For budgets only smaller is tougher

There is also the risk that excessive public expenditure leads to inflationary pressures throughout the economy as government purchases of additional labour and other inputs compete with private sector requirements.

The ultimate test for the Budget is the extent to which it reduces major government programs, particularly public consumption expenditure and welfare transfers, rather than implementing sham cost savings at the margin that do practically little, if anything, to trim a budget locked in structural deficit.

Based on a reading of the domestic and international evidence, it would be a misnomer to suggest, as the defenders of the big - spending status quo often do, that a permanent reduction in the government expenditure to GDP ratio would have disastrous consequences for economic performance.

Recent comparisons of historical fiscal consolidation efforts by economist Alberto Alesina found that budget deficit reductions centred on spending cuts tended to avoided economic downturns as opposed to deficit reductions based upon tax hikes.

The relatively benign, if mildly expansionary, effect of expenditure reductions comes about in these scenarios because of the abolition of government programs and initiatives that fail to add value to economic productive capacity.

It is also naïve to suggest that governments that cut deeply into spending will lose electoral support.

The Coalition government led by John Howard won the 1998 election after a first term punctuated by significant reductions in expenditure and the size of the public service, with the GST often blamed for Howard's narrow win. Transitioning the commonwealth Budget back to surplus didn't seem to pose as an electoral liability for the Hawke government, either.

And didn't Kevin Rudd seek to neutralise the traditional perception of Labor as a poor fiscal manager by stating clearly during the 2007 election campaign that reckless spending needs to stop?

If the Gillard government is lacking fertile ideas for reducing government spending back to Howard era levels, or more desirably to pre - Whitlam levels, it need only pay closer attention to the array of expenditure functions that:

(a) do not meet the standard economic definition of a public good, implying that the private sector can play a relatively greater role in profitably delivering services;

(b) is not contained as a head of power under Section 51 of the Constitution;

(c) in the case of social security, where cuts will foster greater individual responsibility, self - reliance and the redevelopment of a strong non - governmental charitable and benevolent services sector; and