Friday, March 22, 2013

Tough task to rein in spending and regulation

Tony Abbott is fleshing out his policies for government.  Hard on the heels of repealing the carbon tax and mining taxes, he has nominated spending cuts and reductions in regulation as priorities.

Australia is over-regulated and over-taxed.  And once regulations and spending programs are established they are difficult to cut.  That's because once in place they spawn interest groups that benefit from them.

Although lower taxes and deregulation mean community-wide net benefits with lower prices and more jobs, each individual measure tends to bring small gains for the average person.  By contrast each item of spending or regulation will often create beneficiaries with much to lose.  Unscrupulous politicians will pander to their interests.

This makes it excruciatingly difficult for sensible governments to reduce their share of the national cake and wind back regulation.

Last week, my report identified 23,500 underemployed public servants and savings of $25 billion a year in Commonwealth spending.  This excluded possible savings in the sensitive areas of health, education and welfare that compromises the bulk of spending.

Finance Minister Penny Wong (supposedly the minister responsible for deregulation and spending restraint) lashed out at the proposals, calling them, ''just an insight into the sorts of drastic cuts Tony Abbott and the Liberals would make''.

Treasurer Wayne Swan, a serial offender in failing to meet even his own loose budget targets, ludicrously said the proposals would reduce employment.

Over the past 40 years Commonwealth government spending has grown from 18 per cent to 25 per cent of national income -bouts of restraint by Howard and Costello have been insufficient to offset Labor treasurers' profligacy.

The growth of regulations tells a similar story.  Fifty years ago, the Commonwealth was issuing 700 pages of new regulations a year.  By 2002 this had grown to 4200 pages and last year it was a whopping 8150 pages.

Each year's regulations mostly augment the rules already in place.

In addition, there are state regulations.  New Victorian government regulations were running at 600 pages a year 50 years ago.  They reached 8,600 pages in the last year of the Brumby Government before falling back to a still-excessive 3,500 • pages last year.

Among the most onerous regulations are those involving employment conditions.

Many small businesses have experienced the difficulties involved in getting rid of a disgruntled employee.

Regulations can mean considerable costs and tie a business owner up in days of arbitration, conciliation and disruption.  This will not improve as Fair Work Australia now steps in, using our taxes to pay the employee's costs.  In a case involving Roy Morgan Research, an employee on $180,000 a year even had her costs picked up by FWA.

This week we also saw FWA, the powers of which Labor wants to increase, confirm the requirement of penalty rates at up to 100 per cent of regular rates.

These provisions were originally there to deter work outside of ''family time'' but are now simply there to boost wages.  Their presence means higher costs for consumers across the board and reduced levels of service in shops and cafes caused by employment becoming unaffordable.

Julia Gillard as the likely ALP leader at the next election means Tony Abbott will probably win.  But he will have a tough job in combatting excessive spending and overregulation.

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