmental policies?

One fair approach is to compare the Howard government’s policy record with other OECD nations by looking at the difficulties faced by all Western nations. After all, in this era of freer trade, all governments pay greater attention to making sure taxation and wage rates are competitive rather than in the past when they simply increased taxation levels and government outlays as a proportion of GDP to meet many policy needs - this included Australia during the 1960s and 1970s.

When one makes this comparison, the Howard government does present as one of OECD’s most successful performers, although its many policy shortcomings indicate there are greater difficulties ahead for all Western governments in regards to their ability to meet a variety of economic, social and environmental needs.

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To begin, even though Australia benefited from a booming international economy and greater demand for its resources, the Howard government’s focus on the economic imperative - essential to any nation’s ability to meet its social needs - helped Australia achieve an average real economic growth rate of 3.5 per cent between 1997 and 2006 compared to the OECD average of 2.6 per cent.

Higher economic growth not only helped lower Australia’s unemployment rate from 8.3 to 4.2 per cent between 1997 and 2007 (compared to the OECD average falling from 6.9 to 6.1 per cent), but enabled the Howard government to utilise higher taxation revenue to increase social welfare spending, leading to Australia’s total government social expenditure for disadvantaged or vulnerable groups increasing from 17 to 17.9 per cent of GDP between 1997 and 2003 (OECD average 19.6 to 20.7 per cent).

Australia’s increase, albeit small as a percentage of GDP, contrasted greatly with the decline of such social spending in some OECD nations from their 1990s peak: Canada 21.3 to 17.3 per cent; Finland 33.6 to 22.5 per cent; the Netherlands 25.1 to 20.7 per cent; New Zealand 22.2 to 18 per cent; and Sweden 36.2 to 31.3 per cent.

Greater social spending tempered the impact of ongoing policy reform which included a greater reliance on the private sector and debt to boost economic activity; the further decline of manufacturing to 11 per cent of the Australian economy by 2007 (the lowest in the OECD); the promotion of AWAs from 1997, although Australia’s minimum wage remained one of the highest in the world in 2005 at 58 per cent of the median wage (compared to 34 per cent in the USA); and further taxation rate cuts which benefited the rich and corporations the most.

And while some critics may still argue that the Howard government sided with business and was mean-spirited to Australia’s most vulnerable, it is worth noting that corporate taxation in Australia (5.3 per cent of GDP in 2003) was the third highest level in the OECD with an average of about 3 per cent, while the promotion of mutual obligation for social security recipients helped reduce the proportion of Australians remaining unemployed for 12 months or more from 36.7 to 17.8 per cent between 1993 and 2006 (OECD average from 35 to 32.2 per cent).

Of course, the Howard government also struggled to meet certain policy needs. Not only did Australia’s foreign aid fall from 0.32 per cent of GNI in 1995-96 to 0.25 per cent in 2005 before again reaching 0.3 per cent in 2006 and 2007, but Australia’s total public education spending fell from 4.5 to 4.3 per cent of GDP between 1995 and 2004, despite Commonwealth public education spending increasing considerably in dollar terms.

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But with most OECD nations also struggling to meet many policy needs, it is worth noting that 10 of 24 OECD nations measured also decreased the proportion of GDP spent on public education between 1995 and 2004.

In regards to health, the Howard government’s greater spending helped Australia’s total public health expenditure increase to 6.4 per cent of GDP by 2004, an increase consistent with trends in most developed nations. Yet though the OECD average also increased from 5.1 to 6.4 per cent of GDP since 1990, the number of acute care beds per 1,000 people declined considerably in 21 of 24 nations measured between 1990 and 2005.

And as the environment becomes more important as the issue of the 21st century - as seen by the Howard government increasing related spending from $1.69 billion in 2001-02 (0.2 per cent of GDP) to $4.3 billion in 2007-08 (about 0.4 per cent of GDP) - it remains to be seen how far resources can be stretched to meet a variety of old and new policy needs given the commitment of both Labor and the Coalition to maintain taxation levels at a similar proportion of GDP.

Given that Australia’s carbon dioxide emissions increased by 21 per cent between 1997 and 2005 (with the OECD average rising by 6.6 per cent), and Australia’s proportion of renewable energy used as primary energy sources declined from 6.4 to 5.2 per cent between 1997 and 2006 (while the OECD average improved from 6.1 to 6.5 per cent), it will cost Australia a considerable amount to reverse the trend.

Even though the Howard government could have done more to meet a variety of policy needs - such as greater resources for public housing - given its large budget surpluses, it can also be argued that its conservative approach has placed Australia in a better position than most developed nations to meet any future crisis should it arise. After all, whereas Australia’s Commonwealth debt has been virtually eliminated by 2007 with Australia’s total government debt at about 15 per cent of GDP, 12 OECD nations had a public debt to GDP ratio of between 50 and 180 per cent, and 10 had between 30 and 49 per cent, although Australia’s total (private and public) net foreign debt increased from about 29 per cent of GDP in March 1996 to about 59 per cent by the end of 2007.

In conclusion, just how perfect Australia’s policy mix is a matter for debate. But given the need of all national governments to ensure competitive taxation and wage levels, rather than increasing government outlays through higher taxation to meet various policy demands, the Howard government was a successful performer across a number of policy issues, although its record was hardly perfect in a world increasingly made tougher by greater economic competition.

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About the Author

Chris Lewis has an interest in all economic, social and environmental issues, but believes that the struggle for the ‘right’ policy mix remains an elusive goal in such a complex and competitive world.

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All articles by Chris Lewis

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